Vistagen Therapeutics, Inc. - Annual Report: 2012 (Form 10-K)

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x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Nevada		20-5093315
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

Large accelerated filer  o		Accelerated filer  o		Non-accelerated filer  o		Smaller reporting company  x
				(Do not check if a smaller reporting company)

 

 

As of June 28, 2012 there were 17,599,963 shares of the registrant’s common stock outstanding.

 

	Item No.		Page No.
PART I	1.	Business	4
	1A.	Risk Factors	17
	1B.	Unresolved Staff Comments	32
	2.	Properties	32
	3.	Legal Proceedings	32
	4.	Mine Safety Disclosures	32
PART II	5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
	6.	Selected Financial Data	40
	7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
	7A.	Quantitative and Qualitative Disclosures About Market Risk	49
	8.	Financial Statements and Supplementary Data	49
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	94
	9A.	Controls and Procedures	94
	9B.	Other Information	95
PART III	10.	Directors, Executive Officers and Corporate Governance	96
	11.	Executive Compensation	101
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	109
	13.	Certain Relationships and Related Transactions, and Director Independence	113
	14.	Principal Accountant Fees and Services	114
PART IV	15.	Exhibits and Financial Statement Schedules	116
SIGNATURES
EXHIBIT INDEX

 

	•	our plans to develop and use for drug rescue applications novel, clinically predictive heart and liver toxicology screening bioassay systems based on human heart and liver cells derived from our human pluripotent stem cell technology platform, which we refer to as Human Clinical Trials in a Test Tube tm;
	•	our belief that our human heart and liver cell-based bioassay systems can be utilized to discover, assess, prioritize, and develop new small molecule drug candidates, or efficiently screen chemical compounds and drug candidates for potential therapeutic utility or toxicity;
	•	our anticipation that recognition of the potential value of a new generation of in vitro bioassay systems based on cells derived from human pluripotent stem cell technology, as well as the potential value of  predictive toxicology for drug discovery, development and rescue, including our Human Clinical Trials in a Test Tube tm platform, will increase in the pharmaceutical industry in the coming years;
	•	our expectation that we will gain access to information, data and research quantity supplies of small molecule drug rescue candidates through publicly available information, collaborations with pharmaceutical companies or selective licensing and acquisition transactions;
	•	our expectation that we be successful in using our human heart and liver cell-based bioassay systems to identify those factors which make a drug candidate toxic to the human heart or liver, or which cause drug metabolism complications;
	•	our expectation that we will be able to develop and license or sell to pharmaceutical companies drug rescue variants that are effective and safer than the once-promising drug candidates discovered, developed and ultimately discontinued by pharmaceutical companies;
	•	our anticipation that, to the extent we license or acquire a drug rescue candidate from a pharmaceutical company instead of accessing the candidate from publicly available information, our drug rescue collaborations will include terms addressing the ownership of the drug rescue variants we expect to generate during our collaborative drug rescue programs, as well as any underlying intellectual property;
	•	our expectation that we will derive revenues from drug rescue collaborations, including research and development fees, technology access fees, license fees, development milestone payments and royalties from collaborator product sales;
	•	our expectation that we will license or sell drug rescue variants developed by us, or on our behalf by our medicinal chemistry collaborators, to pharmaceutical companies;
	•	our ability to produce mature, functional pluripotent stem cell-derived human liver cells, and our ability to develop a clinically predictive liver toxicity and drug metabolism bioassay system using such human liver cells, which we refer to as LiverSafe 3D™
	•	our expectation that we will leverage our stem cell biology expertise to develop customized cellular bioassay systems for drug discovery and development applications beyond predicting heart or liver toxicity of drug candidates, including stem cell therapy;
	•	our expectations with respect to nonclinical stem cell therapy initiatives focused on pluripotent stem cell-derived blood, cartilage, heart, liver and pancreas cells; and
	•	our expectation that we will complete Phase I clinical development of AV-101 in the United States in 2012.

 

 

	•	our ability to identify, access and rescue (create a novel, safer chemical variant of) a once-promising small molecule drug candidate discovered and developed by a pharmaceutical company for a potential large market disease or condition but ultimately discontinued by such company due to safety concerns;
	•	our ability to effectively predict toxicity and drug metabolism issues of small molecule drug candidates;
	•	our internal validation study of our first clinically predictive toxicology screening bioassay system, CardioSafe 3Dtm for heart toxicity, has not been subject to peer review or third-party validation;
	•	whether the cellular bioassay systems based on our human pluripotent stem cell biology platform are more efficient or accurate at predicting the heart or liver toxicity of drug candidates than current nonclinical testing models;
	•	our history of operating losses;
	•	our ability to obtain substantial additional capital in the future to conduct operations, conduct and sponsor research and development activities, and develop a drug rescue variant pipeline;
	•	our ability to obtain government grant funding;
	•	our ability to find collaborators in the pharmaceutical industry to acquire our drug rescue variants generated by using our stem cell technology ;
	•	our ability to license or acquire drug rescue candidates from pharmaceutical companies on terms and conditions acceptable to us;
	•	our ability to compete against other companies and research institutions with greater financial and other resources;
	•	pharmaceutical industry need, acceptance and productive application of our stem cell technology for drug rescue applications;
	•	our ability to acquire or license potential drug rescue candidates from third-parties on terms and conditions acceptable to us;
	•	our ability to secure adequate protection for our intellectual property, especially the intellectual property underlying our stem cell technology platform and the small molecule drug rescue variants we expect to be created through our collaboration with our medical chemistry partner;
	•	our ability (or the ability of our collaborators) to obtain regulatory approval of drug rescue variants; and
	•	our ability to attract and retain key personnel.

