Vistagen Therapeutics, Inc. - Quarter Report: 2018 December (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
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☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2018
or
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File Number: 001-37761
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
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20-5093315
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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343 Allerton Avenue
South San Francisco, CA 94080
(Address of principal executive offices including zip
code)
(650) 577-3600
(Registrant’s telephone number, including area
code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-Accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Emerging growth company
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[ ]
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒
As of February 11, 2019, 31,120,465 shares of the registrant’s common stock,
$0.001 par value, were issued and
outstanding.
VistaGen Therapeutics, Inc.
Quarterly Report on Form 10-Q
for the Quarter Ended December 31, 2018
TABLE OF CONTENTS
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Page
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1
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2
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3
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4
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17
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34
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35
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35
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70
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70
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71
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72
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PART I. FINANCIAL
INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Dollars, except share amounts)
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December 31,
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March 31,
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2018
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2018
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(Unaudited)
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(Note 2)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$6,285,300
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$10,378,300
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Prepaid
expenses and other current assets
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853,800
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644,800
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Total
current assets
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7,139,100
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11,023,100
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Property
and equipment, net
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334,900
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207,400
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Security
deposits and other assets
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47,800
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47,800
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Total
assets
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$7,521,800
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$11,278,300
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$1,086,700
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$1,195,700
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Accrued
expenses
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827,100
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206,300
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Current
notes payable
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49,100
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53,900
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Capital
lease obligations
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2,900
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2,600
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Total
current liabilities
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1,965,800
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1,458,500
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Non-current
liabilities:
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Accrued
dividends on Series B Preferred Stock
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3,456,300
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2,608,300
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Deferred
rent liability
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399,800
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285,600
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Capital
lease obligations
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7,100
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9,300
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Total
non-current liabilities
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3,863,200
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2,903,200
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Total
liabilities
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5,829,000
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4,361,700
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Commitments
and contingencies
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Stockholders’
equity:
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Preferred
stock, $0.001 par value; 10,000,000 shares authorized at December
31, 2018 and March 31, 2018:
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Series
A Preferred, 500,000 shares authorized, issued and outstanding at
December 31, 2018 and March 31, 2018
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500
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500
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Series
B Preferred; 4,000,000 shares authorized at December 31, 2018 and
March 31, 2018; 1,160,240 shares
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issued
and outstanding at December 31, 2018 and March 31,
2018
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1,200
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1,200
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Series
C Preferred; 3,000,000 shares authorized at December 31, 2018 and
March 31, 2018; 2,318,012 shares
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issued
and outstanding at December 31, 2018 and March 31,
2018
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2,300
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2,300
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Common
stock, $0.001 par value; 100,000,000 shares authorized at December
31, 2018 and March 31, 2018;
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31,204,380
and 23,068,280 shares issued and outstanding at December 31, 2018
and March 31, 2018, respectively
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31,200
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23,100
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Additional
paid-in capital
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181,035,800
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167,401,400
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Treasury
stock, at cost, 135,665 shares of common stock held at December 31,
2018 and March 31, 2018
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(3,968,100)
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(3,968,100)
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Accumulated
deficit
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(175,410,100)
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(156,543,800)
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Total
stockholders’ equity
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1,692,800
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6,916,600
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Total
liabilities and stockholders’ equity
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$7,521,800
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$11,278,300
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Unaudited)
(Amounts in dollars, except share amounts)
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Three Months Ended December 31,
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Nine Months Ended December 31,
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2018
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2017
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2018
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2017
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Operating
expenses:
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Research
and development
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$5,335,500
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$1,601,800
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$13,340,300
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$5,124,600
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General
and administrative
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1,856,800
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1,266,000
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5,494,100
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4,997,400
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Total
operating expenses
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7,192,300
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2,867,800
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18,834,400
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10,122,000
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Loss
from operations
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(7,192,300)
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(2,867,800)
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(18,834,400)
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(10,122,000)
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Other
expenses, net:
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Interest
expense, net
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(1,800)
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(2,000)
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(6,800)
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(7,700)
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Loss
on extinguishment of accounts payable
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(22,700)
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(135,000)
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(22,700)
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(135,000)
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Loss
before income taxes
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(7,216,800)
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(3,004,800)
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(18,863,900)
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(10,264,700)
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Income
taxes
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-
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(2,400)
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(2,400)
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Net
loss and comprehensive loss
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(7,216,800)
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(3,004,800)
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(18,866,300)
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(10,267,100)
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Accrued
dividend on Series B Preferred stock
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(290,900)
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(263,000)
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(848,000)
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(766,600)
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Deemed
dividend from trigger of down round provision feature
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-
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(199,200)
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-
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(199,200)
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Net
loss attributable to common stockholders
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$(7,507,700)
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$(3,467,000)
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$(19,714,300)
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$(11,232,900)
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Basic and diluted net loss attributable to common
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stockholders
per common share
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$(0.24)
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$(0.25)
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$(0.75)
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$(1.03)
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Weighted average shares used in computing basic
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and
diluted net loss attributable to common
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stockholders
per common share
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30,696,312
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13,895,642
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26,418,440
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10,947,556
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Dollars)
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Nine Months Ended December 31,
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2018
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2017
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Cash
flows from operating activities:
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Net
loss
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$(18,866,300)
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$(10,267,100)
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Adjustments to reconcile net loss to net cash used in
operating activities:
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Depreciation
and amortization
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64,800
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65,300
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Stock-based
compensation
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2,519,700
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1,386,900
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Expense
related to modification of warrants
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25,800
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292,700
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Fair
value of common stock granted for services
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277,600
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1,554,800
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Fair
value of common stock issued for product licenses and
option
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4,250,000
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-
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Fair
value of warrants granted for services
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79,800
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-
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Loss
on extinguishment of accounts payable
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22,700
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135,000
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Changes
in operating assets and liabilities:
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Prepaid
expenses and other current assets
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34,600
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259,600
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Accounts
payable and accrued expenses
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511,800
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(41,800)
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Deferred
rent
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109,200
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159,900
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Net
cash used in operating activities
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(10,970,300)
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(6,454,700)
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Cash
flows from property and investing activities:
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Purchases
of equipment
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-
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(1,600)
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Construction
of tenant improvements
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(169,800)
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-
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Net
cash used in investing activities
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(169,800)
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(1,600)
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Cash
flows from financing activities:
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Net
proceeds from issuance of common stock and warrants, including
Units
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6,608,700
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16,721,900
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Proceeds
from exercise of warrants
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605,700
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-
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Repayment
of capital lease obligations
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(2,000)
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(1,700)
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Repayment
of notes payable
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(165,300)
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(153,400)
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Net
cash provided by financing activities
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7,047,100
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16,566,800
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Net
(decrease) increase in cash and cash equivalents
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(4,093,000)
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10,110,500
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Cash
and cash equivalents at beginning of period
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10,378,300
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2,921,300
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Cash
and cash equivalents at end of period
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$6,285,300
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$13,031,800
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Supplemental
disclosure of noncash activities:
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Insurance
premiums settled by issuing note payable
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$160,500
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$142,400
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Accrued
dividends on Series B Preferred
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$848,000
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$766,600
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Deemed
dividend from trigger of down round provision feature
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$-
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$199,200
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Settlement
of accounts payable by issuance of common stock
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$40,000
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$450,000
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Overview
VistaGen Therapeutics. Inc., a Nevada corporation (which may be
referred to as VistaGen, the Company, we, our, or us), is a clinical-stage biopharmaceutical company
focused on developing new generation medicines for multiple central
nervous system (CNS) diseases and disorders with high unmet need. We
believe each of our CNS pipeline candidates, AV-101, PH10 and
PH94B, has the potential to be administered at home and provide
rapid-onset therapeutic benefits without psychological or other
side effects and safety concerns associated with many current and
potential new generation medications for CNS diseases and
disorders, such as major depressive disorder (MDD) and social anxiety disorder (SAD), affecting millions of individuals in the United
States and foreign markets. Each drug candidate in our pipeline is
either currently in or has successfully completed Phase 2 clinical
development. AV-101, our oral NMDA receptor glycine B antagonist,
is in Phase 2 development, initially as an adjunctive treatment of
MDD. The FDA has granted Fast Track designation for
development of AV-101 as both a potential adjunctive treatment of
MDD and as a non-opioid treatment for neuropathic pain. PH10, our
potentially first-in-class, rapid-onset neuroactive steroid nasal
spray for MDD, has completed an initial successful exploratory
Phase 2 clinical study and is now being prepared for a multi-dose
follow-on Phase 2 clinical study in MDD. PH94B, our potentially
first-in-class, rapid-onset neuroactive steroid nasal spray for
as-needed (PRN) treatment of SAD, has completed a successful
Phase 2 clinical program, a successful pilot Phase 3 study and is
now being prepared for pivotal Phase 3 clinical development, with
potential to be the first FDA-approved PRN treatment of
SAD.
AV-101
AV-101, an investigational prodrug candidate in Phase 2 clinical
development, is an orally bioavailable NMDAR GlyB
(N-methyl-D-aspartate receptor glycine B) antagonist in development
as a potential new treatment for multiple CNS indications with high
unmet need, including MDD,
neuropathic pain (NP), levodopa-induced dyskinesia associated with
Parkinson’s disease therapy (PD LID) and suicidal ideation (SI). In two NIH-funded AV-101 Phase 1 clinical
safety studies, AV-101 was well tolerated in healthy subjects
at all doses tested, in both single-ascending and
multiple-ascending dose studies, without causing any observed
psychological or sedative side effects. The United States Food and
Drug Administration (FDA) has granted Fast Track designation for
development of AV-101 as a potential new treatment for adjunctive
treatment of MDD and for treatment of NP.
Major Depressive Disorder
Major depressive disorder is a serious biologically-based mood
disorder, affecting approximately 16 million adults in the United
States according to the U.S. National Institute of Mental Health
(the NIMH). The CDC estimates that one in four women and
one in six men in the United States have been diagnosed with
MDD.
Individuals diagnosed with MDD exhibit
depressive symptoms, such as a depressed mood or a loss of interest
or pleasure in daily activities, for more than a two-week period,
as well as impaired social, occupational, educational or other
important functioning which has a negative impact on their quality
of life. According to the U.S. Centers for Disease Control and
Prevention (CDC), about one in eight Americans aged 12 and over
takes an FDA-approved antidepressant, and there are an estimated
11.6 million drug-treated patients suffering from MDD. While
current FDA-approved antidepressants are widely used, the STAR*D
study, the largest clinical trial conducted in depression to date,
found that approximately two-thirds of patients with MDD do not
respond to their initial antidepressant treatment, of which
approximately 5.1 million patients remain resistant to treatment
following the second antidepressant treatment. According
to the NIMH, inadequate response to current antidepressants is
among the key reasons MDD is a leading public health concern in the
United States, creating a significant unmet medical need for new
agents with fundamentally different mechanisms of
action.
We
believe oral AV-101 has potential for multiple applications in
global depression markets if successfully developed and approved.
Given its excellent tolerability profile, we believe AV-101 has
potential as a new generation monotherapy and as an adjunctive
therapy to both (i) augment current antidepressants approved by the
FDA for patients with MDD who have an inadequate response to
standard antidepressants (SSRIs and SNRIs) and (ii) prevent relapse
of MDD following successful intravenous or intranasal treatment
with ketamine hydrochloride (ketamine), a member of a class of drugs
that block NMDA receptor activity. Ketamine is an
FDA-approved, rapid-acting general anesthetic currently
administered only by intravenous or intramuscular injection. The
off-label use of ketamine in treatment-resistant depression
(TRD), defined as those
patients who have
failed at least two prior treatment attempts involving current
antidepressants, has been studied in numerous clinical trials
conducted by depression experts at Yale University and other
academic institutions, as well as at the NIMH, including by Dr.
