Vistagen Therapeutics, Inc. - Annual Report: 2014 (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)

 

	Item No.				Page No.
PART I
		1.		Business		2
		1A.		Risk Factors		23
		1B.		Unresolved Staff Comments		52
		2.		Properties		52
		3.		Legal Proceedings		52
		4.		Mine Safety Disclosures		52
PART II
		5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		53
		6.		Selected Financial Data		54
		7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		55
		7A.		Quantitative and Qualitative Disclosures About Market Risk		75
		8.		Financial Statements and Supplementary Data		76
		9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		77
		9A.		Controls and Procedures		77
		9B.		Other Information		77
PART III
		10.		Directors, Executive Officers and Corporate Governance		72
		11.		Executive Compensation		78
		12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		86
		13.		Certain Relationships and Related Transactions, and Director Independence		93
		14.		Principal Accountant Fees and Services		94
PART IV
		15.		Exhibits and Financial Statement Schedules		96
SIGNATURES
EXHIBIT INDEX

 

 

 

Item 1.

Business

 

 

 

 

 

 

 

 

 

 

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identify potential Drug Rescue Candidates with heart safety issues utilizing drug discovery and development information available in the public domain through open source, licensed databases, and published patents, as well as through our strategic relationships with our drug rescue and scientific advisors and consultants, including Synterys, Inc. and Cato Research Ltd., our preferred provider of contract medicinal chemistry and contract clinical development and regulatory services, respectively;

 

·

leverage substantial prior research and development investments made by global pharmaceutical companies and others to analyze internally the therapeutic and commercial potential of Drug Rescue Candidates, as important criteria for selection of Drug Rescue Candidates and potential lead Drug Rescue Variants;

 

·	use CardioSafe 3D to enhance our understanding of the cardiac liability profile of Drug Rescue Candidates, important and more comprehensive biological insights not available when the Drug Rescue Candidates were originally discovered and developed by pharmaceutical companies;

 

·	leverage our internal knowledgebase about each Drug Rescue Candidate’s specific chemistry to design and produce a portfolio of novel potential lead Drug Rescue Variants for each Drug Rescue Candidate;

 

·	use CardioSafe 3D and pre-existing in vitro efficacy models to assess the efficacy and cardiac safety of potential Drug Rescue Variants and identify and validate a lead Drug Rescue Variant; and

 

·	internally develop validated lead Drug Rescue Variants or out-license them to a global pharmaceutical company in revenue-generating agreements providing for the full development, market approval and commercial sale.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	·	individuals with specific inheritable diseases and conditions that predispose the individual to respond differently to drugs; or
	·	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/or elimination of drugs.

 

 

	·	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 human cell type;
	·	the experimentally controlled regulation of developmental genes, which is critical for determining what differentiation path a human cell will take; and
	·	biological markers characteristic of precursor cells, which are committed to becoming specific human cells and tissues, and which can be used to identify, enrich and purify the desired mature human cell type.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.	cell viability;

2.	apoptosis;

3.	mitochondrial membrane depolarization;

4.	oxidative stress; and

5.	energy metabolism disruption.

1.	Ion channel blockers: amiodarone, nifedipine;

2.	hERG trafficking blockers: pentamidine, amoxapine;

3.	α-1 adrenoreceptors: doxazosin;

4.	Protein and DNA synthesis inhibitors: emetine;

5.	DNA intercalating agents: doxorubicin;

6.	Antibiotics: ampicillin, cefazolin;

7.	NSAID: aspirin; and

8.	Kinase inhibitors: staurosporine

 

 

1. One FDA-approved drug (aspirin) without cardiac liability to serve as a negative control; 2. Five FDA-approved drugs (astemizole, sotalol, cisapride, terfenadine and sertindole) that were withdrawn from the market due to heart toxicity concerns;

3. Five FDA-approved drugs (fexofenadine, nifedipine, verapamil, lidocaine and propranolol) that have certain measurable clinical non-toxic cardiac effects. Note: fexofenadine is a non-cardiotoxic drug variant of terfenadine; and

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

1.	Inhibitors to growth factor receptors: sunitinib, axitinib, imatinib, dasatinib, sorafenib, erlotinib, Lapatinib, tyrphostin and AG1478;

2.	Inhibitors to the mTOR pathway: everolimus, temsirolimus;

3.	Inhibitors to cell cycle regulators: tozasertib, barasertib, alvocidib;

4.	Inhibitors to the PI3K pathway : perifosine, LY294002, XL765;

5.	Inhibitors to the MEK pathway: PD325901, AZD6264; and

6.	Inhibitors to the JAK and other pathways: lestaurtinib.

 

 

 

 

 

 

 

 

 

 

	·	academic research institutions, such as Duke University and UHN, for hPSC technology research and development;
	·	contract medicinal chemistry companies, such as Synterys, Inc., to analyze Drug Rescue Candidates and design, produce and analyze Drug Rescue Variants; and
	·	contract clinical development and regulatory organizations (CROs), such as Cato Research, Ltd., for regulatory expertise and clinical development support.