 

 

 

·	Shawn K. Singh, J.D., Jon S. Saxe, J.D., H. Ralph Snodgrass, Ph.D., Gregory A. Bonfiglio, J.D., and Brian J. Underdown, Ph.D., each a prior director of VistaGen, were appointed as directors of Excaliber;

·	Stephanie Y. Jones and Matthew L. Jones resigned as officers and directors of Excaliber;

·	The following persons were appointed as officers of Excaliber;

o	Shawn K. Singh, J.D., Chief Executive Officer,

o	H. Ralph Snodgrass, Ph.D., President, Chief Scientific Officer, and

o	A. Franklin Rice, MBA, Chief Financial Officer and Secretary;

·	Excaliber’s directors approved a two-for-one (2:1) forward stock split of Excaliber’s Common Stock;

·	Excaliber’s directors approved an increase in the number of shares of Common Stock Excaliber is authorized to issue from 200 million to 400 million shares;

·	Excaliber changed its name to “VistaGen Therapeutics, Inc.”; and

·	Excaliber adopted VistaGen's fiscal year-end of March 31, with VistaGen as the accounting acquirer.

 

 

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individuals with specific inheritable diseases and conditions that predispose the individual to respond differently to drugs; or

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individuals with specific variations in genes that directly affect drug levels in the body or alter the manner or efficiency of their metabolism, breakdown and elimination of drugs.

It has been estimated that the drug discovery, development and commercialization programs of major pharmaceutical companies have required an average investment of approximately $1 billion before a new drug candidate reaches the market. It is also estimated that about one-third of all potential new drugs candidates fail in preclinical or clinical trials due to safety concerns. In a 2004 white paper entitled “Stagnation or Innovation”, the FDA noted that even only a 10% improvement in predicting the failure of a drug due to toxicity before the drug enters clinical trials could, when averaged over a pharmaceutical company’s drug development efforts, avoid $100 million in development costs per marketed drug.

 

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specific growth and differentiation factors used in the tissue culture medium, applied in specific combinations, at critical concentrations, and at critical times unique to each desired cell type;

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modified developmental genes and the experimentally controlled regulation of developmental genes, which is critical for determining what differentiation path a cell will take; and

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biological markers characteristic of precursor cells, which are committed to becoming specific cells and tissues, and which can be used to identify, enrich and purify the desired mature cell type.

In addition to activin, Dr. Keller’s studies have identified a number of other growth and serum-derived factors that play important roles in the differentiation of ES Cells. Some of the patents and patent applications underlying our licensed technology are directed to the use of a variety of specific growth factors that increase the efficiency and reproducibility of the pluripotent stem cell differentiation process. We have exclusive rights to certain patents and patent applications for the use of growth factor concentrations for ES Cell differentiation that we believe are core and essential for our drug rescue and development applications. See “Intellectual Property – Mount Sinai School of Medicine Exclusive Licenses” and “National Jewish Health Exclusive Licenses.”

 

By using CardioSafe 3DTM, we intend to identify and optimize a lead drug rescue variant (generated in collaboration with our medicinal chemistry partner) with reduced heart toxicity compared to the once-promising pharmaceutical company drug candidate. We believe each lead drug rescue variant will be a new drug candidate (to which we expect to have certain intellectual property and commercialization rights) that preserves the therapeutic potential of the original pharmaceutical company drug candidate, and thus retains its potential commercial value to a pharmaceutical company, but substantially reduces or eliminates its heart toxicity risks. We believe that focusing on failed drug candidates that generated positive efficacy data will allow us to leverage a pharmaceutical company’s prior investment in discovery and development of the original drug candidate to develop our new lead drug rescue variant. We anticipate that the positive efficacy data relating to the pharmaceutical company’s original drug candidate will give us and our medicinal chemistry partner a significant “head start” in our efforts to generate a lead drug rescue variant, resulting in faster, less expensive development of our drug rescue variants than drug candidates discovered and developed using only conventional animal testing and cellular testing systems.

 

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five of the FDA-approved drugs (astemizole, sotalol, cisapride, terfenadine and sertindole) were withdrawn from the market due to heart toxicity concerns;

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the other five FDA-approved drugs (fexofenadine, nifedipine, verapamil, lidocaine and propranolol) are currently available in the U.S. market and demonstrate certain measurable clinical non-toxic cardiac effects, one of which (fexofenadine) is a non-cardiotoxic drug variant (similar in concept to our planned rescued drug variants) of terfenadine (one of the FDA-approved drugs withdrawn from the market due to heart safety concerns); and

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the research compound (E-4031) failed in a small Phase I human clinical study before being discontinued due to heart toxicity concerns.

Working with Dr. Keller, we anticipate that we will be able to produce pluripotent stem cell-derived normal, non-transformed, fully mature, human liver cells within nine months of the date of this report. We expect these mature liver cells to support development and application of LiverSafe 3DTM as our follow-on bioassay system suitable for use in predicting liver toxicity and metabolism of drug rescue candidates in a manner similar to the way we believe CardioSafe 3DTM can predict heart toxicity. This liver cell research project has been funded, in part, through a grant from the California Institute of Regenerative Medicine (“CIRM”). We anticipate that our future research and development will focus on the improvement of techniques and production of engineered human ES Cell and iPS Cell lines used to develop mature functional liver cells as a biological system for testing drugs and liver repair.

