Vistagen Therapeutics, Inc. - Annual Report: 2016 (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.)

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.001 per share		The NASDAQ Capital Market

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		34
		1B.	Unresolved Staff Comments		66
		2.	Properties		66
		3.	Legal Proceedings		66
		4.	Mine Safety Disclosures		66
PART II
		5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		67
		6.	Selected Financial Data		69
		7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		69
		7A.	Quantitative and Qualitative Disclosures About Market Risk		82
		8.	Financial Statements and Supplementary Data		83
		9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		130
		9A.	Controls and Procedures		130
		9B.	Other Information		130
PART III
		10.	Directors, Executive Officers and Corporate Governance		131
		11.	Executive Compensation		136
		12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		147
		13.	Certain Relationships and Related Transactions, and Director Independence		154
		14.	Principal Accounting Fees and Services		155
PART IV
		15.	Exhibits and Financial Statement Schedules		157
EXHIBIT INDEX					157
SIGNATURES					162

 

 

 

 

 

Item 1.

Business

 

 

 

 

 

 

 

 

 

 

 

 

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Develop and commercialize AV-101 for depression, including, initially, as an adjunctive treatment for MDD patients with an inadequate response to standard, FDA-approved antidepressants. Under our 2015 CRADA with the NIMH, in collaboration with Dr. Carlos Zarate of the NIMH, we launched our ongoing NIMH-sponsored AV-101 MDD Phase 2a clinical study in patients with treatment resistant MDD. The first patient in this study was dosed in November 2015. We are currently preparing to launch our multi-center Phase 2b clinical study of AV-101 for the adjunctive treatment of MDD in patients with an inadequate response to standard, FDA-approved, antidepressants. We are developing AV-101 internally, and may either continue to do so through our submission of a New Drug Application (NDA) to the FDA or, prior to submitting an AV-101 NDA, collaborate with a pharmaceutical company with a strong commercial presence in depression and other CNS markets. If AV-101 is approved by the FDA and other regulatory agencies, we may collaborate with one or more pharmaceutical companies with extensive commercial capabilities in multiple depression and other CNS markets and/or contract with a specialty sales force focused primarily on psychiatrists and long-term care physicians who are high prescribers of standard antidepressants and atypical antipsychotics.

 

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Leverage the commercial potential of AV-101 by expanding our development and commercialization programs to additional CNS-related diseases and disorders. We believe AV-101 has broad therapeutic potential. Accordingly, we may pursue clinical development and commercialization opportunities for AV-101 across a range of CNS-related indications that are underserved by currently available CNS medicines and represent significant unmet medical needs. Based on AV-101 preclinical studies, and by leveraging our successful NIH-funded AV-101 Phase 1a and 1b clinical safety studies, we may now have opportunities to expand Phase 2 development of AV-101 beyond MDD to include, among other CNS-related indications, chronic neuropathic pain, epilepsy, Huntington’s disease and Parkinson’s disease.

 

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Capitalize on our drug rescue and RM opportunities using our stem cell technology. CardioSafe 3D enables us to screen NCEs in drug rescue programs intended to produce proprietary NCEs for our internal drug candidate pipeline, without incurring many of the substantial costs and risks typically inherent in new drug discovery and nonclinical drug development. We are also focused on establishing new strategic collaborations, including potential license and/or spin-off opportunities, involving potential RM applications of our stem cell platform. As most of our resources are currently focused on the clinical development of AV-101, we believe one or more strategic licensing or development collaborations and/or spin-off transactions involving RM applications of our stem cell technology platform could allow us to realize potential value from our stem cell technology platform while focusing primarily on clinical development of AV-101, other CNS drug candidates we may acquire and/or drug candidates we may develop through internal drug rescue.

 

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Pursue in-licensing and acquisition of other product candidates for treatment of CNS-related disorders. While our resources are currently focused primarily on clinical development of AV-101 for MDD, we anticipate pursuing license or acquisition of additional CNS-related product candidates. These may be developed independently or in partnerships. We believe a diversified CNS product candidate portfolio will mitigate risks inherent in drug development and increase the likelihood of our success.