 

 

 

 

 

 

 

 

 

 

 

Cato Research and Cato BioVentures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	Optimize techniques to handle and maintain primary human cryopreserved primary liver cells as reference controls for various drug development assays;

 

·	Develop a stable supply of characterized and validated human cryopreserved primary liver cells to serve as internal controls and provide benchmark comparisons for the characterization of our pluripotent stem cell-derived liver cells;

 

·	Characterize our human pluripotent stem cell-derived liver cells using many of the same industry-standardized assays used to characterize primary human liver cells; and

 

·	Produce a joint publication of the characterization of our pluripotent stem cell-derived human liver cells.

 

 

 

 

 

 

 

	·	a combination of growth factors (molecules that stimulate the growth of cells);
	·	the experimentally controlled regulation of developmental genes, which is critical for determining what differentiation path a human cell will take; and
	·	precise selection of immature cell populations for further growth and development.

 

 

 

 

 

 

 

	·	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 hESCs;
	·	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 hESCs; and
	·	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.

 

 

 

	·	use the technology for internal research and drug development;
	·	provide discovery and screening services to third parties; and
	·	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 2025
US			7,955,849		Method of enriching population of mesoderm cells		May 2023
US			8,143,009		Toxicity typing using liver stem cells		June 2023
US			8,512,957		Toxicity typing using liver stem cells		June 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	produce product candidates;

·	develop and obtain required regulatory approvals for commercialization of products we produce;

·	maintain, leverage and expand our intellectual property portfolio;

·	establish and maintain sales, distribution and marketing capabilities;

·	gain market acceptance for our products; and

·	obtain adequate capital resources and manage our spending as costs and expenses increase due to research, production, development, regulatory approval and commercialization of product candidates.

 

 

 

 

·	our research methodology may not be successful in identifying potential Drug Rescue Candidates;

 

·	competitors may develop alternatives that render our Drug Rescue Variants obsolete;

 

·	a Drug Rescue Variant may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

 

·	a Drug Rescue Variant may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or

 

·	a Drug Rescue Variant may not be accepted as safe and effective by regulatory authorities, patients, the medical community or third-party payors.

 

·	our ability to identify potential Drug Rescue Candidates in the public domain, obtain sufficient quantities of them, and assess them using our assay systems;

·	if we seek to rescue Drug Rescue Candidates that are not available to us in the public domain, the extent to which third parties may be willing to license or sell Drug Rescue Candidates to us on commercially reasonable terms;

·	our medicinal chemistry collaborator’s ability to design and produce proprietary Drug Rescue Variants based on the novel biology and structure-function insight we provide using CardioSafe 3D or LiverSafe 3D; and

·	financial resources available to us to develop and commercialize lead Drug Rescue Variants internally, or, if we license them to strategic partners, the resources such partners choose to dedicate to development and commercialization of any Drug Rescue Variants licensed from us.

 

 

 

 

·	design, develop, produce and commercialize, either on our own or with collaborators, Drug Rescue Variants that are superior to other products in development or in the market;

 

·	attract qualified scientific, medical, sales and marketing and commercial personnel or collaborators;

 

·	obtain patent and/or other proprietary protection for our Drug Rescue Variants; and

 

·	obtain, either on our own or in collaboration with strategic partners, required regulatory approvals for our Drug Rescue Variants.

 

 

 

 

 

 

·	decreased demand for our Drug Rescue Variants or other products that we may develop;

·	injury to our reputation;

·	withdrawal of clinical trial participants;

·	costs to defend the related litigation;

·	a diversion of management's time and our resources;

·	substantial monetary awards to trial participants or patients;

·	product recalls, withdrawals or labeling, marketing or promotional restrictions;

·	loss of revenue;

·	the inability to commercialize our product candidates; and

·	a decline in our stock price.

 

 

 

·

the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;

 

·

the federal False Claims Act imposes criminal and civil penalties, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government and also includes provisions allowing for private, civil whistleblower or "qui tam" actions;

 

·

the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program. HIPAA and HITECH also regulate the use and disclosure of identifiable health information by health care providers, health plans and health care clearinghouses, and impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of identifiable health information as well as requiring notification of regulatory breaches. HIPAA and HITECH violations may prompt civil and criminal enforcement actions as well as enforcement by state attorneys general;

 

·	the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

 

·

the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;

 

·

analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures; and

 

·	analogous anti-kickback, fraud and abuse and healthcare laws and regulations in foreign countries.

