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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC 20549

 

Form 10-Q

(Mark One)

 

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

or

 

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                    .

 

Commission File Number: 001-37761

 

VistaGen Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Nevada

 

20-5093315

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

343 Allerton Avenue

South San Francisco, CA 94080

(Address of principal executive offices including zip code)

 

(650) 577-3600

(Registrants telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

VTGN

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller reporting company

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of November 9, 2021, 199,702,333shares of the registrant’s common stock, $0.001 par value, were issued and outstanding. 

 



 

 

 

 

VistaGen Therapeutics, Inc.

Quarterly Report on Form 10-Q

for the Quarter Ended September 30, 2021

 

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

   

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

Condensed Consolidated Balance Sheets at September 30, 2021 and March 31, 2021

1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended September 30, 2021 and 2020

2

Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2021 and 2020

3

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the six months ended September 30, 2021 and 2020

4

Notes to the Condensed Consolidated Financial Statements

5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 4. Controls and Procedures

39

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

40

Item 1A. Risk Factors

40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3. Defaults Upon Senior Secured Securities

77

Item 6. Exhibits

77

   

SIGNATURES

78

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

VISTAGEN THERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Dollars, except share amounts)

 

 

  

September 30,

  

March 31,

 
  

2021

  

2021

 
  

(unaudited)

  

(Note 2)

 
         

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $93,627,100  $103,108,300 

Receivable from collaboration partner

  -   40,600 

Prepaid expenses and other current assets

  2,676,800   835,100 

Deferred contract acquisition costs - current portion

  133,500   133,500 

Total current assets

  96,437,400   104,117,500 

Property and equipment, net

  496,600   367,400 

Right of use asset - operating lease

  3,029,100   3,219,600 

Deferred offering costs

  321,600   294,900 

Deferred contract acquisition costs - non-current portion

  167,200   234,100 

Security deposits

  47,800   47,800 

Total assets

 $100,499,700  $108,281,300 
         

LIABILITIES AND STOCKHOLDERS EQUITY

 

Current liabilities:

        

Accounts payable

 $2,659,600  $838,300 

Accrued expenses

  3,430,100   1,562,700 

Deferred revenue - current portion

  1,420,200   1,420,200 

Operating lease obligation - current portion

  401,000   364,800 

Financing lease obligation - current portion

  1,300   3,000 

Total current liabilities

  7,912,200   4,189,000 
         

Non-current liabilities:

        

Accrued dividends on Series B Preferred Stock

  7,009,700   6,272,700 

Deferred revenue - non-current portion

  1,778,200   2,490,300 

Operating lease obligation - non-current portion

  3,139,900   3,350,800 

Total non-current liabilities

  11,927,800   12,113,800 

Total liabilities

  19,840,000   16,302,800 
         

Commitments and contingencies (Note 10)

          
         

Stockholders’ equity:

        

Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2021 and March 31, 2021:

        

Series A Preferred, 500,000 shares authorized, issued and outstanding at September 30, 2021 and March 31, 2021

  500   500 

Series B Preferred; 4,000,000 shares authorized at September 30, 2021 and March 31, 2021; 1,131,669 shares issued and outstanding at September 30, 2021 and March 31, 2021

  1,100   1,100 

Series C Preferred; 3,000,000 shares authorized at September 30, 2021 and March 31, 2021; 2,318,012 shares issued and outstanding at September 30, 2021 and March 31, 2021

  2,300   2,300 

Series D Preferred; 2,000,000 shares authorized at September 30, 2021 and March 31, 2021; no shares and 402,149 shares issued and outstanding at September 30, 2021 and March 31, 2021, respectively

  -   400 

Common stock, $0.001 par value; 325,000,000 shares authorized at September 30, 2021 and March 31, 2021; 196,558,785 and 180,751,234 shares issued at September 30, 2021 and March 31, 2021, respectively

  196,500   180,800 

Additional paid-in capital

  324,808,000   315,603,100 

Treasury stock, at cost, 135,665 shares of common stock held at September 30, 2021 and March 31, 2021

  (3,968,100)  (3,968,100)

Accumulated deficit

  (240,380,600)  (219,841,600)

Total stockholders’ equity

  80,659,700   91,978,500 

Total liabilities and stockholders’ equity

 $100,499,700  $108,281,300 

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 
-1-

 

VISTAGEN THERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in dollars, except share amounts)

 

   

Three Months Ended September 30,

   

Six Months Ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Sublicense revenue

  $ 358,000     $ 334,000     $ 712,100     $ 334,000  

Total revenues

    358,000       334,000       712,100       334,000  

Operating expenses:

                               

Research and development

    10,066,700       2,358,200       15,670,300       4,089,400  

General and administrative

    3,090,800       1,269,500       5,587,500       2,660,100  

Total operating expenses

    13,157,500       3,627,700       21,257,800       6,749,500  

Loss from operations

    (12,799,500 )     (3,293,700 )     (20,545,700 )     (6,415,500 )

Other income (expenses), net:

                               

Interest income (expense), net

    5,100       (3,900 )     10,200       (7,100 )