 

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academic research institutions, such as UHN, for stem cell research collaborations;

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CROs, such as Cato Research Ltd., for regulatory and drug development expertise and to identify and assess potential drug rescue candidates; and

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medicinal chemistry companies, such as Synterys, Inc., to analyze drug rescue candidates and generate drug rescue variants.

In September 2007, we entered into a sponsored stem cell research and development collaboration with UHN. In December 2010, we extended the collaboration to September 2017. The primary goal of this ten-year collaboration is to leverage the stem cell research, technology and expertise of our co-founder, Dr. Gordon Keller, the Director of UHN’s McEwen Centre, to develop and commercialize industry-leading human pluripotent stem cell differentiation technology and bioassay systems for drug rescue and cell therapy applications. This sponsored research collaboration builds on our existing strategic licenses from NJH and MSSM to certain stem cell technologies developed by Dr. Keller, and is directed to multiple stem cell-based research projects, including advancing use of human pluripotent stem cell-derived heart and liver to screen new drugs for potential heart and liver toxicity and for potential cell therapy applications involving blood, cartilage, heart,  liver and pancreas cells. In April 2011, we further expanded the scope of the collaboration to include potential cell therapy applications of iPS Cells and cells derived from iPS Cells, create additional options to fund research and development with respect to future research projects relating to therapeutic applications of iPS Cells and certain cells derived from iPS Cells and extend the date that we shall have to exercise our options under the agreement.  In October 2011, we amended the collaboration agreement to identify five key programs that will further support our core drug rescue initiatives and potential cell therapy applications.  Under the terms of October 2011 amendment, we are committed to make monthly payments of $50,000 from October 2011 through September 2012 to fund these programs.  See “Sponsored Research Collaborations and Intellectual Property Rights – University Health Network, McEwen Centre for Regenerative Medicine, Toronto, Ontario”, “Intellectual Property – National Jewish Health Exclusive Licenses” and “Intellectual Property – Mount Sinai School of Medicine Exclusive Licenses.”

 

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the access Cato Research has to drug rescue candidates from its biotechnology and pharmaceutical industry network;

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Cato BioVentures’ equity interest in VistaGen; and

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Cato BioVentures’ business model which involves partnering with innovators in exchange for an equity interest and product participation rights,

The NIH grant is currently supporting further development of patient-specific iPS Cell programming processes by NuPotential, as well as our iPS Cell differentiation protocols and processes focused on the validation and use of the iPS Cells for cell therapy applications and in clinically-relevant bioassays for small molecule drug discovery and drug rescue.  We anticipate that these patient-specific iPS Cells may play a key role in our cell therapy initiatives focused on heart and liver disease and cartilage-repair.

 

The effect of AV-101 on chronic neuropathic pain due to inflammation and nerve damage was assessed in rats by using the Chung nerve ligation model. AV-101 effects were compared to either saline and MK-801, or gabapentin (NeurontinTM) as positive controls. Similarly to the therapeutic effects seen in the acute formalin and thermal pain models, AV-101 had a positive effect on chronic neuropathic pain in the Chung model that were greater than two (2) standard deviations of the control, with no adverse behavioral observations. As expected, MK-801 and gabapentin also demonstrated reduced pain readouts in the Chung model. The effects observed by AV-101 in both the acute and chronic neuropathic pain model systems was dose dependent, and was not associated with any side effects at the range of doses administered. Preclinical AV-101 data demonstrated the potential clinical utility of AV-101 as an analgesic.

 

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a combination of growth factors (molecules that stimulate the growth of cells);

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modified developmental genes; and

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precise selection of immature cell populations for further growth and development.

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the use of certain growth factors to generate mesoderm (that is, the precursors capable of developing into cells of the heart, blood system, connective tissues, and vascular system) from human ES Cells;

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the use of certain growth factors to generate endoderm (that is, the precursors capable of developing into cells of the liver, pancreas, lungs, gut, intestines, thymus, thyroid gland, bladder, and parts of the auditory system) from human ES Cells; and

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applications of cells derived from mesoderm and endoderm precursors, especially those relating to drug discovery and testing for applications in the field of in vitro drug discovery and development applications.

 

 

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use the technology for internal research and drug development;

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provide discovery and screening services to third parties; and

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market and sell research products (that is, cellular assays incorporating the licensed technology).

Territory		Patent No.			General Subject Matter		Expiration
US			7,763,466		Method to produce endoderm cells		May 20, 2025
US			7,955,849		Method of enriching population of mesoderm cells		May 19, 2023

We rely, in part, on trade secrets for protection of some of our intellectual property. We attempt to protect trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in patents and copyrights arising from their work for us.

 

We believe that our stem cell technology platform, Human Clinical Trials in a Test TubeTM, is capable of being competitive in growing markets for pluripotent stem cell technology-based drug discovery, development and rescue, as well as cell therapy and other commercial applications. We have elected to focus a substantial portion of our resources on stem cell technology-based drug rescue.