Carlos Zarate, Jr., the NIMH’s Chief of Experimental
Therapeutics & Pathophysiology Branch and of the Section on
Neurobiology and Treatment of Mood and Anxiety
Disorders. In randomized, placebo-controlled, double
blind clinical trials reported by Dr. Zarate and others at the
NIMH, a single sub-anesthetic dose of ketamine (0.5 mg/kg over 40
minutes) produced robust and rapid (within twenty-four hours)
antidepressant effects in MDD patients who had not responded to at
least two prior treatment attempts involving standard
antidepressants. These results were in sharp contrast to
the very slow-onset activity of SSRIs and SNRIs, which usually
require many weeks or more of chronic usage to achieve similar
antidepressant effects. We believe AV-101 may have potential
to deliver rapid-onset antidepressant effects similar to ketamine,
but without causing psychological, sedative or other side effects
and safety concerns associated with ketamine, and as an oral
therapy conveniently administered at home rather than in a medical
setting or involving the required the use of needles.
AV-101 is currently in Phase 2 clinical development in the United
States for MDD. ELEVATE is our ongoing Phase 2 multi-center,
multi-dose, double blind, placebo-controlled clinical study to
evaluate the efficacy and safety of AV-101 as a new generation
adjunctive treatment of MDD in adult patients with an inadequate
therapeutic response to current FDA-approved antidepressants
(the ELEVATE
Study). Dr. Maurizio Fava,
Professor of Psychiatry at Harvard Medical School and Director,
Division of Clinical Research, Massachusetts General Hospital
(MGH) Research Institute, is the Principal
Investigator of the ELEVATE Study assisting our internal team,
which is led by Mark Smith, MD, PhD, our Chief Medical
Officer. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the STAR*D study, the findings of which were
published in journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA).
AV-101 is also the subject of a small randomized, double-blind,
placebo-controlled cross-over Phase 2 clinical study being
conducted and funded by the NIMH, pursuant to our Cooperative
Research and Development Agreement (CRADA) with the NIMH (the NIMH Study). Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, is acting as the Principal Investigator for the NIMH
Study. This trial is focused on the pharmacodynamic and potential
therapeutic effects in such patients using standard measurements of
clinical responses and measurement of responses of a number of
biomarkers associated with engagement of the NMDA receptor thought
to be associated with clinical response. Dr. Zarate and the NIMH
were among the first in the U.S. to conduct clinical studies in MDD
patients with inadequate responses to multiple current FDA-approved
antidepressants that demonstrated the robust, fast-acting
antidepressant effects of ketamine within twenty-four hours of a
single sub-anesthetic dose administered by IV
injection.
The FDA has granted Fast Track designation for
development of AV-101 as a potential new adjunctive treatment of
MDD.
Suicidal Ideation
According to the World Health Organization (WHO), every year approximately 800,000 people
worldwide take their own life and many more attempt suicide.
The CDC views suicide as a major public health concern in the
United States, as rates of suicide have been increasing for both
men and women and across all age groups. Suicide is the 10th
leading cause of death in the U.S. and is one of just three leading
causes that are on the rise. According to experts in the
field of suicidal ideation (SI), characterized as suicidal thoughts and
behavior, the number of Americans who die by suicide is, since
2010, higher than those who die in motor vehicle accidents. People
of all genders, ages, and ethnicities can be at risk for suicide.
Suicidal ideation is complex and there is no single cause. The NIMH
attributes many different factors contribute to someone making a
suicide attempt, including, but not limited to, depression, other
mental health disorders or substance abuse
disorder. Additionally, according to reports released by the
United States Department of Veterans Affairs (VA), the U.S. Military Veteran population is at
significantly higher risk for suicide than the general
population.
We are collaborating with Baylor College of Medicine
(Baylor) and the VA on a small Phase 1b clinical trial of
AV-101 involving healthy volunteer U.S. Military Veterans from
either Operation Enduring Freedom, Operation Iraqi Freedom or
Operation New Dawn (the Baylor
Study). The Baylor Study is a
randomized, double-blind, placebo-controlled cross-over study
designed as a target engagement study as the first-step in our
plans to test potential anti-suicidal effects of AV-101 in U.S.
Military Veterans. Dr. Marijn Lijffijt of Baylor is the Principal
Investigator of the Baylor Study. VistaGen and the VA entered into
a Material Transfer Cooperative Research and Development Agreement
(MT
CRADA) regarding clinical trial
material for the Baylor Study. Government funding from the VA is
being provided for substantially all other study
costs.
Neuropathic Pain
Neuropathic
pain (NP), a complex,
chronic pain state affecting millions of Americans, results from
problems with signals from nerves. The American Chronic Pain
Association has identified various causes of NP, including tissue
injury, nerve damage or disease, diabetes, infection, toxins,
certain types of drugs, such as antivirals and chemotherapeutic
agents, certain cancers, and even chronic alcohol intake. With NP,
damaged, dysfunctional or injured nerve fibers send incorrect
signals to other pain centers and impact nerve function both at the
site of injury and areas around the injury. Unfortunately, many NP
treatments on the market today have side effects, including
anxiety, depression, dizziness, cognitive impairment and/or
sedation.
The
effects of AV-101 as a potential new treatment for NP were assessed
in published peer-reviewed preclinical studies involving four
well-established models of pain. In
these studies, AV-101 was observed to have robust, dose-dependent
anti-nociceptive effects, as measured by dose-dependent reversal
of NP in the Chung (nerve ligation), formalin and carrageenan
thermal models in rats,
and was well-tolerated. The
publication, titled: “Characterization of the
effects of L-4-chlorokynurenine on nociception in
rodents,” by lead author,
Tony L. Yaksh, Ph.D., Professor in Anesthesiology at the University
of California, San Diego, was published in The Journal of
Pain in April 2017 (J
Pain. 18:1184-1196, 2017)). Gabapentin, an FDA-approved
anticonvulsant, has been associated with sedation and mild
cognitive impairment in third party literature. Other commonly
prescribed medications for NP include drugs targeting opioid
receptors in the brain. Unfortunately, misuse of such drugs can
lead to a significantly increased risk of addiction, and, we
believe, their therapeutic utility for neuropathic pain is unclear.
We are planning to advance AV-101 into an exploratory Phase 2a
clinical study, subject to securing sufficient capital, to assess
its potential as a new oral non-opioid treatment to reduce
debilitating NP, as well as its potential to avoid sedative side
effects and cognitive impairment that have been observed in third
party literature to be associated with other NP treatments, and to
reduce the risk of addiction associated with pain medications
targeting opioid receptors.
The FDA has granted Fast Track designation for
development of AV-101 as a potential new, non-opioid treatment of
NP.
Parkinson’s Disease Levodopa-Induced Dyskinesia
Parkinson's disease (PD) is a chronic, progressive motor disorder that
causes tremors, rigidity, slowed movements and postural
instability. The most commonly-prescribed treatments for PD are
levodopa-based therapies. Unfortunately, abnormal involuntary
movements, called dyskinesias, gradually emerge as a prominent
side-effect in response to previously beneficial doses of
levodopa. Parkinson’s disease levodopa-induced dyskinesia (PD LID) can
be severely disabling, rendering patients unable to perform routine
daily tasks.
In a preclinical monkey model of PD, AV-101 resulted in a 30%
reduction of the mean dyskinesia score associated with PD LID.
Importantly, AV-101 did not reduce the anti-parkinsonian
therapeutic benefit of levodopa. Moreover, the duration of levodopa
response and delay to levodopa effect were not affected by
treatment with AV-101. We believe AV-101 has potential to
reduce troublesome dyskinesia experienced by many patients with PD
as a result of their levodopa therapy, but without interfering with
levodopa or causing side effects resulting from certain current PD
LID treatments, such as amantadine, including hallucinations,
dizziness, dry mouth, swelling of legs and feet, constipation and
falls. We are planning to advance clinical development of AV-101
for PD LID in an exploratory Phase 2 clinical study, subject to
securing sufficient capital, as our next initiative in PD
LID.
PH94B
In September 2018, we acquired, on a non-cash basis through the
issuance of unregistered shares of our common stock, a license from
Pherin Pharmaceuticals, Inc. (Pherin) giving us the exclusive worldwide rights to
develop and commercialize PH94B, a rapid-onset neurosteroid nasal
spray with potential to be the first FDA-approved PRN treatment for
SAD.
PH94B is a synthetic investigational neuroactive steroid for which
Phase 2 clinical data showed that the product was well tolerated
and demonstrated a rapid onset of effect, as measured by the
Subjective Units of Distress (SUD) and the Liebowitz Social Anxiety Scale
(LSAS) in SAD, a social phobia that affects as many as
22 million American adults according to the NIMH. SAD is
characterized by an intense and persistent fear of embarrassment,
humiliation, judgment and rejection in everyday social or
performance situations, leading to avoidance of anxiety and
fear-producing social situations when possible. SAD has a
significant impact on the individual’s employment, social
activities and overall quality of life. According to the NIMH, an
estimated 7% of the U.S. population suffers from SAD. SAD is
commonly treated chronically with antidepressants, which have slow
onset of effect (several weeks or months) and known side effects
that may make them unattractive to individuals intermittently or
episodically affected by SAD.
Administered as a nasal spray, PH94B is designed to act locally on
peripheral nasal chemosensory receptors to trigger rapid activation
of the limbic system areas of the brain associated with SAD. In
prior clinical studies, PH94B demonstrated rapid (10-15 minutes)
anxiety reduction for subjects with SAD, measured by the SUD and
LSAS, and was not observed to be addictive, sedative or have other
adverse events. Benzodiazepines and beta blockers, which are
currently prescribed off-label to treat SAD, have been found in
third party literature to have these addictive or sedative
properties, and have other adverse effects when used to treat
SAD.
Based on clinical studies in which PH94B was observed to have
rapid-onset of effect on anxiety reduction, as measured by the SUD
and LSAS, and to be well-tolerated, and in light of its novel route
of administration and on-demand dosing design, we believe PH94B has
potential to be the first FDA-approved medication for long-term PRN
treatment of individuals with SAD.
PH10
In October 2018, we acquired, on a non-cash basis through the
issuance of unregistered shares of our common stock, a second
license from Pherin giving us the exclusive worldwide rights to
develop and commercialize PH10, a synthetic investigational
neuroactive steroid nasal spray for which exploratory Phase 2
clinical data showed that it was well tolerated and demonstrated a
rapid onset of antidepressant effects. PH10 is designed to bind
locally on nasal chemosensory receptors and trigger responses in
the hypothalamus, amygdala, prefrontal cortex and hippocampus
affecting depression. It is believed that PH10 may initiate nerve
impulses that follow defined pathways to directly affect brain
function. In a small exploratory Phase 2a study in patients with
MDD, PH10 showed a rapid-onset antidepressant effect, as measured
by the Hamilton Depression Rating Scale (HAM-D),
without psychological side effects or safety concerns. PH10 is a
new generation antidepressant with a mechanism of action that is
fundamentally different from all current antidepressants. As with
AV-101, we believe PH10 intranasal has potential for multiple
applications in global depression markets, as a stand-alone first
line therapy and as an adjunctive therapy, if successfully
developed and approved. In addition to its potential as a
first-line monotherapy administered conveniently at-home, we
believe PH10 has potential as an adjunctive therapy to (i) augment
current antidepressants approved by the FDA for patients with MDD
who have an inadequate response to standard antidepressants (SSRIs
and SNRIs), and (ii) prevent relapse of MDD following successful
treatment with ketamine, either intravenously- or
intranasally-administered ketamine.
VistaStem
In addition to our CNS business, we have two additional programs
through our wholly-owned subsidiary VistaGen Therapeutics, Inc., a
California corporation, dba VistaStem Therapeutics
(VistaStem). VistaStem is focused on applying stem cell
technology to rescue, develop and commercialize (i) proprietary new
chemical entities (NCEs) for CNS and other diseases, and (ii)
regenerative medicine (RM) involving stem cell-derived blood, cartilage,
heart and liver cells. Our internal drug rescue programs are
designed to utilize CardioSafe
3D, our customized cardiac
bioassay system, to develop small molecule NCEs for our CNS
pipeline or out-licensing. We have exclusively sublicensed to
BlueRock Therapeutics LP, a next generation cell therapy and RM
company established by Bayer and Versant Ventures
(BlueRock
Therapeutics), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the BlueRock
Agreement). In a manner
similar to the BlueRock Agreement, we may pursue additional
VistaStem collaborations or
licensing transactions involving stem
cell-derived blood, cartilage, and/or liver cells RM
applications.