Other income

    -       -       -       600  

Loss before income taxes

    (12,794,400 )     (3,297,600 )     (20,535,500 )     (6,422,000 )

Income taxes

    -       (200 )     (3,400 )     (2,600 )

Net loss and comprehensive loss

  $ (12,794,400 )   $ (3,297,800 )     (20,538,900 )     (6,424,600 )
                                 

Accrued dividends on Series B Preferred stock

    (375,200 )     (347,200 )     (737,000 )     (683,000 )
                                 

Net loss attributable to common stockholders

  $ (13,169,600 )   $ (3,645,000 )   $ (21,275,900 )   $ (7,107,600 )
                                 

Basic and diluted net loss attributable to common stockholders per common share

  $ (0.07 )   $ (0.05 )   $ (0.11 )   $ (0.12 )
                                 

Weighted average shares used in computing basic and diluted net loss attributable to common stockholders per common share

    193,227,841       67,082,935       191,585,026       59,245,209  

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

-2-

 

 

VISTAGEN THERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in Dollars)

 

   

Six Months Ended September 30,

 
   

2021

   

2020

 

Cash flows from operating activities:

               

Net loss

  $ (20,538,900 )   $ (6,424,600 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    71,200       50,900  

Stock-based compensation

    1,354,900       1,085,500  
Amortization of operating lease right of use asset     190,500       176,700  
Change in operating liability     (174,700 )     (149,700 )

Expense related to write-off of deferred offering costs

    232,000       -  

Changes in operating assets and liabilities:

               

Receivable from collaboration partner

    40,600       -  

Prepaid expenses and other current assets

    (1,841,700 )     91,500  

Deferred sublicense revenue, net of deferred contract acquisition costs

    (645,200 )     4,352,400  

Accounts payable and accrued expenses

    3,688,800       (985,700 )

Net cash used in operating activities

    (17,622,500 )     (1,803,000 )
                 

Cash flows from property and investing activities:

               

Purchases of laboratory and other equipment

    (200,400 )     (98,800 )

Net cash used in investing activities

    (200,400 )     (98,800 )
                 

Cash flows from financing activities:

               

Net proceeds from issuance of common stock and warrants, including option exercises

    89,600       12,961,300  

Net proceeds from exercise of warrants

    4,254,800       84,600  

Net proceeds from sale of common stock under At the Market (ATM) facility, including expenses treated as deferred offering costs

    3,999,100       -  

Net proceeds from sale of common stock under equity line

    -       2,841,600  

Proceeds from issuance of note under Payroll Protection Plan

    -       224,400  

Repayment of capital lease obligations

    (1,800 )     (1,600 )

Repayment of notes payable

    -       (164,100 )

Net cash provided by financing activities

    8,341,700       15,946,200  

Net increase (decrease) in cash and cash equivalents

    (9,481,200 )     14,044,400  

Cash and cash equivalents at beginning of period

    103,108,300       1,355,100  

Cash and cash equivalents at end of period

  $ 93,627,100     $ 15,399,500  
                 

Supplemental disclosure of noncash activities:

               

Insurance premiums settled by issuing note payable

  $ -     $ 322,200  

Accrued dividends on Series B Preferred

  $ 737,000     $ 683,000  

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 
-3-

 

VISTAGEN THERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

(Amounts in Dollars, except share amounts)

 

                                                                                   

Additional

                   

Total

 
   

Series A Preferred Stock

   

Series B Preferred Stock

   

Series C Preferred Stock

   

Series D Preferred Stock

   

Common Stock

   

Paid-in

   

Treasury

   

Accumulated

   

Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Stock

   

Deficit

   

Equity (Deficit)

 
                                                                                                                 

Balances at March 31, 2020

    500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       49,348,707     $ 49,300     $ 200,092,800     $ (3,968,100 )   $ (201,907,400 )   $ (5,729,400 )
                                                                                                                 

Proceeds from sale of units of common stock and warrants for cash in private placement

    -       -       -       -       -       -       -       -       125,000       200       49,800       -       -       50,000  

Net proceeds from sale of common stock under equity line

    -       -       -       -       -       -       -       -       6,201,995       6,200       2,741,300       -       -       2,747,500  

Issuance of common stock at fair value for professional services

    -       -       -       -       -       -       -       -       233,645       200       124,800       -       -       125,000  

Sale of common stock pursuant to 2019 Employee Stock Purchase Plan

    -       -       -       -       -       -       -       -       28,125       -       12,600       -       -       12,600  

Expenses related to S-3 registration statement for warrant shares

    -       -       -       -       -       -       -       -       -       -       (29,400 )     -       -       (29,400 )

Accrued dividends on Series B Preferred stock

    -       -       -       -       -       -       -       -       -       -       (335,800 )     -       -       (335,800 )

Stock-based compensation expense

    -       -       -       -       -       -       -       -       -       -       674,600       -       -       674,600  
                                                                                                                 

Net loss for the quarter ended June 30, 2020

    -       -       -       -       -       -       -       -       -       -       -       -       (3,126,800 )     (3,126,800 )
                                                                                                                 