 

 

·	Continue our research and development of our stem cell technology platform;

·	Seek to rescue once-promising drug candidates discontinued in development by pharmaceutical companies due to heart or liver toxicity;

·	Acquire or in-license products or technologies;

·	Maintain, expand and protect our intellectual property portfolio;

·	Hire additional scientific and technical personnel; and

·	Add operational, financial and management information systems and personnel to support our drug rescue activities and regulatory compliance requirements relating to being a reporting company.

 

 

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revenues, if any, generated from collaborations with pharmaceutical companies involving the development or licensing of customized cellular bioassays or our drug rescue variants;

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expenses we incur in developing and licensing our drug rescue variants;

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the commercial success of our research and development efforts; and

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the emergence of competing scientific and technological developments and the extent to which we acquire or in-license other products and technologies.

 

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Our ability to identify and access the potential for drug rescue of once-promising drug candidates that pharmaceutical companies have discontinued in development due to heart or liver toxicity concerns. If we cannot identify once-promising large market drug candidates that can be rescued in an efficient and cost-effective manner, our business will be adversely affected.  And, we may choose to focus our resources on a potential drug rescue candidate the rescue of which ultimately proves to be unsuccessful.  If we are unable to identify and access suitable drug candidates for our drug rescue programs, we will not be able to obtain product revenues in future periods, which likely will result in significant harm to our financial position and adversely impact our stock price.

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To the extent we elect to attempt to rescue once-promising but discontinued drug candidates that are not otherwise available for research and development based on information available in the public domain, our ability to negotiate licenses with pharmaceutical companies to drug candidates that the pharmaceutical companies have discontinued in development due to heart or liver toxicity concerns. Because we are screening a range of drug rescue candidates, including compounds with proprietary rights held by third parties, for their potential as drug rescue candidates, the growth of our business may depend, in significant part, on our ability to acquire or in-license these compounds.  Pharmaceutical companies might be reluctant to reactivate and out-license rights to us with respect to discontinued drug development programs involving potential drug rescue candidates, especially those programs involving substantial prior investment and loss by the pharmaceutical companies, as well as discontinued programs that have been superseded by current programs regarded by the pharmaceutical companies as more advanced than the programs they discontinued. The licensing and acquisition of proprietary compounds, even compounds that have failed in development, is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire compounds that we may consider attractive as drug rescue candidates. These established companies have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.  In addition, companies that perceive us to be a competitor may be unwilling to license rights to us. We have no experience in negotiating these licenses and there can be no assurances that we will be able to obtain licenses to discontinued drug rescue candidates on commercially reasonable terms, if at all. If we are unable to obtain licenses to drug candidates we seek to rescue, our business may be adversely affected.

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Our medicinal chemistry collaborators’ ability to design and produce drug rescue variants that are structurally related to the drug candidate that was discontinued in development due to heart or liver toxicity. If our medicinal chemistry collaborator is unsuccessful for any reason in designing and producing drug rescue variants, our business will be adversely affected.

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Our ability to execute our drug rescue programs in a timely and cost-effective manner. If our drug rescue programs are less efficient and more expensive than we expect, our business will be adversely affected.

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Our ability to rescue (develop drug rescue variants) and license our drug rescue variants to pharmaceutical companies. The time necessary to rescue any individual pharmaceutical product is long and can be uncertain. Only a small number of research and development programs ultimately result in commercially successful drugs. We cannot assure you that toxicity results indicated by our drug rescue testing models are indicative of results that would be achieved in future animal studies, in in vitro testing or in human clinical studies, all or some of which will be required in order to obtain regulatory approval of our drug rescue variants.

Our internal validation study, conducted to validate the ability of our CardioSafe 3DTM bioassay system to predict the cardiac effects of prospective drug rescue candidates referred to under “Business – Application of Stem Cell Technology to Drug Rescue – CardioSafe 3D TM”, has not been subject to peer review or third party validation. It is possible that the results we obtained from our internal validation study may not be able to be replicated by third parties. If we elect to license drug rescue candidates from pharmaceutical companies rather than accessing information available in the public domain, and such pharmaceutical companies cannot replicate our results, it will be difficult to negotiate and obtain licenses from such pharmaceutical companies to drug candidates we may seek to rescue. Even if such results can be replicated, pharmaceutical companies may nevertheless conclude that their current drug testing models are better than our novel human heart cell-based testing model, CardioSafe 3DTM, and that it does not merit a license to the drug candidate we seek to rescue. Our business model is predicated on our ability to identify and, if information is not otherwise available in the public domain, obtain licenses from pharmaceutical companies to promising drug rescue candidates. If licenses are required, and if we cannot obtain licenses to suitable drug rescue candidates, our business will be adversely affected.

 

A future element of our drug rescue business model is to enter into strategic stem cell technology-based drug discovery, development and rescue collaborations with established pharmaceutical companies to finance or otherwise assist in the rescue, development, marketing and manufacture of drugs developed utilizing our stem cell-based bioassay systems for screening heart toxicity, liver toxicity and drug metabolism. Our goal in such collaborations will be to derive a recurring stream of revenues from research and development payments, license fees, milestone payments and royalties. Our prospects, therefore, will depend in large part upon our ability to attract and retain collaborators and to generate customized cellular bioassays and/or rescue drug candidates that meet the requirements of our prospective collaborators. In addition, our collaborators will generally have the right to abandon research projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed-upon research terms. There can be no assurance that we will be successful in establishing multiple future collaborations on acceptable terms or at all, that current or future collaborations will not terminate funding before completion of projects, that our existing or future collaborative arrangements will result in successful product commercialization or that we will derive any revenues from such arrangements. To the extent that we are unable to maintain existing or establish new strategic collaborations with pharmaceutical companies, it would require substantial additional capital for us to undertake research, development and commercialization activities on our own.