Subsidiaries
VistaStem is our wholly-owned subsidiary. Our Condensed
Consolidated Financial Statements in this Quarterly Report on Form
10-Q (Report) also include the accounts of VistaStem’s
two wholly-owned inactive subsidiaries, Artemis Neuroscience, Inc.,
a Maryland corporation, and VistaStem Canada, Inc., a corporation
organized under the laws of Ontario, Canada.
Note 2. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with accounting
principles generally accepted in the United States
(U.S.
GAAP) for interim financial
information and with the instructions to Form 10-Q and
Rule 8-03 of Regulation S-X. Accordingly, they do not contain
all of the information and footnotes required for complete
consolidated financial statements. In the opinion of management,
the accompanying unaudited Condensed Consolidated Financial
Statements reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly our interim
financial information. The accompanying Condensed Consolidated
Balance Sheet at March 31, 2018 has been derived from our audited
consolidated financial statements at that date but does not include
all disclosures required by U.S. GAAP. The operating results
for the three and nine months ended December 31, 2018 are not
necessarily indicative of the operating results to be expected for
our fiscal year ending March 31, 2019, or for any other future
interim or other period.
The accompanying unaudited Condensed Consolidated Financial
Statements and notes to Condensed Consolidated Financial Statements
contained in this Report should be read in conjunction with our
audited Consolidated Financial Statements for our fiscal year ended
March 31, 2018 contained in our Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission
(SEC) on June 26, 2018.
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared assuming we will continue as a going
concern. As a clinical-stage biopharmaceutical company having not
yet developed commercial products or achieved sustainable revenues,
we have experienced recurring losses and negative cash flows from
operations resulting in a deficit of approximately $175.4 million
accumulated from inception (May 1998) through December 31, 2018. We
expect losses and negative cash flows from operations to continue
for the foreseeable future as we engage in further development of
AV-101, PH94B and PH10, execute our drug rescue programs and pursue
potential drug development and regenerative medicine
opportunities.
Since our inception in May 1998 through December 31, 2018, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of our equity and debt securities for
cash proceeds of approximately $68.6 million, as well as from an
aggregate of approximately $17.6 million of government research
grant awards (excluding the fair market value of the NIMH Study and
the Baylor Study), strategic collaboration payments, intellectual
property sublicensing and other revenues. Additionally, we have
issued equity securities with an approximate value at issuance of
$38.1 million in non-cash acquisitions of product licenses and in
settlements of certain liabilities, including liabilities for
professional services rendered to us or as compensation for such
services.
At December 31, 2018, we had cash and cash equivalents of
approximately $6.3 million.
Our cash position at December 31, 2018 considered with our
recurring and anticipated losses, negative cash flows from
operations and limited stockholders’ equity make it probable,
in the absence of additional financing, that we will not have
sufficient resources to fund our planned operations for the twelve
months following the issuance of these financial statements, during
which time we plan to complete our ELEVATE study, prepare for
pivotal Phase 3 development of PH94B, conduct additional clinical
and preclinical studies involving AV-101 and prepare for a Phase 2
clinical trial of PH10, and raises substantial doubt that we can
continue as a going concern. Nevertheless, when necessary and
advantageous, we plan to raise additional capital, primarily
through the sale of our equity securities in one or more private
placements to accredited investors or in public offerings. Subject
to certain restrictions, our effective Registration Statement on
Form S-3 (Registration No. 333-215671) (the S-3 Registration
Statement) remains available
for future sales of our equity securities in one or more public
offerings from time to time. While we may make additional sales of
our equity securities under the S-3 Registration Statement, we do
not have an obligation to do so. As in the past, we expect that,
when and as necessary, we will be successful in raising additional
capital from the sale of our equity securities either in one or
more public offerings or in one or more private placement
transactions with individual accredited investors or
institutions.
In addition to the potential sale of our equity securities, we may
also seek to enter into research, development and/or
commercialization collaborations that could generate revenue or
provide funding, including non-dilutive funding, for development of
AV-101, PH94B, PH10 and/or additional product candidates. We may
also seek additional government grant awards or agreements similar,
for example, to our current CRADA with the NIMH, which provides for
the NIMH to fully fund the NIMH Study, or similar to our
relationships with Baylor and the VA in connection with the Baylor
Study. Such strategic collaborations may provide non-dilutive
resources to advance our strategic initiatives while reducing a
portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the BlueRock Agreement with other parties. Although we
may seek additional collaborations that could generate revenue
and/or non-dilutive funding for development of AV-101, PH94B, PH10
or other product candidates, as well as new government grant awards
and/or agreements similar to our CRADA with NIMH, no assurance can
be provided that any such collaborations, awards or agreements will
occur in the future.
Our future working capital requirements will depend on many
factors, including, without limitation, the timing, scope and
nature of opportunities related to our success and the success of
certain other companies in clinical trials, including our
development and commercialization of our current product candidates
and various potential drug rescue applications of our stem cell
technology platform, the availability of, and our ability to
obtain, government grant awards and agreements, and our ability to
enter into collaborations on terms acceptable to us. To further
advance the clinical development of AV-101, PH10 and PH94B, and, to
a lesser extent, drug rescue applications of our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and operating
costs.
Notwithstanding the foregoing, there can be no assurance that
future financings or government or other strategic collaborations
will be available to us in sufficient amounts, in a timely manner,
or on terms acceptable to us, if at all. If we are unable to obtain
substantial additional financing on a timely basis when needed in
2019 and beyond, our business, financial condition, and results of
operations may be harmed, the price of our stock may decline, we
may be required to reduce, defer, or discontinue certain of our
research and development activities and we may not be able to
continue as a going concern. As noted above, these
Condensed Consolidated Financial Statements do not include any
adjustments that might result from the negative outcome of this
uncertainty.
Note 3. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates
include those relating to share-based compensation, and assumptions
that have been used historically to value warrants and warrant
modifications. With the exception of the BlueRock Agreement
pursuant to which we recorded sublicense revenue in the third
quarter of our fiscal year ended March 31, 2017, we do not
currently have, nor have we had during the periods covered by this
Report, any arrangements requiring the recognition of
revenue.
Research and Development Expenses
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses, including stock-based compensation
expense, of scientific personnel and direct project
costs. External research and development expenses
consist primarily of costs associated with clinical and
non-clinical development of AV-101, PH94B, PH10, and stem cell
research and development costs, and costs related to the
application and prosecution of patents related to those product
candidates and, to a lesser extent, our stem cell technology
platform. All such costs are charged to expense as incurred. We
also record accruals for estimated ongoing clinical trial costs.
Clinical trial costs represent costs incurred by contract research
organizations (CROs) and clinical trial sites. Progress payments are
generally made to CROs, clinical sites, investigators and other
professional service providers. We analyze the progress of the
clinical trial, including levels of subject enrollment, invoices
received and contracted costs when evaluating the adequacy of
accrued liabilities. Significant judgments and estimates must be
made and used in determining the clinical trial accrual in any
reporting period. Actual results could differ from those estimates
under different assumptions. Revisions are charged to research and
development expense in the period in which the facts that give rise
to the revision become known. Costs incurred in obtaining product
or technology licenses are charged immediately to research and
development expense if the product or technology licensed has not
achieved regulatory approval or reached technical feasibility and
has no alternative future uses. In September 2018, we acquired an
exclusive license to develop and commercialize PH94B and an option
to acquire a license to develop and commercialize PH10 by issuing
an aggregate of 1,630,435 unregistered shares of our Common Stock
having a fair market value of $2,250,000. In October 2018,
we exercised our option to acquire an exclusive license to develop
and commercialize PH10 by issuing 925,926 shares of our
unregistered Common Stock having a fair market value of $2,000,000.
Since, at the date of each
acquisition, neither product candidate has achieved regulatory
approval and each will require significant additional development
and expense, we have expensed the costs related to acquiring the
licenses and the option.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to
employees and non-employee consultants based on the grant date fair
value of the award. We record non-cash, stock-based
compensation expense over the period during which the employee is
required to perform services in exchange for the award, which
generally represents the scheduled vesting period. We
have not granted restricted stock awards to employees nor do we
have any awards with market or performance
conditions. For option grants to non-employees, we
re-measure the fair value of the awards as they vest and the
resulting value is recognized as an expense during the period over
which the services are performed. Non-cash expense attributable to
compensatory grants of stock to non-employees is determined by the
quoted market price of the stock on the date of grant and is either
recognized as fully-earned at the time of the grant or expensed
ratably over the term of the related service agreement, depending
on the terms of the specific agreement.
The table below summarizes stock-based compensation expense
included in the accompanying Condensed Consolidated Statements of
Operations and Comprehensive Loss for the three and nine months
ended December 31, 2018 and 2017.
|
|
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
||
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
|
Research
and development expense:
|
|
|
|
|
|
Stock
option grants
|
$274,900
|
$299,100
|
$955,600
|
$627,400
|
|
General
and administrative expense:
|
|
|
|
|
|
Stock
option grants
|
459,800
|
390,200
|
1,564,100
|
759,500
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
$734,700
|
$689,300
|
$2,519,700
|
$1,386,900
|
In August 2018, our Board approved the grant of options from our
2016 Amended and Restated Stock Incentive Plan (the
2016
Plan) to purchase an aggregate
of 860,000 shares of our Common Stock at an exercise price of $1.27
per share to the independent members of our Board, our officers and
our employees. We valued the options granted in August 2018 using
the Black-Scholes Option Pricing Model and the following weighted
average assumptions:
|
Assumption:
|
August
2018
|
|
Market
price per share at grant date
|
$1.27
|
|
Exercise
price per share
|
$1.27
|
|
Risk-free
interest rate
|
2.84%
|
|
Expected
term in years
|
5.50
|
|
Volatility
|
99.29%
|
|
Dividend
rate
|
0.0%
|
|
Shares
|
860,000
|
|
|
|
|
Fair Value per share
|
$0.98
|
In August 2018, our Board also approved the modification of
outstanding options having exercise prices over $1.56 per share and
held by independent members of our Board, our officers and our
employees to reduce the exercise prices thereof to $1.50 per share.
We calculated the fair value of the options immediately before and
after the modification using the Black-Scholes Option Pricing Model
and the weighted average assumptions indicated in the table below.
We immediately recognized the additional fair value attributable to
vested options, $258,100, as stock compensation expense, which is
included in the figures reported above. The additional fair value
resulting from the modification is being expensed over the
remaining vesting period of the modified options.
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$1.49
|
$1.49
|
|
Exercise
price per share
|
$3.57
|
$1.50
|
|
Risk-free
interest rate
|
2.77%
|
2.77%
|
|
Remaining
expected term in years
|
5.08
|
5.08
|
|
Volatility
|
94.9%
|
94.9%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Number
of option shares
|
2,419,503
|
2,419,503
|
|
Weighted average fair value per share
|
$0.91
|
$1.08
|
During
October 2018, we granted to certain professional service providers
and consultants options to purchase an aggregate of 250,000 shares
of our common stock at exercise prices ranging from $1.52 per share
to $2.20 per share, reflecting the quoted closing price of our
common stock on the Nasdaq Capital Market on the date of the grant.
We valued the options granted in
October 2018 using the Black-Scholes Option Pricing Model and the
following weighted average assumptions:
|
Assumption:
|
October
2018
|
|
Market
price per share at grant date
|
$1.83
|
|
Exercise
price per share
|
$1.83
|
|
Risk-free
interest rate
|
3.13%
|
|
Expected
term in years
|
10.00
|
|
Volatility
|
89.98%
|
|
Dividend
rate
|
0.0%
|
|
Shares
|
250,000
|
|
|
|
|
Fair Value per share
|
$1.59
|
At December 31, 2018, there were stock options outstanding to
purchase 6,410,338 shares of our common stock at a weighted average
exercise price of $1.47 per share.