Balances at June 30, 2020

    500,000       500       1,160,240       1,200       2,318,012       2,300       -       -       55,937,472       55,900       203,330,700       (3,968,100 )     (205,034,200 )     (5,611,700 )
                                                                                                                 

Net proceeds from sale of common stock in public offering

    -       -       -       -       -       -       -       -       17,868,250       17,900       12,887,200       -       -       12,905,100  

Net proceeds from exercise of warrants

    -       -       -       -       -       -       -       -       228,000       200       113,800       -       -       114,000  

Net proceeds from sale of common stock under equity line

    -       -       -       -       -       -       -       -       100,000       100       49,200       -       -       49,300  

Accrued dividends on Series B Preferred stock

    -       -       -       -       -       -       -       -       -       -       (347,200 )     -       -       (347,200 )

Stock-based compensation expense

    -       -       -       -       -       -       -       -       -       -       410,900       -       -       410,900  
                                                                                                                 

Net loss for the quarter ended September 30, 2020

    -       -       -       -       -       -       -       -       -       -       -       -       (3,297,800 )     (3,297,800 )
                                                                                                                 

Balances at September 30, 2020

    500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       74,133,722     $ 74,100     $ 216,444,600     $ (3,968,100 )   $ (208,332,000 )   $ 4,222,600  
                                                                                                                 

Balances at March 31, 2021

    500,000     $ 500       1,131,669     $ 1,100       2,318,012     $ 2,300       402,149     $ 400       180,751,234     $ 180,800     $ 315,603,100     $ (3,968,100 )   $ (219,841,600 )   $ 91,978,500  
                                                                                                              -  

Accrued dividends on Series B Preferred

    -       -       -       -       -       -       -       -       -       -       (361,800 )     -       -       (361,800 )

Stock-based compensation expense (including ESPP)

    -       -       -       -       -       -       -       -       -       -       590,400       -       -       590,400  

Proceeds from exercise of warrants

    -       -       -       -       -       -       -       -       1,516,768       1,500       1,108,200       -       -       1,109,700  

Conversion of Series D Preferred stock into common stock

    -       -       -       -       -       -       (402,149 )     (400 )     9,249,427       9,200       (8,800 )     -       -       -  

Sale of common stock pursuant to 2019 Employee Stock Purchase Plan

    -       -       -       -       -       -       -       -       16,251       -       31,600       -       -       31,600  

Issuance of common stock upon cashless exercise of options

    -       -       -       -       -       -       -       -       82,504       100       -       -       -       100  

Issuance of common stock upon exercise of options for cash

    -       -       -       -       -       -       -       -       15,824       -       12,900       -       -       12,900  
                                                                                                                 

Net loss for quarter ended June 30, 2021

    -       -       -       -       -       -       -       -       -       -       -       -       (7,744,600 )     (7,744,500 )

Balances at June 30, 2021

    500,000       500       1,131,669       1,100       2,318,012       2,300       -       -       191,632,008       191,600       316,975,600       (3,968,100 )     (227,586,200 )     85,616,800  
                                                                                                                 

Accrued dividends on Series B Preferred

    -       -       -       -       -       -       -       -       -       -       (375,200 )     -       -       (375,200 )

Stock-based compensation expense (including ESPP)

    -       -       -       -       -       -       -       -       -       -       764,500       -       -       764,500  

Proceeds from exercise of warrants

    -       -       -       -       -       -       -       -       3,297,777       3,300       3,141,800       -       -       3,145,100  

Net proceeds from issuance of common stock under ATM facility

    -       -       -       -       -       -       -       -       1,502,378       1,500       4,256,300       -       -       4,257,800  

Issuance of common stock upon cashless exercise of options

    -       -       -       -       -       -       -       -       43,622       -             -       -       -  

Issuance of common stock upon exercise of options for cash

    -       -       -       -       -       -       -       -       83,000       100       45,000       -       -       45,100  
                                                                                                                 

Net loss for quarter ended September 30, 2021

    -       -       -       -       -       -       -       -       -       -       -       -       (12,794,400 )     (12,794,400 )
                                                                                                                 

Balances at September 30, 2021

    500,000     $ 500       1,131,669     $ 1,100       2,318,012     $ 2,300       -     $ -       196,558,785     $ 196,500     $ 324,808,000     $ (3,968,100 )   $ (240,380,600 )   $ 80,659,700  

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

-4-

 

VISTAGEN THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1.  Description of Business

 

VistaGen Therapeutics, Inc., a Nevada corporation (which may be referred to as VistaGen, the Company, we, our, or us), is a late-stage biopharmaceutical company committed to developing and commercializing a new generation of medicines with potential to go beyond the current standard of care for widespread anxiety, depression and other central nervous system (CNS) disorders. Our CNS pipeline includes three clinical-stage CNS product candidates, PH94B Nasal Spray (PH94B), PH10 Nasal Spray (PH10) and AV-101, each with a differentiated profile, favorable safety results observed in all clinical studies to date and therapeutic potential in multiple CNS indications.