The U.S. government and its agencies on July 7, 2009 published guidelines for the ethical derivation of human ES Cells required for receiving federal funding for ES Cell research. All of the ES Cell lines we use meet these guidelines for NIH funding. In the U.S., the President’s Council on Bioethics monitors stem cell research, and may make recommendations from time to time that could place restrictions on the scope of research using human embryonic or fetal tissue. Although numerous states in the U.S. are considering, or have in place, legislation relating to stem cell research, including California whose voters approved Proposition 71 to provide up to $3 billion of state funding for stem cell research in California, it is not yet clear what affect, if any, state actions may have on our ability to commercialize stem cell technologies. The use of embryonic or fetal tissue in research (including the derivation of ES Cells) in other countries is regulated by the government, and varies widely from country to country. These regulations may affect our ability to commercialize ES Cell-based bioassay systems.

 

The FDA requires at least one and often two properly conducted, adequate and well-controlled clinical studies demonstrating efficacy with sufficient levels of statistical assurance. However, additional information may be required. Notwithstanding the submission of such data, the FDA ultimately may decide that the BLA does not satisfy the regulatory criteria for approval and not approve the application. The FDA may impose post-approval obligations, such as additional clinical tests following BLA approval to confirm safety and efficacy (Phase IV human clinical trials). The FDA may, in some circumstances, also impose restrictions on the use of the biological product that may be difficult and expensive to administer. Further, the FDA requires reporting of certain safety and other information that becomes known to a manufacturer of an approved biological product. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market.

 

For example, the European Patent Convention prohibits the granting of European patents for inventions that concern “uses of human embryos for industrial or commercial purposes”. The European Patent Office is presently interpreting this prohibition broadly, and is applying it to reject patent claims that pertain to human embryonic stem cells. However, this broad interpretation is being challenged through the European Patent Office appeals system. As a result, we do not yet know whether or to what extent we will be able to obtain European patent protection for our proprietary ES Cell-based technology and systems.

 

Patent litigation may also be necessary to enforce patents issued or licensed to us or to determine the scope and validity of our proprietary rights or the proprietary rights of others. We may not be successful in any patent litigation. An adverse outcome in a patent litigation, patent opposition, patent interference, or any other proceeding in a court or patent office could subject our business to significant liabilities to other parties, require disputed rights to be licensed from other parties or require us to cease using the disputed technology, any of which could severely harm our business.

 

We also do not currently have marketing and distribution capabilities for product candidates. Developing an internal sales and distribution capability would be an expensive and time-consuming process. We may enter into agreements with collaborators or third parties that would be responsible for marketing and distribution. However, these collaborators or third parties may not be capable of successfully selling any of our product candidates.

 

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clinical trials may not demonstrate the safety and efficacy of our drug rescue variants or stem cell therapies;

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completion of clinical trials may be delayed, or costs of clinical trials may exceed anticipated amounts;

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we may not be able to obtain regulatory approval of our drug rescue variants or biologics, or may experience delays in obtaining such approval;

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we may not be able to manufacture our drug rescue variants economically on a commercial scale;

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we and any licensees of ours may not be able to successfully market our drug rescue variants;

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physicians may not prescribe our products, or patients or third party payors may not accept our drug rescue variants or stem cell therapies;

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others may have proprietary rights which prevent us from marketing our drug rescue variants or stem cell therapies; and

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competitors may sell similar, superior or lower-cost products.

 

 

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our establishment and demonstration to the medical community of the clinical efficacy and safety of our drug rescue variants and stem cell therapies;

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our ability to create product candidates that are superior to alternatives currently on the market;

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our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and

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reimbursement policies of government and third-party payors.

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to identify and access failed drug candidates to rescue and develop;

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to license drug rescue variants that we develop; and

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to perform stem cell research and development and supply services, such as medicinal chemistry, that is our key to our future success.

 

Our ability to execute on our business plan will largely depend on the talents and efforts of highly skilled individuals with specialized training in the field of stem cell research and drug candidate screening. Our future success depends on our ability to identify, hire and retain these highly skilled personnel during our early stages of development. Competition in our industry for qualified employees with the specialized training we require is intense. In addition, our compensation arrangements may not always be successful in attracting the new employees we require. Our ability to execute our drug rescue business model effectively depends on our ability to attract these new employees.

 

Our co-founder, President and Chief Scientific Officer, Dr. Ralph Snodgrass, and our principal institutional stockholders and their affiliates own a significant percentage of our outstanding capital stock. Accordingly, these stockholders may be able to determine the composition of a majority of our Board of Directors, retain the voting power to approve certain matters requiring stockholder approval, and continue to have significant influence over our affairs. This concentration of ownership could have the effect of delaying or preventing a change in our control. See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for further information about the ownership of our capital stock by our executive officers, directors, and principal shareholders.

 

Because we became a public company by means of a strategic reverse merger transaction in May 2011 rather than through a traditional initial public offering involving an investment banking or brokerage firm, securities analysts or major brokerage firms may not provide coverage of us because there may be limited incentive to recommend the purchase of our common stock.