 

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Grow our internal development pipeline through drug rescue using our stem cell technology platform. We have developed our cardiac bioassay system, CardioSafe 3D, for drug rescue applications intended to produce proprietary small molecule NCEs for our internal drug development pipeline, without incurring many of the substantial costs and risks typically inherent in new drug discovery and nonclinical drug development.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.

AV-101 is preferentially converted to 7-Cl-KYNA in brain areas related to neuronal injury. This is because astrocytes, which are responsible for the enzymatic transamination of 4-Cl-KYN prodrug to active 7-Cl-KYNA, are focally activated at sites of neuronal injury. Due to AV-101’s highly focused site of conversion, local concentrations of newly formed 7-Cl-KYNA are greatest at the site of therapeutic need. In addition to delivering the drug where it is needed, this reduces the chance of systemic and dangerous side effects with long-term use of the drug; and

2.	An active metabolite of AV-101, 4-Cl-3-hydroxyanthranilic acid, inhibits the synthesis of quinolinic acid, an endogenous NMDAR agonist that causes convulsions and excitotoxic neuronal damage.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Blinded safety and tolerability data were reviewed and assessed as being satisfactory by the investigator and medical monitor; and

 

 

 

 

	1.   cell viability;
	2.   apoptosis;
	3.   mitochondrial membrane depolarization;
	4.   oxidative stress; and
	5.   energy metabolism disruption.

 

 

Detects cardiac effects mediated by:	hERG assay	CardioSafe 3D™
hERG potassium ion channels	ü	ü
Other potassium ion channels		ü
Calcium ion channels		ü
Sodium ion channels		ü
Interactions between ion channels		ü
Channel regulatory proteins		ü
Cell viability		ü
Apoptosis		ü
Mitochondria		ü
Energy		ü
Oxidative Stress		ü

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

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Completion of extensive non-clinical, sometimes referred to as non-clinical laboratory tests, non-clinical animal studies and formulation studies in accordance with applicable regulations, including the FDA’s current Good Laboratory Practice (cGLP), regulations;

 

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Phase 1 clinical trials generally involve a small number of healthy volunteers who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug.

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Phase 2 clinical trials typically involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy.

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Phase 3 clinical trials generally involve large numbers of patients at multiple sites (from several hundred to several thousand subjects) and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use, and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. Phase 3 clinical trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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if our NDA, if and when submitted, is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of approval, additional non-clinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;

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the FDA may require development of a Risk Evaluation and Mitigation Strategy (REMS) as a condition of approval or post-approval;

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the FDA or the applicable foreign regulatory agency may determine that the manufacturing processes or facilities of third-party contract manufacturers with which we contract do not conform to applicable requirements, including current Good Manufacturing Practices (cGMPs); or

The Fast Track designation is a program offered by the FDA pursuant to certain mandates under the FDA Modernization Act of 1997, designed to facilitate drug development and to expedite the review of new drugs that are intended to treat serious or life threatening conditions. Compounds selected must demonstrate the potential to address unmet medical needs. The Fast Track designation allows for close and frequent interaction with the FDA. A designated Fast Track drug may also be considered for priority review with a shortened review time, rolling submission, and accelerated approval if applicable. The designation does not, however, guarantee approval or expedited approval of any application for the product.

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the FDA may deny permission to proceed with our planned clinical trials or any other clinical trials we may initiate, or may place a clinical trial on hold;

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delays in filing or receiving approvals of additional INDs that may be required;

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negative results from our ongoing pre-clinical studies;

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delays in reaching or failing to reach agreement on acceptable terms with prospective 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;

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inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials, for example delays in the manufacturing of sufficient supply of finished drug product;

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difficulties obtaining Institutional Review Board (IRB) approval to conduct a clinical trial at a prospective site or sites;

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challenges in recruiting and enrolling patients to participate in clinical trials, including the proximity of patients to trial sites;

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eligibility criteria for the clinical trial, the nature of the clinical trial protocol, the availability of approved effective treatments for the relevant disease and competition from other clinical trial programs for similar indications;

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severe or unexpected drug-related side effects experienced by patients in a clinical trial;

 

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delays in validating any endpoints utilized in a clinical trial;

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the FDA may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials;

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reports from pre-clinical or clinical testing of other CNS therapies that raise safety or efficacy concerns; and

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difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trials, lack of efficacy, side effects, personal issues or loss of interest.