 

PH94B is being developed for multiple anxiety disorders. Our PALISADE Phase 3 Program for PH94B is underway, anchored by PALISADE-1 and PALISADE-2, each a U.S., multi-center, randomized, double-blind, placebo-controlled Phase 3 clinical study to evaluate the efficacy, safety and tolerability of PH94B for the acute treatment of anxiety in adults with social anxiety disorder (SAD). In addition, our PALISADE Phase 3 Program long-term safety study is underway, as are advanced preparations for additional small clinical studies that we believe are required to support a potential U.S. New Drug Application (NDA) for PH94B in SAD in mid-2023 should our PALISADE Phase 3 Program be successful. With the recent initiation of our mall Phase 2A clinical study in adults experiencing Adjustment Disorder with Anxiety (AjDA), we have launched our exploratory Phase 2A clinical program for PH94B, which is designed to assess its therapeutic potential in anxiety disorders beyond SAD.

 

PH10 is being developed as a stand-alone treatment for multiple depression disorders. Exploratory Phase 2A clinical development of PH10 for major depressive disorder (MDD) has been completed. Based on the positive results demonstrated in that study, we are now preparing for planned Phase 2B clinical development of PH10 in MDD.

 

We are also preparing to initiate Phase 1B clinical development of AV-101 in combination with probenecid to further assess the potential of the combination in multiple neurological indications involving the NMDA (N-methyl-D-aspartate) receptor.

 

Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for highly prevalent neuropsychiatric and neurological indications where current treatment options are inadequate to meet the needs of millions of patients worldwide.

 

Our Product Candidates

 

PH94B is a first-in-class synthetic investigational neurosteroid developed from proprietary compounds called pherines. With its novel mechanism of action, PH94B is an odorless nasal spray designed to be administered at microgram-level doses to achieve rapid-onset anti-anxiety, or anxiolytic, effects. The pharmacological activity of PH94B is fundamentally differentiated from that of all FDA-approved anti-anxiety drugs, including all antidepressants approved by the U.S. Food and Drug Administration (FDA) for treatment of SAD, as well as all benzodiazepines and beta blockers prescribed for treatment of SAD on an off-label basis. PH94B engages peripheral chemosensory receptors in nasal passages that trigger a subset of neurons in the main olfactory bulbs (OB) at the base of the brain. The OB neurons then stimulate inhibitory GABAergic neurons in the limbic amygdala, decreasing the activity of the sympathetic nervous system, and facilitating fear extinction activity of the limbic-hypothalamic system, the main fear and anxiety center in the brain, as well as in other parts of the brain. Importantly, PH94B, even at microgram-level doses, does not require systemic uptake and distribution to produce its rapid-onset anti-anxiety effects. Our ongoing PALISADE Phase 3 Program for PH94B is designed to further demonstrate its potential as a fast-acting, non-sedating, non-addictive acute treatment of anxiety in adults with SAD. We believe PH94B also has potential to be developed as a novel treatment for AjDA, postpartum anxiety, post-traumatic stress disorder, procedural anxiety, panic and other anxiety disorders. PH94B has been granted Fast Track designation status by the FDA for development for treatment of SAD.

 

- 5-

 

PH10 is a synthetic investigational neurosteroid, which also was developed from proprietary compounds called pherines. Its novel, rapid-onset potential mechanism of action (MOA) is fundamentally differentiated from the MOA of all currently approved treatments for depression disorders. PH10 is administered at microgram-level doses as an odorless nasal spray. PH10 engages and activates chemosensory cells in the nasal passages, connected to neural circuits in the brain that produce antidepressant effects. Specifically, PH10 is designed to engage peripheral chemosensory receptors in the nasal passages that trigger a subset of neurons in the main OB that stimulate neurons in the limbic amygdala. This is turn is believed to increase activity of the limbic-hypothalamic sympathetic nervous system and increase the release of catecholamines. Importantly, unlike all currently approved oral antidepressants (ADs) and rapid-onset ketamine-based therapy (KBT), including both intravenous ketamine and intranasal ketamine (esketamine), we believe PH10 does not require systemic uptake and distribution to produce rapid-onset of antidepressant effects. In all clinical studies to date, PH10 has been well-tolerated and has not caused psychological side effects (such as dissociation and hallucinations) or other safety concerns that may be associated with KBT. Our planned Phase 2B clinical program for PH10 is designed to further demonstrate its potential as a fast-acting, stand-alone treatment for MDD. We believe PH10 also has potential to be developed as a novel treatment for several other depression-related disorders.

 

Abnormal function of the NMDAR (N-methyl-D-aspartate receptor), an ionotropic glutamate receptor in the brain, is associated with numerous CNS disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and selective full antagonist of the glycine co-agonist site of the NMDAR that inhibits the function of the NMDAR. However, unlike ketamine and many other NMDAR antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses administered in all studies to date, AV-101 has been observed to be well tolerated and has not exhibited dissociative or hallucinogenic psychological side effects or safety concerns. In light of these observations and findings from preclinical studies, we believe that AV-101, in combination with FDA-approved oral probenecid, has potential to become a new oral treatment alternative for certain CNS indications involving the NMDAR. We are currently preparing to evaluate AV-101 in combination with probenecid in a Phase 1B drug-drug interaction clinical study. The FDA has granted Fast Track designation for development of AV-101 as a potential adjunctive treatment for MDD and as a non-opioid treatment for neuropathic pain (NP).