See Note 10, Subsequent
Events, for information
regarding option grants and exercises occurring since December 31,
2018.
Comprehensive Loss
We have no components of other comprehensive loss other than net
loss, and accordingly our comprehensive loss is equivalent to our
net loss for the periods presented.
Loss per Common Share
Basic net loss attributable to common stockholders per share of
common stock excludes the effect of dilution and is computed by
dividing net loss increased by the accrual of dividends on
outstanding shares of our Series B 10% Convertible Preferred Stock
(Series B Preferred),
by the weighted-average number of
shares of common stock outstanding for the period. Diluted net loss
attributable to common stockholders per share of common stock
reflects the potential dilution that could occur if securities or
other contracts to issue shares of common stock were exercised or
converted into shares of common stock. In calculating diluted net
loss attributable to common stockholders per share, we have
generally not increased the denominator to include the number of
potentially dilutive common shares assumed to be outstanding during
the period using the treasury stock method because the result is
antidilutive.
As a result of our net loss for all periods presented, potentially
dilutive securities were excluded from the computation of diluted
net loss per share, as their effect would be antidilutive.
Potentially dilutive securities excluded in determining diluted net
loss attributable to common stockholders per common share are as
follows:
|
|
As of December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Series A Preferred stock issued and
outstanding (1)
|
750,000
|
750,000
|
|
Series B Preferred stock issued and
outstanding (2)
|
1,160,240
|
1,160,240
|
|
Series C Preferred stock issued and
outstanding (3)
|
2,318,012
|
2,318,012
|
|
Outstanding
options under the Amended and Restated 2016 (formerly 2008) and
1999 Stock Incentive Plans (1999 Plan in 2017 only)
|
6,410,338
|
3,279,871
|
|
Outstanding
warrants to purchase common stock
|
21,499,955
|
16,918,292
|
|
Total
|
32,138,545
|
24,426,415
|
|
____________
|
|
|
|
|
|
(1) Assumes exchange under the
terms of the October 11, 2012 Note Exchange and Purchase Agreement,
as amended.
|
||||
|
(2) Assumes exchange under the
terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series B 10% Convertible Preferred Stock,
effective May 5, 2015.
|
||||
|
(3) Assumes exchange under the
terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series C Convertible Preferred Stock, effective
January 25, 2016.
|
||||
Fair Value Measurements
We do not use derivative instruments for hedging of market risks or
for trading or speculative purposes. We carried no assets or
liabilities that are measured on a recurring basis at fair value at
December 31, 2018 or March 31, 2018.
Recent Accounting Pronouncements
Except
as described below, there have been no recent accounting
pronouncements or changes in accounting pronouncements during the
nine months ended December 31, 2018, as compared to the recent
accounting pronouncements described in our Form 10-K for our fiscal
year ended March 31, 2018, that are of significance or potential
significance to us.
In June
2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2018-07,
Compensation-Stock Compensation
(Topic 718), Improvements to Nonemployee Share-Based Payment
Accounting (ASU
2018-07). ASU 2018-07 expands the scope of Topic 718 to
include share-based payment transactions for acquiring goods and
services from nonemployees. Under ASU 2018-07, consistent with the
accounting requirement for employee share-based payment awards,
nonemployee share-based payment awards within the scope of Topic
718 are to be measured at the grant-date fair value of the equity
instruments that an entity is obligated to issue when the good has
been delivered or the service has been rendered and any other
conditions necessary to earn the right to benefit from the
instruments have been satisfied. Equity-classified nonemployee
share-based payment awards are to be measured at the grant date.
The definition of the term grant date is amended to generally state the
date at which a grantor and a grantee reach a mutual understanding of
the key terms and conditions of a share-based payment award. ASU
2018-07 specifies that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be
used or consumed in its own operations by issuing share-based
payment awards. ASU 2018-07 also clarifies that Topic 718 does not
apply to share-based payments used to effectively provide (1)
financing to the issuer or (2) awards granted in conjunction with
selling goods or services to customers as part of a contract
accounted for under Topic 606, Revenue from Contracts with Customers
(Topic 606). ASU 2018-07 is
effective for public companies for fiscal years beginning after
December 15, 2018, including interim periods within that fiscal
year. Early adoption is permitted, but no earlier than an
entity’s adoption date of Topic 606. We expect to adopt ASU
2018-07 as of April 1, 2019, and we are evaluating the expected
impact of this new guidance on our consolidated financial
statements. While we are still determining the value of our
headquarters facility lease, we anticipate recording a right-of-use
asset that will be amortized on a straight-line basis. We are
evaluating our contracts with clinical research organizations, but
do not believe such contracts contain embedded leases.
In
February 2016, the FASB issued ASU 2016-02, Leases (ASC 842), which will replace the
existing guidance in ASC 840, Leases, and which sets out the
principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e. lessees
and lessors). The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases
based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater
than 12 months regardless of their classification. Leases with a
term of 12 months or less will be accounted for similar to the
current guidance for operating leases. This standard will become
effective for our fiscal year beginning April 1, 2019, with early
adoption permitted. We expect to adopt the standard as of April 1,
2019, and are continuing to evaluate the expected impact of this
new guidance on our consolidated financial statements.
Note 4. Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current assets are composed of the
following at December 31, 2018 and March 31, 2018:
|
|
December 31,
|
March 31,
|
|
|
2018
|
2018
|
|
|
|
|
|
AV-101
materials and services
|
$456,200
|
$505,900
|
|
Professional
services
|
166,500
|
-
|
|
Insurance
|
89,900
|
88,300
|
|
Public
offering filing fees and expenses
|
88,400
|
25,900
|
|
All
other
|
52,800
|
24,700
|
|
|
$853,800
|
$644,800
|
The increase in prepaid professional services is primarily
attributable to the unexpensed portion of the fair value of
securities we have issued to certain professional service providers
as full or partial compensation for services. The fair value of the
securities issued is being expensed ratably over the term of the
related service agreement.
Property and equipment is composed of the following at December 31,
2018 and March 31, 2018:
|
|
December 31,
|
March 31,
|
|
|
2018
|
2018
|
|
|
|
|
|
Laboratory
equipment
|
$888,300
|
$888,300
|
|
Tenant
improvements
|
214,400
|
26,900
|
|
Computers
and network equipment
|
54,600
|
54,600
|
|
Office
furniture and equipment
|
84,500
|
79,700
|
|
|
1,241,800
|
1,049,500
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
(906,900)
|
(842,100)
|
|
Property
and equipment, net
|
$334,900
|
$207,400
|
The increase in tenant improvements reflects recently completed
construction at our South San Francisco, California offices. Under
the terms of our November 2016 lease extension agreement, our
landlord has provided a cash reimbursement of $158,600 of such
tenant improvement costs. Such reimbursement is a component of the
deferred rent liability shown on our Condensed Consolidated Balance
Sheet at December 31, 2018.
Note 6. Accrued Expenses
Accrued expenses are composed of the following at December 31, 2018
and March 31, 2018:
|
|
December 31,
|
March 31,
|
|
|
2018
|
2018
|
|
|
|
|
|
Accrued
AV-101 clinical trial, development
|
|
|
|
and
related expenses
|
$759,300
|
$176,600
|
|
Accrued
professional services
|
59,000
|
27,000
|
|
All
other
|
8,800
|
2,700
|
|
|
$827,100
|
$206,300
|
Note 7. Notes Payable
The following table summarizes our unsecured promissory notes at
December 31, 2018 and March 31, 2018:
|
|
December 31, 2018
|
March 31, 2018
|
||||
|
|
Principal
|
Accrued
|
|
Principal
|
Accrued
|
|
|
|
Balance
|
Interest
|
Total
|
Balance
|
Interest
|
Total
|
|
6.50%
(2018) Notes payable
|
|
|
|
|
|
|
|
to
insurance premium financing company (current)
|
$49,100
|
$-
|
$49,100
|
$53,900
|
$-
|
$53,900
|
Note 8. Capital Stock
Common Stock and Warrants Issued in Summer 2018 Private
Placement
Between
June 2018 and October 2018, we completed a self-placed private
placement with accredited investors, pursuant to which we sold
units, at a purchase price of $1.25 per unit, consisting of
4,605,000 unregistered shares of our common stock and warrants,
exercisable through February 28, 2022, to purchase 4,605,000
unregistered shares of our common stock at an exercise price of
$1.50 per share (the Summer 2018
Private Placement). The purchasers of the units have no
registration rights with respect to the shares of common stock,
warrants or the shares of common stock issuable upon exercise of
the warrants comprising the units sold. The warrants are not
exercisable until at least six months and one day following the
date of issuance. We received aggregate cash proceeds of $5,756,200
in connection with the Summer 2018 Private Placement and the entire
amount of the proceeds was credited to stockholders’
equity.
Common Stock and Warrants Issued in Fall 2018 Private
Placement
The
Summer 2018 Private Placement was oversubscribed. To accommodate
additional investor interest, during October 2018, we accepted
subscription agreements from accredited investors, pursuant to
which we sold to such investors units, at a unit purchase price
equal to $0.15 above the closing quoted market price of our common
stock on the Nasdaq Capital Market on the effective date of the
investor’s subscription agreement, consisting of an aggregate
of 420,939 unregistered shares of our common stock and four-year,
immediately exercisable warrants to purchase 420,939 unregistered
shares of our Common Stock at a per share exercise price equal to
the closing quoted market price of our common stock on the Nasdaq
Capital Market on the effective date of the investor’s
subscription agreement (the Fall
2018 Private Placement). The purchasers of the units have no
registration rights with respect to the shares of common stock,
warrants or the shares of common stock issuable upon exercise of
the warrants comprising the units sold. We received aggregate cash
proceeds of $812,500 in connection with the Fall 2018 Private
Placement and settled an outstanding professional service payable
by accepting a subscription agreement in the amount of $40,000 and
issuing the corresponding number of shares of common stock and
warrants. The entire amount of the proceeds of the Fall 2018
Private Placement was credited to stockholders’ equity. The
fair value of the common stock and warrant issued in the Fall 2018
Private Placement in settlement of the professional services
payable was determined to be $62,700 on the effective date of the
agreement. Accordingly, we recognized a loss on extinguishment of
accounts payable in the amount of $22,700 in the accompanying
Condensed Consolidated Statement of Operations and Comprehensive
Loss for the quarter and nine months ended December 31,
2018.
Modification of Warrants issued in Summer 2018 Private
Placement
Subsequent
to the completion of the Summer 2018 Private Placement, we amended
warrants to purchase an aggregate of 304,000 shares of our common
stock issued to investors who submitted Summer 2018 Private
Placement subscription agreements between October 3, 2018 and
October 5, 2018 to increase the exercise price of their warrants
from $1.50 per share to $1.59 per share or $1.69 per share,
depending on the effective date of the related subscription
agreement, to comply with certain provisions of The Nasdaq Stock
Market Rules applicable to the private placement. As additional
consideration for agreeing to the increase in the warrant exercise
price, we granted the investors additional warrants to purchase an
aggregate of 23,800 unregistered shares of our common stock at an
exercise price of $1.75 per share through February 28, 2022.