 

Since we became a publicly-traded corporation in May 2011, our common stock has traded on the OTC Bulletin Board at a price of less than $5.00 per share. The Securities and Exchange Commission (“SEC”) has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. To the extent that the market price of our common stock is less than $5.00 per share and, therefore, may be considered a “penny stock,” brokers and dealers effecting transactions in our common stock must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares of our common stock. In addition, as long as our common stock remains listed on the OTC Bulletin Board, investors may find it difficult to obtain accurate quotations of the stock, and may find few buyers to purchase such stock and few market makers to support its price.

 

 

 

		High				Low
Year Ending March 31, 2012
First quarter ending June 30, 2011 (from June 21, 2011)		$	2.60			$	2.45
Second quarter ending September 30, 2011		$	2.60			$	1.80
Third quarter ending December 31, 2011		$	3.10			$	2.57
Fourth quarter ending March 31, 2012		$	3.15			$	2.55

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by  security holders			4,266,300			$	1.57				433,700
Equity compensation plans not approved  by security holders			539,471				1.23				--
Total			4,805,771			$	1.53				433,700

 

 

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by will and by the laws of descent and distribution; and

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during the lifetime of the participant, to the extent and in the manner authorized by the Administrator by gift or pursuant to a domestic relations order to members of the participant’s immediate family.

 

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increase in share price;

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earnings per share;

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total shareholder return;

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operating margin;

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gross margin;

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return on equity;

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return on assets;

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return on investment;

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operating income;

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net operating income;

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pre-tax profit;

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cash flow;

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revenue;

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expenses;

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earnings before interest, taxes and depreciation;

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economic value added; and

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market share.

 

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an acquisition of securities possessing more than fifty percent (50%) of the total combined voting power of our outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction;

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a reverse merger in which we remain the surviving entity but: (i) the shares of common stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (ii) in which securities possessing more than fifty percent (50%) of the total combined voting power of our outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger;

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a sale, transfer or other disposition of all or substantially all of the assets of our Corporation;

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a merger or consolidation in which our Corporation is not the surviving entity; or

•

a complete liquidation or dissolution.

The exercise price of incentive stock options awarded under the 1999 Plan could not be less than the fair market value of the common stock on the date of the option grant and could not be less than 110% of the fair market value of the common stock to persons owning stock representing more than 10% of the voting power of all classes of our stock. The exercise price of non-qualified stock options could not be less than 85% of the fair market value of the common stock. It is expected that the term of each option granted under the 1999 Plan will not exceed ten years (or five years, in the case of an incentive stock option granted to a 10% shareholder) from the date of grant. VistaGen’s Compensation Committee determined at what time or times each option may be exercised (provided that in no event may it exceed ten years from the date of grant) and, subject to the provisions of the 1999 Plan, the period of time, if any, after retirement, death, disability or other termination of employment during which options could be exercised.

 

 

On May 5, 2011, we amended and restated the Morrison & Foerster Note to provide for (i) the extension of the maturity date of the note to March 31, 2016 and (ii) an initital payment of $100,000 within three business days of the date of the note (which amount has been paid), followed by the payment of the remaining note balance in monthly installments according to the following five-year schedule: (A) after June 1, 2011, $15,000 per month until March 31, 2012; (B) $25,000 per month from April 1, 2012 to March 31, 2013; (C) $50,000 per month from April 1, 2013 to March 31, 2016; provided, however, that beginning on January 1, 2012, we will be required to make interim cash payments to Morrison & Foerster under the Morrison & Foerster Note equal to five percent (5.0%) of the proceeds of any of our public or private equity financings during the then-remaining term of the note.  All amounts paid under the Morrison & Foerster Note shall be fully credited against the outstanding note balance at the time each payment is made.  If any amount remains unpaid as of March 31, 2016, such remaining amount shall be paid in full by such date.  In connection with the foregoing amendment and restatement of the Morrison & Foerster Note, we issued 200,000 shares of restricted common stock to Morrison & Foerster at a price of $1.75 per share. At March 31, 2012, the aggregate principal and accrued interest of the Morrison & Foerster Note is approximately $2.4 million.

 

 

 

 

·	Each of the prior directors of VistaGen was appointed as a director of Excaliber;

·	The prior directors and officers of Excaliber resigned as officers and directors of Excaliber;

·	VistaGen’s prior officers were appointed as officers of like tenor of Excaliber;

·	Excaliber’s directors approved a two-for-one (2:1) forward stock split of Excaliber’s common stock;

·	Excaliber’s directors approved an increase in the number of shares of common stock Excaliber was authorized to issue from 200 million to 400 million shares, (see Note 9, Capital Stock, to the Consolidated Financial Statements included in Item 8 of this Form 10-K);

·	Excaliber changed its name to “VistaGen Therapeutics, Inc.” and

·	Excaliber adopted VistaGen's fiscal year-end of March 31, with VistaGen as the accounting acquirer.