 

Subsidiaries

 

VistaGen Therapeutics, Inc., a California corporation d/b/a VistaStem (VistaStem), is our wholly-owned subsidiary. Our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q (Report) also include the accounts of VistaStem’s two wholly-owned inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada.

 

 

Note 2.  Basis of Presentation

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required for complete consolidated financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our interim financial information. The accompanying Condensed Consolidated Balance Sheet as of March 31, 2021 has been derived from our audited consolidated financial statements at that date but does not include all disclosures required by U.S. GAAP.  The operating results for the three and six months ended September 30, 2021 are not necessarily indicative of the operating results to be expected for our fiscal year ending March 31, 2022, or for any other future interim or other period.

 

The accompanying unaudited Condensed Consolidated Financial Statements and notes to the Condensed Consolidated Financial Statements contained in this Report should be read in conjunction with our audited Consolidated Financial Statements for our fiscal year ended March 31, 2021 contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on June 29, 2021 (Form 10-K).

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared assuming we will continue as a going concern. As a clinical-stage biopharmaceutical company having not yet developed commercial products or achieved sustainable revenues, we have experienced recurring losses and negative cash flows from operations resulting in a deficit of approximately $240.4 million accumulated from inception ( May 1998) through September 30, 2021. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further development of PH94B, PH10 and AV-101 and prepare for commercialization opportunities for our product candidates.

 

Since our inception in May 1998 through September 30, 2021, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities for cash proceeds of approximately $206.4 million, as well as from an aggregate of approximately $22.7 million of government research grant awards (excluding the fair market value of government sponsored and funded clinical trials), strategic collaboration payments and intellectual property licensing, and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $38.2 million in noncash acquisitions of product licenses and in settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.

 

- 6-

 

Recent Developments

 

During the six months ended September 30, 2021, holders of outstanding warrants to purchase an aggregate of 4,814,545 shares of our common stock exercised such warrants, and we received cash proceeds of approximately $4.25 million. Refer to Note 12, Subsequent Events, for disclosure regarding additional warrant exercises after September 30, 2021.

 

In May 2021, we entered into an Open Market Sale Agreement SM (the Sales Agreement) with respect to an at-the-market offering program (the ATM) under which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million through our sales agent. Through September 30, 2021, we sold an aggregate of 1,502,378 shares of our common stock and received gross cash proceeds of approximately $4.4 million under the ATM. As described in Note 12, Subsequent Events, in a transaction that was initiated on October 1, 2021 and that settled on October 6, 2021, we sold 15,420 shares of our common stock and received gross cash proceeds of approximately $42,600 under the ATM. We have not sold any additional shares of our common stock under the ATM between October 2, 2021 and the date of this Report. Refer to Note 8, Capital Stock, for additional information about the Sales Agreement and matters related to sales of common stock under the ATM during the quarter ended September 30, 2021.

 

In December 2020, we entered into an underwriting agreement pursuant to which we sold, in an underwritten public offering (the December 2020 Public Offering), 63.0 million shares of our common stock at a public offering price of $0.92 per share and 2.0 million shares of our newly issued Series D Convertible Preferred Stock, par value $0.001 (Series D Preferred and, together with the common stock, the Securities) at a public offering price of $21.16 per share, resulting in gross proceeds to us of $100 million. The 2.0 million shares of Series D Preferred were convertible into 46.0 million shares of common stock, and all shares of Series D Preferred were converted into common stock by June 30, 2021. Net proceeds to us from the Securities sold in the December 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, was approximately $93.6 million.

 

Between December 2020 and March 31, 2021, holders of outstanding warrants to purchase an aggregate of 6,396,302 shares of our common stock exercised such warrants and we received cash proceeds of approximately $4.9 million.

 

In August 2020, we entered into an underwriting agreement pursuant to which we sold, in an underwritten public offering (the August 2020 Public Offering), an aggregate of 15,625,000 shares of our common stock at a public offering price of $0.80 per share, resulting in gross proceeds to us of $12.5 million. Under the terms of an overallotment option we granted, the underwriter exercised such option with respect to 2,243,250 shares of common stock, resulting in additional gross proceeds to us of approximately $1.8 million. Aggregate net proceeds to us from the August 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, were approximately $12.9 million.

 

As more completely described in Note 11, Sublicensing and Collaboration Agreements, in June 2020, we entered into a strategic licensing and collaboration agreement for the clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD and other potential anxiety-related disorders (the AffaMed Agreement) pursuant to which we received an upfront license payment of $5.0 million in August 2020. The upfront license payment resulted in net cash proceeds to us of approximately $4.655 million after the sublicense payment we agreed to make to Pherin Pharmaceuticals, Inc. (Pherin) pursuant to our PH94B license from Pherin, and payment for consulting services related to the consummation of the AffaMed Agreement.