We calculated the fair value of the
modified warrants immediately before and after the modification
using the Black Scholes Option Pricing Model and determined that
the increase in the exercise price resulted in a decrease in the
fair value of the warrants, which decrease is not recognized. We
calculated the fair value of the new warrants using the Black
Scholes Option Pricing Model and the weighted average assumptions
indicated in the table below, recognizing $25,800 as the fair value
of the new warrants and as warrant modification expense, included
as a component of general and administrative expenses, in our
Condensed Consolidated Statement of Operations and
Comprehensive Loss for the quarter and nine months ended December
31, 2018.
|
Assumption:
|
New Warrants
|
|
Market
price per share
|
$1.80
|
|
Exercise
price per share
|
$1.75
|
|
Risk-free
interest rate
|
2.83%
|
|
Remaining
contractual term in years
|
3.25
|
|
Volatility
|
88.80%
|
|
Dividend
rate
|
0.0%
|
|
|
|
|
Number
of warrant shares
|
23,800
|
|
Weighted average fair value per share
|
$1.08
|
Issuance of Common Stock for Product Licenses and
Option
As
indicated in Note 1, Description
of Business, and Note 3, Summary of Significant Accounting
Policies, in September 2018 we issued an aggregate of
1,630,435 shares of our unregistered common stock having a fair
market value of $2,250,000, based on the $1.38 per share quoted
closing market price of our common stock on the Nasdaq Capital
Market, to Pherin to acquire an exclusive worldwide license to
develop and commercialize PH94B and an option to acquire a similar
license for PH10. In October 2018, we exercised our option to
acquire an exclusive worldwide license to develop and commercialize
PH10 by issuing 925,926 shares of our unregistered common stock
having a fair market value of $2,000,000, based on the $2.16 per
share closing quoted market price of our common stock on the Nasdaq
Capital Market, to Pherin under the terms of the PH10 license
agreement. Under the terms of the PH94B and PH10 license
agreements, we are obligated to make additional cash payments and
pay royalties to Pherin in the event that certain regulatory and
performance-based milestones and commercial sales are achieved.
Additionally, in connection with the
license agreements, we are obligated to pay to Pherin monthly
support payments of $10,000 for a term of the earlier of 18 months
or the termination of the license agreement, however no monthly
support payment is required under the 18-month period identified in
the PH10 license agreement if support payments are being made under
the terms of the PH94B license agreement.
Issuance of Common Stock and Warrants to Professional Services
Providers
During the quarter ended June 30, 2018, we issued an
aggregate of 100,000 shares of our unregistered common stock having
a fair value on the date of issuance of $123,000 as full or partial
compensation to an investor relations service provider and under a
financial advisory agreement. During the quarter ended September
30, 2018, we issued 50,000 shares of our unregistered common stock
having a fair value on the date of issuance of $68,000 as partial
compensation to a corporate awareness service provider. We also
issued four-year warrants to three service providers to purchase an
aggregate of 288,000 unregistered shares of our common stock at an
exercise price of $1.50 per share as full or partial compensation
for investor relations and corporate awareness services. We valued
the warrants at an aggregate fair value of $266,900 using the
Black-Scholes Option Pricing Model and the following grant date
weighted average assumptions: exercise price per share: $1.50;
market price per share: $1.40; risk-free interest rate: 2.71%;
contractual term: 4 years; volatility: 94.17%; dividend rate: 0%;
deriving a value per warrant share of $0.93. The fair value of the
common stock and warrants is being recognized in expense ratably
over the term of the underlying contracts.
Warrants Outstanding
Through December 31, 2018, the holders of warrants exercisable at
$1.50 per share issued in our December 2017 public offering fully
or partially exercised such warrants to purchase an aggregate of
403,800 registered shares of our common stock and we received cash
proceeds of $605,700. Following the warrant issuances and exercises
described above, at December 31, 2018, we had warrants outstanding
to purchase shares of our common stock at a weighted average
exercise price of $2.54 per share as follows:
|
|
|
Weighted
|
|
|
|
Warrants
|
|
|
|
Average
|
|
|
|
Outstanding at
|
|
Exercise Price
|
Exercise Price
|
Expiration
|
|
December 31,
|
||
|
per Share
|
|
per Share
|
|
Date
|
|
2018
|
|
$1.50
|
|
$1.50
|
|
11/30/2021 to 12/13/2022
|
14,335,200
|
|
|
$1.59 to $1.80
|
$1.67
|
|
2/28/2022 to 10/10/2022
|
625,619
|
||
|
$1.82
|
|
$1.82
|
|
3/7/2023
|
|
1,388,931
|
|
$2.00 to $4.50
|
$2.23
|
|
9/216/2019 to 10/16/2022
|
721,693
|
||
|
$5.30
|
|
$5.30
|
|
5/16/2021
|
|
2,705,883
|
|
$6.00
|
|
$6.00
|
|
9/26/2019 to 11/30/2019
|
97,750
|
|
|
$7.00
|
|
$7.00
|
|
3/19/2019 to 3/3/2023
|
1,309,431
|
|
|
$8.00 to $20.00
|
$12.33
|
|
9/15/2019 to 3/25/2021
|
315,448
|
||
|
|
|
$2.54
|
|
|
|
21,499,955
|
Of the warrants outstanding at December 31, 2018, 2,705,883 shares
of common stock underlying the warrants exercisable at $5.30 per
share issued in our May 2016 public offering, 1,388,931 shares of
common stock underlying the warrants exercisable at $1.82 per share
issued in our September 2017 public offering and 9,596,200 shares
of common stock underlying the warrants exercisable at $1.50 per
share issued in our December 2017 public offering are registered
for resale by the warrant holders. The common shares issuable upon
exercise of our remaining outstanding warrants are unregistered. At
December 31, 2018, none of our outstanding warrants are subject to
down round anti-dilution protection features and all of the
outstanding warrants are exercisable by the holders only by payment
in cash of the stated exercise price per share.
Note 9. Related Party Transactions
Cato Holding Company (CHC), doing business as Cato BioVentures
(CBV), is the parent of Cato Research Ltd.
(CRL). CRL is a contract research, development and
regulatory services organization (CRO) that we have engaged for a wide range of
material aspects related to the nonclinical and clinical
development and regulatory affairs associated with our efforts to
develop and commercialize AV-101 for MDD, including our ELEVATE
Study, and other potential CNS indications, PH94B, PH10, and other
potential product candidates. At December 31, 2018, CBV held
approximately 3% of our outstanding Common
Stock.
In July
2017, we entered into a Master Services Agreement (MSA) with CRL, which replaced a
substantially similar May 2007 master services agreement, pursuant
to which CRL may assist us in the evaluation, development,
commercialization and marketing of our potential product
candidates, and provide regulatory and strategic consulting
services as requested from time to time. Specific projects or
services are and will be delineated in individual work orders
negotiated from time-to-time under the MSA. Under the terms of work orders issued pursuant to
the July 2017 MSA and our prior May 2007 master services agreement,
we incurred expenses of $1,067,300 and $292,700 during the quarters
ended December 31, 2018 and 2017, respectively, and $2,697,100 and
$904,900 during the nine months ended December 31, 2018 and 2017,
respectively. We anticipate periodic expenses for CRO services from
CRL related to nonclinical and clinical development of, and
regulatory affairs related to, AV-101, PH94B, PH10 and other
potential product candidates will increase in future
periods.
As noted above, in September 2018, we issued an aggregate of
1,630,435 shares of our unregistered common stock having a fair
market value of $2,250,000 to acquire an exclusive worldwide
license to develop and commercialize PH94B and an option to acquire
a similar license for PH10. In October 2018, we issued an
additional 925,926 shares of our unregistered common stock having a
fair market value of $2,000,000 to exercise the option to acquire
an exclusive worldwide license to develop and commercialize PH10.
The acquisition of the licenses and option was recorded as research
and development expense. Additionally, during the nine months ended
December 31, 2018, we have recorded $40,000 of monthly support
payments to Pherin under the terms of the PH94B license agreement.
At December 31, 2018, Pherin held approximately 8% of our
outstanding Common Stock.
Note 10. Subsequent Events
We have
evaluated subsequent events through February 11, 2019 and have
identified the following matters requiring disclosure:
Grants and Exercise of Options from 2016 Plan
During
January 2019, in connection with the appointment of a new
independent member to our Board, the Board authorized the grant of
options to purchase 25,000 shares of our common stock under our
2016 Plan at an exercise price of $1.74 per share, the quoted
closing price of our common stock on the Nasdaq Capital Market on
the date of the grant. Additionally, one of our officers and one of
our independent Board members exercised options to purchase an
aggregate of 26,750 registered shares of our common stock at an
exercise price of $1.50 per share and we received cash proceeds of
$40,100. Also in January 2019, the Compensation Committee of the
Board authorized the grant of options to purchase 220,000 shares of
our common stock at an exercise price of $1.70 per share, the
quoted closing price of our common stock on the Nasdaq Capital
Market on the date of the grant, to one of our executive officers.
In February 2019, we granted 25,000 shares of common stock from our
2016 Plan as partial compensation under the terms of a social media
services contract.
|
Item 2.
|
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (Report) includes
forward-looking statements. All statements contained in this Report
other than statements of historical fact, including statements
regarding our future results of operations and financial position,
our business strategy and plans, and our objectives for future
operations, are forward-looking statements. The words
“believe,” “may,” “estimate,”
“continue,” “anticipate,”
“intend,” “expect” and similar expressions
are intended to identify forward-looking statements. We have based
these forward-looking statements largely on our current
expectations and projections about future events and trends that we
believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and
objectives and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties and assumptions.
Our business is subject to significant risks including, but not
limited to, our ability to obtain substantial additional financing,
the results of our research and development efforts, the results of
nonclinical and clinical testing, the effect of regulation by the
U.S. Food and Drug Administration (FDA) and other agencies, the
impact of competitive products, product development,
commercialization and technological difficulties, the effect of our
accounting policies, and other risks as detailed in the section
entitled “Risk Factors” in this
Report. Further, even if our product candidates appear
promising at various stages of development, our share price may
decrease such that we are unable to raise additional capital
without significant dilution or other terms that may be
unacceptable to our management, Board and
stockholders.
Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time to time. It is not possible
for our management or Board to predict all risks, nor can we assess
the impact of all factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and
assumptions, the future events and trends discussed in this Report
may not occur and actual results could differ materially and
adversely from those anticipated or implied in the forward-looking
statements.
You should not rely upon forward-looking statements as predictions
of future events. The events and circumstances reflected in the
forward-looking statements may not be achieved or occur. Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no
duty to update any of these forward-looking statements after the
date of this Report or to conform these statements to actual
results or revised expectations. If we do update one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect to those or other
forward-looking statements.
Business Overview
VistaGen Therapeutics. Inc., a Nevada corporation (which may be
referred to as VistaGen, the Company, we, our, or us), is a clinical-stage biopharmaceutical company
focused on developing new generation medicines for multiple central
nervous system (CNS) diseases and disorders with high unmet need. We
believe each of our CNS pipeline candidates, AV-101, PH10 and
PH94B, has the potential to be administered at home and provide
rapid-onset therapeutic benefits without psychological or other
side effects and safety concerns associated with many current and
potential new generation medications for CNS diseases and
disorders, such as major depressive disorder (MDD) and social anxiety disorder
(SAD), affecting millions
of individuals in the United States and foreign markets. Each drug
candidate in our pipeline is either currently in or has
successfully completed Phase 2 clinical development. AV-101, our
oral NMDA receptor glycine B antagonist, is in Phase 2 development,
initially as an adjunctive treatment of MDD. The FDA
has granted Fast Track designation for development of
AV-101 as both a potential adjunctive treatment of MDD and as a
non-opioid treatment for neuropathic pain. PH10, our potentially
first-in-class, rapid-onset neuroactive steroid nasal spray for
MDD, has completed an initial successful exploratory Phase 2
clinical study and is now being prepared for a multi-dose follow-on
Phase 2 clinical study in MDD. PH94B, our potentially
first-in-class, rapid-onset neuroactive steroid
nasal spray for as-needed (PRN) treatment of SAD, has completed a
successful Phase 2 clinical program, a successful pilot Phase 3
study and is now being prepared for pivotal Phase 3 clinical
development, with potential to be the first FDA-approved PRN
treatment of SAD.