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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including the imposition of a clinical hold;

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unforeseen safety issues, including any that could be identified in our ongoing non-clinical carcinogenicity studies, adverse side effects or lack of effectiveness;

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changes in government regulations or administrative actions;

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problems with clinical supply materials; and

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lack of adequate funding to continue clinical trials.

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have staffing difficulties;

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fail to comply with contractual obligations;

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experience regulatory compliance issues;

 

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undergo changes in priorities or become financially distressed; or

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form relationships with other entities, some of which may be our competitors.

 

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the efficacy of our product candidates as demonstrated in clinical trials, and, if required by any applicable regulatory authority in connection with the approval for the applicable indications, to provide patients with incremental health benefits, as compared with other available therapies;

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limitations or warnings contained in the labeling approved for our product candidates by the FDA or other applicable regulatory authorities;

 

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the clinical indications for which our product candidates are approved;

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availability of alternative treatments already approved or expected to be commercially launched in the near future;

 

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the potential and perceived advantages of our product candidates over current treatment options or alternative treatments, including future alternative treatments;

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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

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the strength of marketing and distribution support and timing of market introduction of competitive products;

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publicity concerning our products or competing products and treatments;

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pricing and cost effectiveness;

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the effectiveness of our sales and marketing strategies;

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our ability to increase awareness of our product candidates through marketing efforts;

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our ability to obtain sufficient third-party coverage or reimbursement; or

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the willingness of patients to pay out-of-pocket in the absence of third-party coverage.

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issue warning letters or untitled letters;

 

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seek an injunction or impose civil or criminal penalties or monetary fines;

 

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suspend or withdraw marketing approval;

 

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suspend any ongoing clinical trials;

 

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refuse to approve pending applications or supplements to applications submitted by us;

 

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suspend or impose restrictions on operations, including costly new manufacturing requirements; or

 

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seize or detain products, refuse to permit the import or export of products, or require that we initiate a product recall.

 

 

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The federal 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 healthcare programs such as Medicare and Medicaid.

 

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The federal False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam actions, 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.

 

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The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

 

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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.

 

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The federal transparency requirements, sometimes referred to as the “Sunshine Act,” under the Patient Protection and Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program 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.

 

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Analogous state laws and regulations, such as state anti-kickback and false claims laws and transparency 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.

 

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Guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and drug pricing.

 

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produce product candidates;

 

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

 

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maintain, leverage and expand our intellectual property portfolio;

 

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establish and maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities;

 

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gain market acceptance for our products; and

 

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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.

 

 

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competitors may develop alternatives that render our drug rescue NCEs obsolete;

 

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a drug rescue NCE 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;

 

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a drug rescue NCE may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or

 

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a drug rescue NCE may not be accepted as safe and effective by regulatory authorities, patients, the medical community or third-party payors.

 

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our ability to identify potential drug rescue candidates in the public domain, obtain sufficient quantities of them, and assess them using our bioassay systems;

 

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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 out-license or sell certain drug rescue candidates to us on commercially reasonable terms;

 

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our medicinal chemistry collaborator’s ability to design and produce proprietary drug rescue NCEs based on the novel biology and structure-function insight we provide using CardioSafe 3D; and

 

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financial resources available to us to develop and commercialize lead drug rescue NCEs internally, or, if we out-license them to strategic partners, the resources such partners choose to dedicate to development and commercialization of any drug rescue NCEs they license from us.