 

- 7-

 

Liquidity and Capital Resources

 

During our fiscal year ended March 31, 2021, we received approximately $119 million in net cash proceeds, primarily from the transactions described above. As disclosed above, we have received an additional $4.25 million in cash proceeds from the exercise of outstanding warrants during the six months ended September 30, 2021 and approximately $4.3 million in net cash proceeds from the sale of our common stock under the Sales Agreement. At September 30, 2021, we had cash and cash equivalents of approximately $93.6 million, which we believe is sufficient to fund our planned operations for well beyond the twelve months following the issuance of these financial statements, and indicating our ability to continue as a going concern. Nevertheless, we have not yet developed products that generate recurring revenue and, assuming successful completion of our planned clinical and nonclinical programs, we will need to invest substantial additional capital resources to commercialize any of them.

 

During the next twelve months, we plan to (i) continue to advance our PALISADE Phase 3 Program designed to develop and commercialize PH94B as a new acute treatment of anxiety in adults with SAD, (ii) continue to advance our exploratory Phase 2A program for PH94B in a series of small clinical studies in anxiety disorders beyond SAD, (iii) prepare for and initiate Phase 2B clinical development of PH10 as a potential stand-alone treatment for MDD, (iv) prepare for and initiate a Phase 1B drug-drug interaction clinical study of AV-101 in combination with probenecid to enable future assessment of its potential in multiple neurological disorders, (v) conduct nonclinical studies involving PH94B, PH10 and AV-101, and (vi) continue phase-appropriate preparations for commercialization of PH94B should the development and regulatory initiatives in our PALISADE Phase 3 Program prove successful.

 

Although we believe our current cash position is sufficient to fund our planned operations for more than the next twelve months following the issuance of these financial statements, when necessary and advantageous, we may raise additional capital through the sale of our equity securities in one or more (i) public offerings, including strategic transactions under the Sales Agreement, (ii) private placements, and/or (iii) in strategic licensing and development collaborations involving one or more of our drug candidates in markets outside the United States, similar to the AffaMed Agreement. Subject to certain restrictions, our Registration Statement on Form S-3 (the S-3 Shelf Registration Statement) remains available for future sales of our equity securities in one or more public offerings from time to time. While we may make additional sales of our equity securities under the S-3 Shelf Registration Statement and/or under the ATM, we do not have an obligation to do so.

 

In addition to the potential sale of our equity securities, we may also seek to enter research, development and/or commercialization collaborations similar to the AffaMed Agreement to provide funding for development of one or more of our CNS product candidate programs. We may also seek additional government grant awards or agreements similar to our prior agreement with the U.S. National Institutes of Health (NIH), Baylor University and the U.S. Department of Veterans Affairs in connection with certain government-sponsored studies of AV-101. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. We may also pursue intellectual property arrangements similar to the AffaMed Agreement with other parties. Although we may seek additional collaborations that could generate revenue and/or provide non-dilutive funding for development of our product candidates, as well as new government grant awards and/or agreements, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.  

 

Our future working capital requirements will depend on many factors, including, without limitation, potential impacts related to the on-going COVID-19 pandemic, the scope and nature of opportunities related to our success and the success of certain other companies in nonclinical and clinical trials, including our development and commercialization of our current product candidates, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of PH94B, PH10, and AV-101, as well as support our operating activities, we plan to continue to carefully manage our routine operating costs as well as our clinical and nonclinical programs and pre-launch commercialization initiatives.

 

Notwithstanding the foregoing, there can be no assurance that our current strategic collaboration under the AffaMed Agreement will generate revenue from future potential milestone payments, or that future financings or government or other strategic collaborations will be available to us in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all. If we are unable to obtain additional financing on a timely basis when needed, our business, financial condition, and results of operations may be harmed, the price of our stock may decline, we may be required to reduce, defer, or discontinue certain of our research and development activities and we may not be able to continue as a going concern. 

 

- 8-

 
 

Note 3.  Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those relating to revenue recognition, share-based compensation, right-of-use assets and lease liabilities and assumptions that have been used historically to value warrants and warrant modifications.

 

Revenue Recognition

 

We generate revenue from collaborative research and development arrangements and licensing and technology transfer agreements, including strategic licenses or sublicenses. Until such time as we commence commercial sales of any of our product candidates following successful development, clinical and regulatory approval, we expect that our primary source of revenue beginning from the quarter ended September 30, 2020 will be from the AffaMed Agreement involving clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD, and potentially other anxiety-related disorders, in Greater China, South Korea, and Southeast Asia. The terms of the AffaMed Agreement include a $5.0 million non-refundable upfront license fee which we received in August 2020, potential payments based upon achievement of certain development and commercial milestones, and royalties on product sales. In addition, we are also party to an Exclusive License and Sublicense Agreement with BlueRock Therapeutics, LP, a next generation regenerative medicine company established in December 2016 by Bayer AG and Versant Ventures (BlueRock Therapeutics), pursuant to which BlueRock Therapeutics received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network (UHN) for the production of cardiac stem cells for the treatment of heart disease. As a result of its acquisition of BlueRock Therapeutics in 2019, Bayer AG now holds the rights to develop and commercialize our hPSC technologies relating to the production of heart cells for the treatment of heart disease (the Bayer Agreement). To date, we have recognized $1.25 million of sublicense revenue received pursuant to the Bayer Agreement, recorded in the third quarter of our fiscal year ended March 31, 2017.