AV-101
AV-101, an investigational prodrug candidate in Phase 2 clinical
development, is an orally bioavailable NMDAR GlyB
(N-methyl-D-aspartate receptor glycine B) antagonist in development
as a potential new treatment for multiple CNS indications with high
unmet need, including MDD,
neuropathic pain (NP), levodopa-induced dyskinesia associated with
Parkinson’s disease therapy (PD LID) and suicidal ideation (SI). In two NIH-funded AV-101 Phase 1 clinical
safety studies, AV-101 was well tolerated in healthy subjects
at all doses tested, in both single-ascending and
multiple-ascending dose studies, without causing any observed
psychological or sedative side effects. The United States Food and
Drug Administration (FDA) has granted Fast Track designation for
development of AV-101 as a potential new treatment for adjunctive
treatment of MDD and for treatment of NP.
Major Depressive Disorder
Major depressive disorder is a serious biologically-based mood
disorder, affecting approximately 16 million adults in the United
States according to the U.S. National Institute of Mental Health
(the NIMH). The CDC estimates that one in four women and
one in six men in the United States have been diagnosed with
MDD.
Individuals diagnosed with MDD exhibit
depressive symptoms, such as a depressed mood or a loss of interest
or pleasure in daily activities, for more than a two-week period,
as well as impaired social, occupational, educational or other
important functioning which has a negative impact on their quality
of life. According to the U.S. Centers for Disease Control and
Prevention (CDC), about one in eight Americans aged 12 and over
takes an FDA-approved antidepressant, and there are an estimated
11.6 million drug-treated patients suffering from MDD. While
current FDA-approved antidepressants are widely used, the STAR*D
study, the largest clinical trial conducted in depression to date,
found that approximately two-thirds of patients with MDD do not
respond to their initial antidepressant treatment, of which
approximately 5.1 million patients remain resistant to treatment
following the second antidepressant treatment. According
to the NIMH, inadequate response to current antidepressants is
among the key reasons MDD is a leading public health concern in the
United States, creating a significant unmet medical need for new
agents with fundamentally different mechanisms of
action.
We believe oral AV-101 has potential for multiple applications in
global depression markets if successfully developed and approved.
AV-101 has potential as an adjunctive therapy to (i) augment
current antidepressants approved by the FDA for patients with MDD
who have an inadequate response to standard antidepressants (SSRIs
and SNRIs) and (ii) prevent relapse of MDD following successful
intravenous or intranasal treatment with ketamine hydrochloride
(ketamine), a member of a class of drugs that block NMDA
receptor activity. Given its excellent tolerability profile,
we believe it may also have potential as a first-line monotherapy
conveniently administered at home. Ketamine is an FDA-approved,
rapid-acting general anesthetic currently administered only by
intravenous or intramuscular injection. The off-label use of
ketamine in treatment-resistant depression (TRD), defined as those patients
who have failed at least two prior
treatment attempts involving current antidepressants, has been
studied in numerous clinical trials conducted by depression experts
at Yale University and other academic institutions, as well as at
the NIMH, including by Dr. Carlos Zarate, Jr., the NIMH’s
Chief of Experimental Therapeutics & Pathophysiology Branch and
of the Section on Neurobiology and Treatment of Mood and Anxiety
Disorders. In randomized, placebo-controlled, double
blind clinical trials reported by Dr. Zarate and others at the
NIMH, a single sub-anesthetic dose of ketamine (0.5 mg/kg over 40
minutes) produced robust and rapid (within twenty-four hours)
antidepressant effects in MDD patients who had not responded to at
least two prior treatment attempts involving standard
antidepressants. These results were in sharp contrast to
the very slow-onset activity of standard antidepressants,
which usually require many weeks or more of chronic usage to
achieve similar antidepressant effects. We believe AV-101 may
have potential to deliver fast-acting antidepressant effects
similar to ketamine, but as an oral therapy on an at-home basis,
without the requirement for administration in a medical setting or
the required the use of needles, and without causing psychological,
sedative or other side effects and safety concerns associated with
ketamine and certain other fast-acting newer generation
antidepressant drug candidates.
AV-101 is currently in Phase 2 clinical development in the United
States for MDD. ELEVATE is our ongoing Phase 2 multi-center,
multi-dose, double blind, placebo-controlled clinical study to
evaluate the efficacy and safety of AV-101 as a new generation
adjunctive treatment of MDD in adult patients with an inadequate
therapeutic response to current FDA-approved antidepressants
(the ELEVATE
Study). Dr. Maurizio Fava,
Professor of Psychiatry at Harvard Medical School and Director,
Division of Clinical Research, Massachusetts General Hospital
(MGH) Research Institute, is the Principal
Investigator of the ELEVATE Study assisting our internal team,
which is led by Mark Smith, MD, PhD, our Chief Medical
Officer. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the STAR*D study, the findings of which were
published in journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA).
AV-101 is also the subject of a small randomized, double-blind,
placebo-controlled cross-over Phase 2 clinical study being
conducted and funded by the NIMH, pursuant to our Cooperative
Research and Development Agreement (CRADA) with the NIMH (the NIMH Study). Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, is acting as the Principal Investigator for the NIMH
Study. This trial is focused on the pharmacodynamic and potential
therapeutic effects in such patients using standard measurements of
clinical responses and measurement of responses of a number of
biomarkers associated with engagement of the NMDA receptor thought
to be associated with clinical response. Dr. Zarate and the NIMH
were among the first in the U.S. to conduct clinical studies in MDD
patients with inadequate responses to multiple current FDA-approved
antidepressants that demonstrated the robust, fast-acting
antidepressant effects of ketamine within twenty-four hours of a
single sub-anesthetic dose administered by IV
injection.
The FDA has granted Fast Track designation for
development of AV-101 as a potential new adjunctive treatment of
MDD.
Suicidal Ideation
According to the World Health Organization (WHO), every year approximately 800,000 people
worldwide take their own life and many more attempt suicide.
The CDC views suicide as a major public health concern in the
United States as rates of suicide have been increasing for both men
and women and across all age groups. Suicide is the 10th leading
cause of death in the U.S. and is one of just three leading causes
that are on the rise. According to experts in the field of
suicidal ideation, characterized as suicidal thoughts and behavior,
the number of Americans who die by suicide is, since 2010, higher
than those who die in motor vehicle accidents. People of all
genders, ages, and ethnicities can be at risk for suicide. Suicidal
ideation is complex and there is no single cause. The NIMH
attributes many different factors contribute to someone making a
suicide attempt, including, but not limited to, depression, other
mental health disorders or substance abuse
disorder. Additionally, according to reports released by the
United States Department of Veterans Affairs (VA), the U.S. Military Veteran population is at
significantly higher risk for suicide than the general
population.
We are collaborating with Baylor College of Medicine
(Baylor) and the VA on a small Phase 1b clinical trial of
AV-101 involving healthy volunteer U.S. Military Veterans from
either Operation Enduring Freedom, Operation Iraqi Freedom or
Operation New Dawn (the Baylor
Study). The Baylor Study is a
randomized, double-blind, placebo-controlled cross-over study
designed as a target engagement study as the first-step in our
plans to test potential anti-suicidal effects of AV-101 in U.S.
Military Veterans. Dr. Marijn Lijffijt of Baylor is the Principal
Investigator of the Baylor Study. VistaGen and the VA entered into
a Material Transfer Cooperative Research and Development Agreement
(MT
CRADA) regarding clinical trial
material for the Baylor Study. Government funding from the VA is
being provided for substantially all other study
costs.
Neuropathic Pain
Neuropathic
pain, a complex,
chronic pain state affecting millions of Americans, results from
problems with signals from nerves. The American Chronic Pain
Association has identified various causes of NP, including tissue
injury, nerve damage or disease, diabetes, infection, toxins,
certain types of drugs, such as antivirals and chemotherapeutic
agents, certain cancers, and even chronic alcohol intake. With NP,
damaged, dysfunctional or injured nerve fibers send incorrect
signals to other pain centers and impact nerve function both at the
site of injury and areas around the injury. Unfortunately, many NP
treatments on the market today have side effects, including
anxiety, depression, dizziness, cognitive impairment and/or
sedation.
The
effects of AV-101 as a potential new treatment for NP were assessed
in published peer-reviewed preclinical studies involving four
well-established models of pain. In
these studies, AV-101 was observed to have robust, dose-dependent
anti-nociceptive effects, as measured by dose-dependent reversal
of NP in the Chung (nerve ligation), formalin and carrageenan
thermal models in rats,
and was well-tolerated. The
publication, titled: “Characterization of the
effects of L-4-chlorokynurenine on nociception in
rodents,” by lead author,
Tony L. Yaksh, Ph.D., Professor in Anesthesiology at the University
of California, San Diego, was published in The Journal of
Pain in April 2017 (J
Pain. 18:1184-1196, 2017)). Gabapentin, an FDA-approved
anticonvulsant, has been associated with sedation and mild
cognitive impairment in third party literature. Other commonly
prescribed medications for NP include drugs targeting opioid
receptors in the brain. Unfortunately, misuse of such drugs can
lead to a significantly increased risk of addiction, and, we
believe, their therapeutic utility for neuropathic pain is unclear.
We are planning to advance AV-101 into an exploratory Phase 2a
clinical study, subject to securing sufficient capital, to assess
its potential as a new oral non-opioid treatment to reduce
debilitating NP, as well as its potential to avoid sedative side
effects and cognitive impairment that have been observed in third
party literature to be associated with other NP treatments, and to
reduce the risk of addiction associated with pain medications
targeting opioid receptors.
The FDA has granted Fast Track designation for
development of AV-101 as a potential new, non-opioid treatment of
NP.
Parkinson’s Disease Levodopa-Induced Dyskinesia
Parkinson's disease (PD) is a chronic, progressive motor disorder that
causes tremors, rigidity, slowed movements and postural
instability. The most commonly-prescribed treatments for PD are
levodopa-based therapies. Unfortunately, abnormal involuntary
movements, called dyskinesias, gradually emerge as a prominent
side-effect in response to previously beneficial doses of
levodopa. PD LID
can be severely disabling, rendering patients
unable to perform routine daily tasks.
In a preclinical monkey model of PD, AV-101 resulted in a 30%
reduction of the mean dyskinesia score associated with PD LID.
Importantly, AV-101 did not reduce the anti-parkinsonian
therapeutic benefit of levodopa. Moreover, the duration of levodopa
response and delay to levodopa effect were not affected by
treatment with AV-101. We believe AV-101 has potential to
reduce troublesome dyskinesia experienced by many patients with PD
as a result of their levodopa therapy, but without interfering with
levodopa or causing side effects resulting from certain current PD
LID treatments, such as amantadine, including hallucinations,
dizziness, dry mouth, swelling of legs and feet, constipation and
falls. We are planning to advance clinical development of AV-101
for PD LID in an exploratory Phase 2 clinical study, subject to
securing sufficient capital, as our next initiative in PD
LID.
PH94B
In September 2018, we acquired, on a non-cash basis through the
issuance of unregistered shares of our common stock, a license from
Pherin Pharmaceuticals, Inc. (Pherin) giving us the exclusive worldwide rights to
develop and commercialize PH94B, a rapid-onset neurosteroid nasal
spray with potential to be the first FDA-approved PRN treatment for
SAD.
PH94B is a synthetic investigational neuroactive steroid for which
Phase 2 clinical data showed that the product was well tolerated
and demonstrated a rapid onset of effect, as measured by the
Subjective Units of Distress (SUD) and the Liebowitz Social Anxiety Scale
(LSAS) in SAD, a social phobia that affects as many as
22 million American adults according to the NIMH. SAD is
characterized by an intense and persistent fear of embarrassment,
humiliation, judgment and rejection in everyday social or
performance situations, leading to avoidance of anxiety and
fear-producing social situations when possible. SAD has a
significant impact on the individual’s employment, social
activities and overall quality of life. According to the NIMH, an
estimated 7% of the U.S. population suffers from SAD. SAD is
commonly treated chronically with antidepressants, which have slow
onset of effect (several weeks or months) and known side effects
that may make them unattractive to individuals intermittently or
episodically affected by SAD.