 

 

 

 

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initiate and successfully complete preclinical and clinical trials that meet their prescribed endpoints;

 

 

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initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for our product candidates;

 

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commercialize our product candidates, if approved, by developing a sales force or entering into collaborations with third parties; and

 

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achieve market acceptance of our product candidates in the medical community and with third-party payors.

 

 

 

 

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the number and characteristics of the product candidates we pursue, including AV-101 and drug rescue NCEs;

 

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

 

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

 

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

 

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

 

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

 

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market acceptance of our products;

 

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the effect of competing technological and market developments;

 

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our ability to obtain government funding for our programs;

 

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the costs involved in obtaining and enforcing patents to preserve our intellectual property;

 

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the costs involved in defending against such claims that we infringe third-party patents or violate other intellectual property rights and the outcome of such litigation;

 

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

 

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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.

 

 

 

 

 

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decreased demand for products that we may develop;

 

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injury to our reputation;

 

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withdrawal of clinical trial participants;

 

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costs to defend the related litigation;

 

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a diversion of management's time and our resources;

 

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substantial monetary awards to trial participants or patients;

 

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

 

 

 

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any of our AV-101 or other pending patent applications, if issued, will include claims having a scope sufficient to protect AV-101 or any other products or product candidates, particularly considering that the compound patent to AV-101 has expired;

 

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any of our pending patent applications will issue as patents at all;

 

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we will be able to successfully commercialize our product candidates, if approved, before our relevant patents expire;

 

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we were the first to make the inventions covered by each of our patents and pending patent applications;

 

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we were the first to file patent applications for these inventions;

 

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others will not develop similar or alternative technologies that do not infringe our patents;

 

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others will not use pre-existing technology to effectively compete against us;

 

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any of our patents, if issued, will be found to ultimately be valid and enforceable;

 

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any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

 

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we will develop additional proprietary technologies or product candidates that are separately patentable; or

 

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that our commercial activities or products will not infringe upon the patents or proprietary rights of others.

 

 

 

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cease developing, selling or otherwise commercializing our product candidates;

 

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pay substantial damages for past use of the asserted intellectual property;

 

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obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and

 

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in the case of trademark claims, redesign, or rename, some or all of our product candidates to avoid infringing the intellectual property rights of third parties, which may not be possible and, even if possible, could be costly and time-consuming.

 

 

 

●	the scope of rights granted under the license agreement and other interpretation-related issues;

●	whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

●	our right to sublicense patent and other rights to third parties under collaborative development relationships;

●	our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; and

 

●	the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.

 

 

 

 

●	others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is not covered by the claims of patents, should such patents issue from our patent applications;
●	we might not have been the first to make the inventions covered by a pending patent application that we own;
●	we might not have been the first to file patent applications covering an invention;
●	others may independently develop similar or alternative technologies without infringing our intellectual property rights;
●	pending patent applications that we own or license may not lead to issued patents;
●	patents, if issued, that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
●	third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
●	we may not be able to obtain and/or maintain necessary or useful licenses on reasonable terms or at all; and
●	the patents of others may have an adverse effect on our business.

 

 

 

●	plans for, progress of or results from non-clinical studies and clinical trials of our product candidates;
●	the failure of the FDA to approve our product candidates;
●	announcements of new products, technologies, commercial relationships, acquisitions or other events by us or our competitors;
●	the success or failure of other CNS therapies;
●	regulatory or legal developments in the United States and other countries;
●	failure of our product candidates, if approved, to achieve commercial success;
●	fluctuations in stock market prices and trading volumes of similar companies;
●	general market conditions and overall fluctuations in U.S. equity markets;
●	variations in our quarterly operating results;
●	changes in our financial guidance or securities analysts’ estimates of our financial performance;
●	changes in accounting principles;
●	our ability to raise additional capital and the terms on which we can raise it;
●	sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
●	additions or departures of key personnel;
●	discussion of us or our stock price by the press and by online investor communities; and
●	other risks and uncertainties described in these risk factors.