 

Under Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to a customer.

 

Performance Obligations

 

We assess whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires judgments about the individual promised goods or services and whether such components are separable from the other aspects of the contractual relationship. In assessing whether a promised good or service is distinct in the evaluation of a collaboration arrangement subject to Topic 606, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace.

 

Collaboration arrangements can have several promised goods or services including a license for our intellectual property, product supply and development and regulatory services. When the customer could not obtain the intended benefit of the contract from a promised good or service without one or more other promises in the contract, the promise is determined to be not distinct in the context of the contract and is combined with other promises until the combined promises are distinct to identify performance obligations. We have determined that the AffaMed Agreement includes a single combined performance obligation that includes both the license to intellectual property and development and regulatory services.

 

- 9-

 

Arrangements can include promises for optional additional items, which are considered marketing offers and are accounted for as separate contracts when the customer elects such options. Arrangements that include a promise for future supply of product for either clinical development or commercial supply and optional research and development services at the customer’s or the Company’s discretion are generally considered as options. We assess whether these options provide a material right to the customer and if so, such material rights are accounted for as separate performance obligations. When the customer exercises an option, any additional payments related to the option are recorded in revenue when the customer obtains control of the goods or services.

 

Transaction Price

 

Arrangements may have both fixed and variable consideration. For collaboration agreements, the non-refundable upfront fees and product supply selling prices are considered fixed, while milestone payments are considered variable consideration when determining the transaction price. At the inception of each arrangement, we evaluate whether the development milestones are considered probable of being achieved and estimate an amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as approvals from regulators, are generally not considered probable of being achieved until such approvals are received.

 

For sales-based royalties, including commercial milestone payments based on the level of sales, for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of when (a) the related sales occur, or (b) the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

 

In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensee and the transfer of the promised goods or services to the licensee will be one year or less.

 

Allocation of Consideration

 

As part of the accounting for collaboration arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The transaction price is allocated to the identified performance obligations in proportion to their standalone selling prices (SSP) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and satisfaction of the performance obligations. In developing the SSP for a performance obligation, we consider applicable market conditions and relevant Company-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We validate the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations. Since the AffaMed Agreement includes a single combined performance obligation that is not distinct, there is no allocation of consideration.

 

Timing of Recognition

 

Significant management judgment is required to determine the level of effort required under collaboration arrangements and the period over which we expect to complete our performance obligations under the arrangement. The performance period or measure of progress is estimated at the inception of the arrangement and re-evaluated in each reporting period. This re-evaluation may shorten or lengthen the period over which revenue is recognized. Changes to these estimates are recorded on a cumulative catch-up basis. Revenue is recognized for products at a point in time and for licenses of functional intellectual property at the point in time the customer can use and benefit from the license. For performance obligations that are services, revenue is recognized over time using an output or input method. For performance obligations that are a combination of licenses to intellectual property and interdependent services, the nature of the combined performance obligation is considered when determining the method and measure of progress that best represents the satisfaction of the performance obligation. For the single combined performance obligation of the AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to the license of PH94B.

 

- 10-

 

 

The difference between revenue recognized to-date and the consideration invoiced or received to-date is recognized as either a contract asset/unbilled revenue (revenue earned exceeds cash received) or a contract liability/deferred revenue (cash received exceeds revenue earned). At September 30, 2021, we have recorded deferred revenue of $3,198,400. The following table presents changes in our contract liabilities for the six months ended September 30, 2021:

 

  

Balance at

          

Balance at

 
  

March 31, 2021

  

Additions

  

Deductions

  

September 30, 2021

 

Deferred Revenue - current portion

 $1,420,200  $-  $-  $1,420,200 

Deferred Revenue - non-current portion

  2,490,300   -   (712,100)  1,778,200 

Total

 $3,915,500  $-  $(712,100) $3,198,400 

 

For the single combined performance obligation under the AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to the sublicense of PH94B. Accordingly, deferred revenue is being recognized on a straight-line basis over the period in which we expect to perform the services.

 

During the three and six months ended September 30, 2021, we recognized $358,000 and $712,100, respectively, as revenue related to the AffaMed Agreement, compared to $334,000 for both the three- and six-month periods ended September 30, 2020.

 

Contract Acquisition Costs

 

During the quarter ended September 30, 2020, we made cash payments aggregating $345,000 for sublicense fees, which we were obligated to make pursuant to our PH94B license from Pherin, and fees for consulting services exclusively related to the AffaMed Agreement. Additionally, on June 24, 2020, we issued 233,645 unregistered shares of our common stock, valued at $125,000, as partial compensation for consulting services related exclusively to the consummation of the AffaMed Agreement. These sublicense fees and consulting payments and the fair value of the common stock issued, aggregating $470,000, were incurred solely to obtain the AffaMed Agreement, and, accordingly, have been capitalized as deferred contract acquisition costs in our Condensed Consolidated Balance Sheet. Capitalized contract acquisition costs are amortized over the period in which we expect to satisfy the performance obligations under the AffaMed Agreement and the amortization expense has been included in general and administrative expenses in our Condensed Consolidated Statement of Operations and Comprehensive Loss. In the three and six months ended September 30, 2021, we amortized $33,600 and $66,900, respectively to general and administrative expense in recognition of the services performed under the arrangement. We amortized $31,400 for the three and six months ended September 30, 2020. There has been no impairment loss in relation to the costs capitalized.