Administered as a nasal spray, PH94B is designed to act locally on
peripheral nasal chemosensory receptors to trigger rapid activation
of the limbic system areas of the brain associated with SAD. In
prior clinical studies, PH94B demonstrated rapid (10-15 minutes)
anxiety reduction for subjects with SAD, measured by the SUD
and LSAS, and was not observed to be addictive, sedative
or have other adverse events. Benzodiazepines and beta blockers,
which are currently prescribed off-label to treat SAD, have been
found in third party literature to have these addictive or sedative
properties, and have other adverse effects when used to treat
SAD.
Based on clinical studies in which PH94B was observed to have rapid
onset of effect on anxiety reduction, as measured by the SUD and
LSAS, and to be well-tolerated, and in light of its novel route of
administration and on-demand dosing design, we believe PH94B has
potential to be the first FDA-approved medication for long-term PRN
treatment of individuals with SAD.
PH10
In October 2018, we acquired, on a non-cash basis through the
issuance of unregistered shares of our common stock, a second
license from Pherin giving us the exclusive worldwide rights to
develop and commercialize PH10, a synthetic investigational
neuroactive steroid nasal spray for which exploratory Phase 2
clinical data showed that it was well tolerated and demonstrated a
rapid onset of antidepressant effects. PH10 is designed to bind
locally on nasal chemosensory receptors and trigger responses in
the hypothalamus, amygdala, prefrontal cortex and hippocampus
affecting depression. It is believed that PH10 may initiate nerve
impulses that follow defined pathways to directly affect brain
function. In a small exploratory Phase 2a study in patients with
MDD, PH10 showed a rapid-onset antidepressant effect, as measured
by the Hamilton Depression Rating Scale (HAM-D),
without psychological side effects or safety concerns. PH10 is a
new generation antidepressant with a mechanism of action that is
fundamentally different from all current antidepressants. As with
AV-101, we believe PH10 intranasal has potential for multiple
applications in global depression markets, as a stand-alone first
line therapy and as an adjunctive therapy, if successfully
developed and approved. In addition to its potential as a
first-line monotherapy administered conveniently at-home, we
believe PH10 has potential as an adjunctive therapy to (i) augment
current antidepressants approved by the FDA for patients with MDD
who have an inadequate response to standard antidepressants (SSRIs
and SNRIs), and (ii) prevent relapse of MDD following successful
treatment with ketamine, either intravenously- or
intranasally-administered ketamine.
VistaStem
In addition to our CNS business, we have two additional programs
through our wholly-owned subsidiary VistaGen Therapeutics, Inc., a
California corporation, dba VistaStem Therapeutics
(VistaStem). VistaStem is focused on applying stem cell
technology to rescue, develop and commercialize (i) proprietary new
chemical entities (NCEs) for CNS and other diseases, and (ii)
regenerative medicine (RM) involving stem cell-derived blood, cartilage,
heart and liver cells. Our internal drug rescue programs are
designed to utilize CardioSafe
3D, our customized cardiac
bioassay system, to develop small molecule NCEs for our CNS
pipeline or out-licensing. We have exclusively sublicensed to
BlueRock Therapeutics LP, a next generation cell therapy and RM
company established by Bayer and Versant Ventures
(BlueRock
Therapeutics), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the BlueRock
Agreement). In a manner
similar to the BlueRock Agreement, we may pursue additional
VistaStem collaborations or
licensing transactions involving stem
cell-derived blood, cartilage, and/or liver cells RM
applications.
Subsidiaries
As noted above, VistaStem is our wholly-owned subsidiary. Our
Condensed Consolidated Financial Statements in this Report also
include the accounts of VistaStem’s two wholly-owned inactive
subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation,
and VistaStem Canada, Inc., a corporation organized under the laws
of Ontario, Canada.
Financial Operations Overview and Results of
Operations
Our critical accounting policies and estimates and recent
accounting pronouncements are disclosed in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2018, as filed with
the SEC on June 26, 2018, and in Note 3 to the accompanying
unaudited Condensed Consolidated Financial Statements included in
Part 1, Item 1 of this Report.
Summary
Net Loss
We have
not yet achieved recurring revenue-generating status from any of
our product candidates or technologies. Since inception, we have devoted substantially all
of our time and efforts to developing our initial CNS product
candidate, AV-101, from early nonclinical studies to our ongoing
Phase 2 clinical development program in MDD, as well as stem cell
technology research and development, bioassay development, small
molecule drug development, and creating, protecting and patenting
intellectual property (IP) related to our product candidates and
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital. As disclosed
above, we have recently acquired the rights to develop and
commercialize PH94B and PH10. As of December 31, 2018, we
had an accumulated deficit of approximately $175.4 million. Our net
loss for the quarters ended December 31, 2018 and 2017 was
approximately $7.2 million and $3.0 million, respectively. We
expect losses to continue for the foreseeable future, primarily as
we continue to conduct our ELEVATE Study, pursue further clinical
development of AV-101 for the adjunctive treatment of MDD and for a
range of other CNS indications, and further develop PH94B and
PH10.
Summary of the Nine Months Ended December 31, 2018
During the nine months ended December 31, 2018, we continued to (i)
advance nonclinical development, including manufacturing, and
clinical development of AV-101 as a potential new generation
antidepressant and as a potential new therapeutic alternative for
several CNS indications with significant unmet need, (ii) expand
the regulatory and intellectual property foundation to support
broad clinical development and, ultimately, commercialization of
AV-101 in the U.S. and foreign markets, (iii) expand our
neuropsychiatry pipeline by acquiring exclusive worldwide licenses
to PH94B, a novel drug candidate for treatment of SAD, and PH10, a
novel drug candidate for treatment of MDD, and (iv) on a limited
basis, advance drug rescue applications of our stem cell technology
to further expand our CNS pipeline.
We have continued to conduct our ELEVATE Study throughout the
fiscal year, in addition to producing supplies of AV-101 and
conducting certain Phase 3-enabling nonclinical studies involving
AV-101.
Pursuant to our CRADA with the NIH, the NIH continues to fund, and
Dr. Carlos Zarate Jr. of the NIMH continues to conduct, the NIMH
Study at no cost to us other than having supplied AV-101 and
placebo for use in connection with the NIMH Study.
Pursuant to our MT CRADA with the VA and our arrangements with
Baylor, Baylor commenced the Baylor Study to define a dose-response
relationship between AV-101 and relevant biomarkers related to NMDA
function and others possibly related to suicidal ideation in U.S.
Military Veterans.
In September and October 2018, we acquired, on a non-cash basis
through the issuance of our common stock, licenses from Pherin
giving us the exclusive worldwide rights to develop and
commercialize PH94B, a rapid-onset drug candidate designed to be
administered as a nasal spray with potential to be the first
FDA-approved PRN medication for SAD, and PH10, a rapid-onset drug
candidate designed to be administered as a nasal spray for
treatment of MDD. We are actively pursuing nonclinical and
regulatory initiatives necessary to facilitate pivotal Phase 3
clinical development of PH94B for SAD and Phase 2 clinical
development of PH10 for MDD.
We continue to pursue initiatives to secure a broad
portfolio of patent protection for AV-101 that covers the treatment
of multiple CNS indications, unit dose formulations of AV-101
effective to treat depression and chemical synthesis methods. With
respect to CNS treatments, we obtained patents in several countries
for the treatment of depression and we are pursuing patent
applications related to treatment of L-DOPA induced dyskinesias,
certain types of neuropathic pain, tinnitus and
obsessive-compulsive disorder. Additional patent applications to
other aspects of prognostic testing and treatment using AV-101 are
under consideration.
During fiscal 2018 and
subsequently, we have pursued patent applications in the U.S.,
Australia, China, Europe, Japan and other selected countries and
regions with significant commercial potential. Several of these
patent applications were allowed or have been granted in the U.S.
and other major pharmaceutical markets during the nine months
covered by this Report. Based on patent issuances or allowances
to-date in several countries, we believe that pending counterpart
patent applications related to AV-101 currently under review in
other countries also are likely to be granted, although there can
be no assurance that all pending applications will ultimately be
granted.
We
have an exclusive license from Pherin to its portfolio of patent
assets around PH94B, under clinical development for the treatment
of SAD. Patents have issued in several countries, including the
U.S., Australia, Canada, China, Europe, Japan, Korea and
Mexico.
We
also have an exclusive license from Pherin to its portfolio of
patent assets around PH10, under clinical development for the
treatment of depressive disorders. Patents in this portfolio have
issued in Australia, China, Europe and Japan. Applications are
pending in the U.S., Canada, Korea and Mexico.
As
with AV-101, we plan to seek regulatory exclusivity in
countries where this is available for the therapeutic use of PH94B,
with initial emphasis on treating SAD, as our lead indication in
clinical development, and for the therapeutic use of PH10, with our
lead indication being the treatment of major depressive
disorder.
We
have obtained and are pursuing patent rights to the production of
several types of stem cells and cells differentiated from those
stem cells, including cardiomyocytes, hematopoietic cells,
chondrocytes, cartilage cells and hepatocytes, as well as the use
of certain cell types that have been differentiated from
pluripotent stem cells for therapeutic purposes, including
cell-based therapy and regenerative medicine.
Between
June 2018 and October 2018, we completed a self-placed private
placement with accredited investors, pursuant to which we sold
units, at a purchase price of $1.25 per unit, consisting of
4,605,000 unregistered shares of our common stock and warrants,
exercisable through February 28, 2022, to purchase 4,605,000
unregistered shares of our common stock at an exercise price of
$1.50 per share (the Summer 2018
Private Placement). We received
aggregate cash proceeds of $5,756,200 from the Summer 2018 Private
Placement. The Summer 2018 Private Placement was
oversubscribed. To accommodate additional investor interest, during
October 2018, we accepted subscription agreements from accredited
investors, pursuant to which we sold to such investors units, at a
unit purchase price equal to $0.15 above the closing quoted market
price of our common stock on the Nasdaq Capital Market on the
effective date of the investor’s subscription agreement,
consisting of an aggregate of 420,939 unregistered shares of our
common stock and four-year, immediately exercisable warrants to
purchase 420,939 unregistered shares of our Common Stock at a per
share exercise price equal to the closing quoted market price of
our common stock on the Nasdaq Capital Market on the effective date
of the investor’s subscription agreement (the Fall 2018 Private Placement). We
received aggregate cash proceeds of $812,500 in connection with the
Fall 2018 Private Placement and settled an outstanding professional
service payable by accepting a subscription agreement in the amount
of $40,000 and issuing the corresponding number of shares and
warrants. During the nine months ended December 31, 2018, we have
also received cash proceeds of $605,700 from the exercise of
outstanding warrants to purchase an aggregate of 403,800 shares our
common stock.
As a
matter of course, we continue to minimize, to the greatest extent
possible, cash commitments and expenditures for both internal and
external research and development and general and administrative
services. To further advance the
clinical and nonclinical development of AV-101, PH94B, PH10 and our
stem cell technology platform, as well as support our operating
activities, we continue to carefully manage our routine operating
costs, including our internal employee related expenses, as well as
external costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and internal
costs.
Results of Operations
Comparison of Three Months Ended December 31, 2018 and
2017
The following table summarizes the results of our operations for
the three months ended December 31, 2018 and 2017 (amounts in
thousands).
|
|
Three Months Ended December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
$5,335
|
$1,602
|
|
General
and administrative
|
1,857
|
1,266
|
|
Total
operating expenses
|
7,192
|
2,868
|
|
|
|
|
|
Loss
from operations
|
(7,192)
|
(2,868)
|
|
|
|
|
|
Interest
expense, net
|
(2)
|
(2)
|
|
Loss
on extinguishment of accounts payable
|
(23)
|
(135)
|
|
|
|
|
|
Loss
before income taxes
|
(7,217)
|
(3,005)
|
|
Income
taxes
|
-
|
-
|
|
|
|
|
|
Net
loss
|
(7,217)
|
(3,005)
|
|
Accrued
dividend on Series B Preferred Stock
|
(291)
|
(263)
|
|
Deemed dividend from trigger of down round
|
|
|
|
provision
feature
|
-
|
(199)
|
|
Net
loss attributable to common stockholders
|
$(7,508)
|
$(3,467)
|
Revenue
We reported no revenue for either the quarter ended December 31,
2018 or 2017 and we presently have no recurring revenue generating
arrangements with respect to AV-101, PH94B, PH10 or other potential
product candidates. While we may potentially receive payments or
royalties under the BlueRock Agreement in the future in the event
certain performance-based milestones and commercial sales are
achieved, there can be no assurance that the BlueRock Agreement
will provide revenue to us in the near term or at all.