 

 

·

VistaGen sold 2,216,106 Units, consisting of one share of VistaGen's common stock and a three-year warrant to purchase one-fourth (1/4) of one share of VistaGen common stock at an exercise price of $2.50 per share, at a price of $1.75 per Unit in a private placement for aggregate gross offering proceeds of $3,878,197, including $2,369,194 in cash (“2011 Private Placement”).  See Note 9, Capital Stock, to the Consolidated Financial Statements included in Item 8 of this Form 10-K, for a further description;

·

Holders of certain promissory notes issued by VistaGen from 2006 through 2010 converted their notes totaling $6,174,793, including principal and accrued but unpaid interest, into 3,528,290 Units at $1.75 per Unit.  These Units were the same Units issued in connection with the 2011 Private Placement.  See Note 8, Convertible Promissory Notes and Other Notes Payable, to the Consolidated Financial Statements included in Item 8 of this Form 10-K; and

·

All holders of VistaGen's then-outstanding preferred stock converted all 2,884,655 of their shares of VistaGen preferred stock into 2,884,655 shares of VistaGen common stock at a price of $1.75 per share.  See Note 9, Capital Stock, to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

 

		Fiscal Years Ended March 31,
		2012				2011
Revenues:
Grant revenue		$	1,342			$	2,071
Total revenues			1,342				2,071
Operating expenses:
Research and development			5,389				3,678
General and administrative			4,997				4,958
Total operating expenses			10,386				8,636
Loss from operations			(9,044	)			(6,565	)
Other expenses, net:
Interest expense, net			(1,893	)			(3,119	)
Change in put and note extension option and warrant liabilities			(78	)			204
Loss on early extinguishment of debt			(1,193	)			-
Loss before income taxes			(12,208	)			(9,480	)
Income taxes			(2	)			(2	)
Net loss		$	(12,210	)		$	(9,482	)

 

•

salaries, benefits, including stock-based compensation costs, travel and related expense for personnel associated with research and development activities;

•

fees paid to contract research organizations and other professional service providers for services related to the conduct and analysis of clinical trials and other development activities;

•

fees paid to third parties for access to licensed technology and costs associated with securing and maintaining patents related to our internally generated inventions:

•

laboratory supplies and materials;

•

leasing and depreciation of laboratory equipment; and

•

allocated costs of facilities and infrastructure.

 

•

Collaborative arrangements typically consist of non-refundable and/or exclusive technology access fees, cost reimbursements for specific research and development spending, and various milestone and future product royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if we have continuing performance obligations and have no objective and reliable evidence of the fair value of those obligations.  We recognize non-refundable upfront technology access fees under agreements in which we have a continuing performance obligation ratably, on a straight-line basis, over the period in which we are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.

•

Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of our continuing involvement.

•

Government grant awards, which support our research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. We recognize grant revenue when associated project costs are incurred.

In accordance with ASC 360-10, Property, Plant & Equipment—Overall, we review for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, we write down the assets to their estimated fair values and recognize the loss in the statements of operations.

 

 

 

 

 

Salary and benefits expense increased due to the impact of new research stem cell research and development personnel added since December 2010 and a bonus granted in December 2011.  Consulting expense reflects the expense related to the grant of warrants to members of our Scientific Advisory Board, including our advisors who are former medicinal chemistry, drug safety and drug development experts from large pharmaceutical companies, as well as to other strategic consultants during the fourth quarter of fiscal 2012.  Sponsored stem cell research and development expense associated with the laboratories of Dr. Gordon Keller at UHN reflect our strategic issuance in fiscal 2012 of $330,000 in (non-cash) stock-based compensation to UHN and $500,000 in research consulting expense to UHN to expand the scope and duration of our intellectual property rights under our long term stem cell research collaboration with Dr. Keller and UHN, as well as the execution of exclusive License Agreements for novel stem cell technology discovered and developed by Dr. Keller and his research team at UHN.  Fiscal 2011 UHN sponsored research expense associated with Dr. Keller’s laboratories includes a non-cash stock-based compensation charge of $1,050,000 plus payments for sponsored stem cell technology research services.  Technology licenses and royalty expense for fiscal 2011 reflected a decrease resulting from an adjustment of royalty expense to reflect a provision in one of our arrangements that permits an offset for patent prosecution costs we incur.  The increase in AV-101-related project expense reflects increased third-party costs of $1,372,000, including approximately $170,000 in grant–reimbursable costs related to the now-completed Phase 1a clinical study of AV-101 and approximately $300,000 for grant-reimbursable costs of the AV-101 Phase 1b clinical trials that were still in progress at March 31, 2012.  An additional component of the AV-101 project increase includes on-going non-grant-reimbursable efforts conducted by third-party collaborators, including Cato Research Ltd., whose efforts included costs of $539,000 for developing new NIH grant applications for subsequent phases of the project as well as for general project management.  The CIRM grant expired at the end of September 2011.  Other non-grant project expense includes $54,000 attributable to a new stem cell research collaboration in 2011.  Warrant modification expense is attributable to the Agreement Regarding Payment of Invoices and Warrant Exercises with Cato Holding Company described in Note 9, Capital Stock, to the Consolidated Financial Statements included in Item 8 of this Form 10-K.  We do not track internal research and development expenses, including compensation costs, by project as we do not currently believe that such project accounting is feasible nor required given the overlap of project resources, including staffing, that are dedicated to our research and development projects.

 

 

At March 31, 2012, we had cash and cash equivalents of $81,000 and our current liabilities exceeded our current assets by $2.9 million. During May and June 2012, warrant holders exercised warrants to purchase an aggregate of 539,554 shares of our common stock and we received cash proceeds and satisfaction of amounts due for services in lieu of our payments in the aggregate amount of $269,800.  On June 29, 2012, we entered into an agreement pursuant to which we will issue two secured three-year 10% convertible promissory notes in the aggregate principal amount of $500,000 to Platinum during July 2012.  See Note 16, Subsequent Events, to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding the additional financing we have received since March 31, 2012.