 

- 11-

 

 

The following table summarizes our contract acquisition costs for the six months ended September 30, 2021.

 

  

Balance at

          

Balance at

 
  

March 31, 2021

  

Additions

  

Deductions

  

September 30, 2021

 

Deferred Contract Acquisition Costs - current portion

 $133,500  $-  $-  $133,500 

Deferred Contract Acquisition Costs - non-current portion

  234,100       (66,900)  167,200 

Total

 $367,600  $-  $(66,900) $300,700 

 

Research and Development Expenses

 

Research and development expenses are composed of both internal and external costs.  Internal costs include salaries and employment-related expenses, including stock-based compensation expense, of scientific personnel and direct project costs.  External research and development expenses consist primarily of costs associated with clinical and nonclinical development of PH94B, PH10, AV-101, and other research and development costs, and costs related to the application and prosecution of patents related to those product candidates and, to a lesser extent, our stem cell technology platform. All such costs are charged to expense as incurred. We also record accruals for estimated ongoing clinical trial costs. Clinical trial costs represent costs incurred by contract research organizations (CROs) and clinical trial sites. Progress payments are generally made to contract research and development organizations, clinical sites, investigators and other professional service providers. We analyze the progress of clinical trials, including levels of subject enrollment, invoices received and contracted costs, when evaluating the adequacy of accrued liabilities. Significant judgments and estimates must be made and used in determining the clinical trial accrual in any reporting period. Actual results could differ from those estimates under different assumptions. Revisions are charged to research and development expense in the period in which the facts that give rise to the revision become known. Costs incurred in obtaining product or technology licenses are charged immediately to research and development expense if the product or technology licensed has not achieved regulatory approval or reached technical feasibility and has no alternative future uses, as was the case with our acquisition of the exclusive worldwide licenses for PH94B and PH10 from Pherin during our fiscal year ended March 31, 2019.

 

Stock-Based Compensation

 

We recognize compensation cost for all stock-based awards to employees, independent directors and non-employee consultants based on the grant date fair value of the award.  We record non-cash, stock-based compensation expense over the period during which the employee or other grantee is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have not granted restricted stock awards to employees or others, nor do we have any awards with market or performance conditions. Non-cash expense attributable to compensatory grants of shares of our common stock to non-employees is determined by the quoted market price of the stock on the date of grant and is either recognized as fully-earned at the time of the grant or amortized ratably over the term of the related service agreement, depending on the terms of the specific agreement.

 

The table below summarizes stock-based compensation expense included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss:

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Research and development expense

 $313,600  $122,400  $554,400  $349,000 

General and administrative expense

  450,900   288,500   800,500   736,500 

Total stock-based compensation expense

 $764,500  $410,900  $1,354,900  $1,085,500 

 

Expense amounts reported above include $14,400 and $16,700 in research and development expense for the three and six months ended September 30, 2021, respectively, and $5,900 and $8,600 in general and administrative expense for the three and six months ended September 30, 2021, respectively, attributable to our 2019 Employee Stock Purchase Plan (the 2019 ESPP). Expense amounts reported above include $1,300 and $3,800 in research and development expense for the three and six months ended September 30, 2020, respectively, and $1,300 and $2,800 in general and administrative expense for the three and six months ended September 30, 2020, respectively, attributable to the 2019 ESPP.

 

- 12-

 

At our Annual Meeting of Stockholders held on September 17, 2021, our stockholders approved an amendment and restatement of our 2019 Omnibus Equity Incentive Plan (the Amended 2019 Plan) which made certain changes to our 2019 Omnibus Equity Incentive Plan, including increasing the number of shares of our common stock authorized for issuance thereunder from 7.5 million shares to 18.0 million shares. During the six months ended September 30, 2021, we granted from the Amended 2019 Plan and its predecessor options to purchase an aggregate of 1,215,000 shares of our common stock at exercise prices at or above the closing market price of our common stock on each respective date of grant, 800,000 of which were granted to newly-hired employees, 225,000 of which were granted to three new independent members of our Board of Directors (the Board), and 190,000 of which were granted to consultants. The options granted to newly hired employees vest 25% on the first anniversary of the grant date with the remaining shares vesting ratably monthly over the next three years. Options granted to new members of the Board and certain consultants vest ratably over a period of twelve months. Options granted to one consultant vest 25% on the first anniversary of the grant date with the remaining shares vesting ratably monthly over the next two years We valued the options granted during the six months ended September 30, 2021 using the Black-Scholes Option Pricing Model and the following assumptions:

 

Assumption:

 

Weighted Average

  

Range

 

Market price per share at grant date

 $2.71  $2.04to3.33 

Exercise price per share

 $2.71  $2.04to3.33 

Risk-free interest rate

  0.99% 0.78%to1.12% 

Expected term in years

  5.86