 

 

 

 

 

 

 

 

 

 

 

 

 

·

delays or failure reaching agreement on acceptable terms with prospective contract manufacturing organizations (CMOs), contract research organizations (CROs), and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

·	failure of third-party contractors, such as CROs and CMOs, or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner;

·	delays or failure in obtaining the necessary approvals from regulators or IRBs in order to commence a clinical trial at a prospective trial site;

·	inability to manufacture, or obtain from third parties, a supply of drug product sufficient to complete preclinical studies and clinical trials;

·	the FDA requiring alterations to study designs, preclinical strategy or manufacturing plans;

·	delays in patient enrollment, and variability in the number and types of patients available for clinical trials, or high drop-out rates of patients;

·	clinical trial sites deviating from trial protocols or dropping out of a trial and/or the inability to add new clinical trial sites;

·	difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

·	poor effectiveness of our product candidates during clinical trials;

·	safety issues, including serious adverse events associated with our product candidates and patients' exposure to unacceptable health risks;

·	receipt by a competitor of marketing approval for a product targeting an indication that one of our product candidates targets, such that we are not "first to market" with our product candidate;

·	governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; or

·	varying interpretations of data by the FDA and similar foreign regulatory agencies.

 

 

 

 

 

 

·	restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

·	warning letters or holds on clinical trials;

 

·	refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals;

 

·	product seizure or detention, or refusal to permit the import or export of products; and

 

·	injunctions, fines or the imposition of other civil or criminal penalties.

 

 

 

 

 

·	the number and characteristics of the product candidates we pursue, including Drug Rescue Candidates;

·	the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical studies;

·	the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;

·	the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;

·	the cost of manufacturing our product candidates and any products we successfully commercialize;

·	our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;

·	market acceptance of our products;

·	the effect of competing technological and market developments;

·	our ability to obtain government funding for our programs;

·

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims necessary to preserve our freedom to operate in the stem cell industry, including litigation costs associated with any claims that we infringe third-party patents or violate other intellectual property rights and the outcome of such litigation;

·	the timing, receipt and amount of potential future licensee fees, milestone payments, and sales of, or royalties on, our future products, if any; and

·	the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	Others may be able to make compounds that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we may own or have exclusively licensed;

 

·	We or our licensors or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we may own or have exclusively licensed;

 

·	We or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;

 

·	Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

 

·	It is possible that our pending patent applications will not lead to issued patents;

 

·	Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

 

·	Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

·	We may not develop additional proprietary technologies that are patentable; and

 

·	The patents of others may have an adverse effect on our business.

 

 

 

 

 

 

 

·	actual or anticipated quarterly variation in our results of operations or the results of our competitors;

·	announcements by us or our competitors of new commercial products, significant contracts, commercial relationships or capital commitments;

·	financial projections we may provide to the public, any changes to those projections, or our failure to meet those projections;

·	issuance of new or changed securities analysts’ reports or recommendations for our stock;

·	developments or disputes concerning our intellectual property or other proprietary rights;

·	commencement of, or our involvement in, litigation;

·	market conditions in the biopharmaceutical and life sciences sectors;

·	failure to complete significant sales;

·	changes in legislation and government regulation;

·	public concern regarding the safety, efficacy or other aspects of our products;

·	entering into, changing or terminating collaborative relationships;

·	any shares of our common stock or other securities eligible for future sale;

·	any major change to the composition of our board of directors or management; and

·	general economic conditions and slow or negative growth of our markets.

 

 

 

 

 

Item 1B.  Unresolved Staff Comments

 

 

 

PART II

 

		High				Low
Year Ending March 31, 2014
First quarter ending June 30, 2013		$	0.90			$	0.60
Second quarter ending September 30, 2013		$	0.89			$	0.55
Third quarter ending December 31, 2013		$	0.61			$	0.26
Fourth quarter ending March 31, 2014		$	0.50			$	0.28
Year Ending March 31, 2013
First quarter ending June 30, 2012		$	2.80			$	0.50
Second quarter ending September 30, 2012		$	1.50			$	0.51
Third quarter ending December 31, 2012		$	0.95			$	0.55
Fourth quarter ending March 31, 2013		$	0.90			$	0.60

 

 

 

 

 

 

 

Item 6.  Selected Financial Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

Research and Development Expense

 

·

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

·

fees 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 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.

 

 

 

 

 

We have successfully completed our Phase I development of AV-101, our prodrug candidate for the treatment of neuropathic pain and, potentially, depression and other neurological conditions. Our NIH grant related to AV-101 expired in its normal course on June 30, 2012.  We had drawn the maximum amount available under the grant prior to its expiration.  Revenue associated with our earlier subcontract research arrangement terminated in May 2012.

 

 

 

 

 

The increase in interest expense is primarily attributable to the accrued interest and discount amortization recorded for the July 2012 through July 2013 issuances and restructuring of an aggregate of $3.5 million of 10% senior secured convertible notes to Platinum, including the $250,000 convertible note issued in July 2013, as well as the restructuring in September and October 2012 of an additional $3.9 million of debt into new convertible notes to other service providers, including Morrison & Foerster, Cato Research Ltd., and University Health Network. These transactions are described in greater detail in Note 9, Convertible Promissory Notes and Other Notes Payable, in the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.