 

Cash and Cash Equivalents

 

		Fiscal Years Ended March 31,
		2012				2011
Net cash used in operating activities		$	(3,566	)		$	(841	)
Net cash used in investing activities		$	(32	)		$	(58	)
Net cash provided by financing activities, including sale of Units, warrant exercises and issuance of notes in 2012 and issuance of notes and warrants in 2011		$	3,540			$	837

 

	Page
Report of Independent Registered Public Accounting Firm	50
Consolidated Balance Sheets	51
Consolidated Statements of Operations	52
Consolidated Statements of Cash Flows	53
Consolidated Statements of Preferred Stock	55
Consolidated Statements of Stockholders' Deficit	56
Notes to Consolidated Financial Statements	59

 

July 2, 2012

 

VISTAGEN THERAPEUTICS, INC.

		March 31,				March 31,
		2012				2011
ASSETS
Current assets:
Cash and cash equivalents		$	81,000			$	139,300
Unbilled contract payments receivable			106,200				42,200
Prepaid expenses			50,900				23,300
Total current assets			238,100				204,800
Property and equipment, net			74,500				87,700
Security deposits and other assets			29,000				31,100
Total assets		$	341,600			$	323,600
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	1,750,800			$	1,767,100
Accrued expenses			657,300				1,421,900
Notes payable and accrued interest			599,300				160,900
Notes payable and accrued interest to related parties			150,800				50,400
Put option and note term extension option liabilities			-				90,800
Capital lease obligations			10,500				30,100
Non-interest bearing promissory notes, net, including $525,000 to related parties			-				1,105,700
Deferred revenues			13,200				78,800
Convertible promissory notes, including $947,400 to related parties
at March 31, 2011  - current portion			-				4,809,200
Accrued interest on convertible promissory notes			-				1,310,800
Total current liabilities			3,181,900				10,825,700
Non-current liabilities:
Notes payable and accrued interest			2,667,500				2,106,200
Notes payable and accrued interest to related parties			125,100				210,800
Convertible promissory notes, net of current portion			700				3,326,000
Accrued interest on convertible promissory notes			5,300				585,400
Accrued officers’ compensation			57,000				57,000
Capital lease obligations			9,700				4,500
Accounts payable			-				1,140,600
Warrant liability			-				417,100
Total non-current liabilities			2,865,300				7,847,600
Total liabilities			6,047,200				18,673,300
Commitments and contingencies
Preferred stock, no par value;  no shares authorized at March 31, 2012; 20,000,000 shares
authorized at March 31, 2011; no shares issued and outstanding at March 31, 2012;
2,884,655 shares issued and outstanding at March 31, 2011			-				14,534,800
Stockholders’ deficit:
Preferred stock, $0.001 par value;  10,000,000 shares authorized at March 31, 2012;
no shares authorized at March 31, 2011; 437,055 Series A shares issued and outstanding
at March 31, 2012; no shares issued and outstanding at March 31, 2011			400				-
Common stock, $0.001 par value at March 31, 2012 and 2011; 200,000,000 and 400,000,000
shares authorized at March 31, 2012 and 2011, respectively; 18,704,267 and 5,241,110
shares issued at March 31, 2012 and 2011, respectively			18,700				5,200
Additional paid-in capital			52,539,500				9,867,400
Treasury stock, at cost, 2,083,858 shares of common stock held at March 31, 2012; no
shares held at March 31, 2011			(3,231,700	)			-
Notes receivable from sale of common stock to unrelated parties at March 31, 2012 and upon
exercise of options and warrants by related parties at March 31, 2011			(250,000	)			(184,100	)
Deficit accumulated during development stage			(54,782,500	)			(42,573,000	)
Total stockholders’ deficit			(5,705,600	)			(32,884,500	)
Total liabilities, preferred stock and stockholders’ deficit		$	341,600			$	323,600

 

 

										May 26, 1998
										(Inception)
										Through
		Fiscal Years Ended March 31,								March 31,
		2012				2011				2012
Revenues:
Grant revenue		$	1,342,200			$	2,071,000			$	12,762,700
Collaboration revenue			-				-				2,283,600
Other			-				-				1,123,500
Total revenues			1,342,200				2,071,000				16,169,800
Operating expenses:
Research and development			5,388,600				3,678,200				26,124,900
Acquired in-process research and development			-				-				7,523,200
General and administrative			4,997,000				4,957,700				27,118,400
Total operating expenses			10,385,600				8,635,900				60,766,500
Loss from operations			(9,043,400	)			(6,564,900	)			(44,596,700	)
Other expenses, net:
Interest expense, net			(1,893,200	)			(3,119,400	)			(9,441,500	)
Change in put and note extension option and											-
warrant liabilities			(78,000	)			203,900				418,500
Loss on early extinguishment of debt			(1,193,500	)			-				(1,193,500	)
Other income			200				(200	)			47,500
Loss before income taxes			(12,207,900	)			(9,480,600	)			(54,765,700	)
Income taxes			(1,600	)			(1,600	)			(16,800	)
Net loss		$	(12,209,500	)		$	(9,482,200	)		$	(54,782,500	)
Basic and diluted net loss per common share		$	(0.83	)		$	(1.81	)
Weighted average shares used in computing
basic and diluted net loss per common share			14,736,651				5,241,110