Research and Development Expense
Research and development expense increased to $5.3 million compared
to $1.6 million for the quarters ended December 31, 2018 and 2017,
respectively. The October 2018 acquisition of the PH10 license
through the issuance of our common stock, which resulted in $2.0
million of noncash expense, coupled with continuing expenses of the
ELEVATE Study and various nonclinical activities, including
manufacturing additional quantities of AV-101, are the primary
drivers of the increase in research and development expense. In
addition to the PH10 license acquisition, other noncash expenses
included in research and development expense, including stock
compensation, depreciation and a portion of rent expense in both
periods and a portion of AV-101 project expenses in the quarter
ended December 31, 2018, aggregated approximately $297,000 and
$385,000 for the quarters ended December 31, 2018 and 2017
respectively. The following table indicates the primary components
of research and development expense for each of the periods
(amounts in thousands):
|
|
Three Months Ended December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Salaries
and benefits
|
$321
|
$347
|
|
Stock-based
compensation
|
275
|
299
|
|
Consulting
and other professional services
|
106
|
7
|
|
Technology
license expense
|
144
|
149
|
|
Project-related
research and supplies:
|
|
|
|
ELEVATE
study and other AV-101 expenses
|
2,291
|
665
|
|
PH94B
and PH10 licenses and other expenses
|
2,059
|
-
|
|
VistaStem
and all other projects
|
23
|
15
|
|
|
4,373
|
680
|
|
Rent
|
104
|
104
|
|
Depreciation
|
12
|
16
|
|
|
|
|
|
Total
Research and Development Expense
|
$5,335
|
$1,602
|
The decrease in salaries and benefits expense reflects the impact
of salary increases granted to our Chief Medical Officer
(CMO), Chief Scientific Officer (CSO) and members of our scientific staff effective in
July 2018 offset by decreased bonus payments in the quarter ended
December 31, 2018 versus the quarter ended December 31,
2017.
Stock-based compensation expense reflects the routine amortization
of option grants made to our CSO, CMO and scientific staff in June
2016 and thereafter, all earlier grants having become fully vested
and amortized prior to the quarter ended December 31, 2018. Grants
awarded after December 2017 account for approximately $92,000 of
2018 expense. Expense attributable to these grants is generally
being amortized over two-year to four-year vesting periods, with
one-quarter of the grants made in February 2018 and August 2018
being immediately vested and expensed upon grant, in accordance
with the terms of the respective grants.
Consulting services reflects fees paid or accrued for scientific,
nonclinical and clinical development and regulatory advisory
services rendered to us by third-parties, in 2017, primarily by
members of our Scientific Advisory Board and CNS Clinical and
Regulatory Advisory Board. The increase in 2018 expense reflects
consulting and support services in connection with our acquisition
of the exclusive licenses to PH94B and PH10 and related consulting
arrangements.
Technology license expense reflects both recurring annual license
fees, as well as legal counsel and other costs related to patent
prosecution and protection pursuant to our stem cell technology
license agreements or that we have elected to pursue for commercial
purposes. We recognize these costs as they are invoiced to us by
the licensors or counsel and they do not occur ratably throughout
the year or between years. In both periods, this expense includes
legal counsel and other costs we have incurred to advance pending
patent applications in the U.S. and numerous foreign countries with
respect to AV-101 and our stem cell technology platform.
Acquisition of the PH94B and PH10 licenses contributed only
nominally to this expense in 2018.
AV-101 project expense for the quarter ended December 31, 2018,
primarily reflects the continuing costs of conducting the ELEVATE
Study, including various CRO, investigator and clinical site costs,
as well as expense incurred to manufacture additional quantities of
AV-101 for use in future Phase 3-enabling nonclinical trials and
clinical development of AV-101 for MDD and other potential CNS
indications. AV-101 project expense for the quarter ended December
31, 2017 included costs incurred to develop our current more
efficient and cost-effective proprietary manufacturing methods for
AV-101, and to produce quantities of AV-101 in preparation for the
ELEVATE Study and Baylor Study.
As indicated above, PH94B and PH10 expense includes the non-cash
expense related to the October 2018 acquisition of the PH10 license
through the issuance of $2.0 million fair value of 925,926
unregistered shares of our common stock to Pherin under the terms
of the option exercise and license. Additional expense relates to
initiatives advancing the further development of
PH94B.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years.
Rent expense is essentially unchanged between the periods and
reflects commercial property rents prevalent in the South San
Francisco real estate market at the time of our November 2016 lease
amendment extending the lease of our headquarters facilities in
South San Francisco by five years from July 31, 2017 to July 31,
2022 and the related accounting for the amendment.
General and Administrative Expense
General and administrative expense increased to approximately $1.8
million, from approximately $1.3 million for the quarters ended
December 31, 2018 and 2017, respectively. Noncash expense, $588,000
in the quarter ended December 31, 2018, increased from $485,000 in
the quarter ended December 31, 2017 primarily due to increases in
stock-based compensation and in noncash components of investor and
public relations and warrant modification expenses. The following
table indicates the primary components of general and
administrative expense for each of the periods (amounts in
thousands):
|
|
Three Months Ended December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Salaries
and benefits
|
$321
|
$339
|
|
Stock-based
compensation
|
460
|
390
|
|
Board
fees
|
39
|
39
|
|
Legal,
accounting and other professional fees
|
132
|
44
|
|
Investor
and public relations
|
645
|
232
|
|
Insurance
|
71
|
60
|
|
Travel
expenses
|
40
|
33
|
|
Rent
and utilities
|
72
|
69
|
|
Warrant
modification expense
|
26
|
13
|
|
All
other expenses
|
51
|
47
|
|
|
$1,857
|
$1,266
|
The decrease in salaries and benefits primarily reflects the impact
of salary increases granted effective July 2018 to our Chief
Executive Officer (CEO), Chief Financial Officer (CFO), Vice President-Corporate Development
(VP
Corporate Development) and a
non-officer member of our administrative staff, offset by reduced
bonus payments in the quarter ended December 31,
2018.
Stock-based compensation expense reflects the routine amortization
of option grants made to our CEO, CFO, VP Corporate Development and
administrative staff in June 2016 and thereafter, all earlier
grants having become fully vested and amortized prior to the
quarter ended December 31, 2018. Grants awarded after December 2017
account for approximately $196,000 of 2018 expense. Expense
attributable to these grants is generally being amortized over
two-year to four-year vesting periods, with one-quarter of the
grants made in February 2018 and August 2018 being immediately
vested and expensed upon grant, in accordance with the terms of the
respective grants.
Board fees represents fees paid as consideration for the Board and
Board Committee services of the independent members of our
Board.
Legal, accounting and other professional fees for the quarters
ended December 31, 2018 and 2017 includes expense related to
routine legal fees as well as the accounting expense related to the
review of the financial statements for the third quarter of each
fiscal year. In 2018, we also incurred $68,000 attributable to
services provided by an international business development
consultant. We incurred no non-cash expense in the quarters ended
December 31, 2018 or 2017.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations and public relations services, and well as market
awareness and strategic advisory and support functions and
initiatives that included numerous meetings in multiple U.S.
markets and other communication activities focused on expanding
market awareness of the Company and its research and development
programs, including among registered investment professionals and
investment advisors, and individual and institutional investors. In
the quarter ended December 31, 2018, in addition to cash fees and
expenses we incurred for such activities, we recognized $102,000 of
noncash expense attributable to the amortization of the fair value
of stock and warrants granted in the previous quarter to various
corporate development, investor relations, and market awareness
service providers. The balance of the fair value of the securities
granted remains recorded as a prepaid expense at December 31, 2018
and is being amortized over the remaining service period of the
respective contracts. In the quarter ended December 31, 2017, in
addition to cash fees and expenses we incurred, we granted an
aggregate of 70,000 unregistered shares of our common stock to
certain investor relations, market awareness and strategic business
advisory service providers for their services and recognized
noncash expense of $84,000, representing the fair value of the
stock at the time of issuance.
In both periods, travel expense reflects costs associated with
management presentations and meetings held in multiple U.S.
markets, and certain international markets in 2018, with existing
and potential individual and institutional investors, investment
professionals and advisors, media, and securities analysts, as well
as various investor relations, market awareness and corporate
development and partnering initiatives and in monitoring the
progress of our ELEVATE Study in 2018.
Rent expense is essentially unchanged between the periods and
primarily reflects commercial property rents prevalent in the South
San Francisco real estate market at the time of our November 2016
lease amendment extending the lease of our headquarters facilities
in South San Francisco by five years from July 31, 2017 to July 31,
2022 and the related accounting for the amendment.
During
the quarter ended December 31, 2018, we modified certain warrants
issued in the Summer 2018 Private Placement to comply with certain
provisions of The Nasdaq Stock Market Rules applicable to the
private placement by increasing the exercise price of such warrants
to purchase an aggregate of 304,000 shares of our common stock from
$1.50 per share to $1.59 per share or $1.69 per share, depending on
the effective date of the related subscription agreement. As
additional consideration for the modification, we granted the
investors additional warrants to purchase an aggregate of 23,800
unregistered shares of our common stock at an exercise price of
$1.75 per share through February 28, 2022. We determined that the modification decreased the
fair value of the modified warrants, which decrease is not
recognized; however, the fair value of the new warrants was
determined to be $25,800, which we recognized as noncash warrant
modification expense. During the quarter ended December 31, 2017,
we modified outstanding warrants issued in private placement
transactions between August 2017 and November 2017 to purchase an
aggregate of 178,572 shares of our common stock to reduce the
exercise prices from a weighted average of $2.32 per share to a
weighted average of $1.58 per share. We recognized the calculated
increase in the fair value of the warrants, $13,000, as noncash
warrant modification expense.
Interest and Other Expenses
Interest expense totaled $1,800 for the quarter ended December 31,
2018 compared to $2,000 for the quarter ended December 31, 2017.
Interest expense in both periods relates to interest paid on
insurance premium financing and on a capital lease of office
equipment.
In
connection with the Fall 2018 Private Placement, we settled an
outstanding professional service payable by accepting a
subscription agreement in the amount of $40,000 and issuing the
corresponding number of shares of Common Stock and warrants. The
fair value of the common stock and warrant issued in settlement of
the payable was determined to be $62,700 on the effective date of
the agreement. Accordingly, we recognized a loss on extinguishment
of accounts payable in the amount of $22,700 in the quarter ended
December 31, 2018. During the quarter ended December 31, 2017, we
issued 500,000 unregistered shares of our common stock having a
fair value at the time of issuance of $585,000 and a cash payment
of $76,500 to a contract manufacturing organization in settlement
of $526,500 of open accounts payable. We recognized a corresponding
loss on settlement of accounts payable in the amount of $135,000
for the quarter ended December 31, 2017.
We
recognized $290,900 and $263,000 for
the quarters ended December 31, 2018 and 2017, respectively,
representing the 10% cumulative dividend payable on outstanding
shares of Series B Preferred as an additional deduction in arriving
at net loss attributable to common stockholders in the
accompanying Condensed Consolidated Statement of Operations and
Comprehensive Loss included in Part I of this Report. There have
been no conversions of outstanding shares of Series B Preferred
stock into shares of our common stock since August
2016.
Our
sale of units consisting of common stock and warrants in our
December 2017 public offering at an offering price of $1.50 per
unit triggered the anti-dilution provisions of the Series A2
Warrants to purchase an aggregate of 503,641 shares of our common
stock issued in our September 2017 public offering. In accordance
with the anti-dilution terms and formula contained in the Series A2
warrants, the exercise price of the Series A2 Warrants was reduced
from the initial exercise price of $1.82 per share to $0.001 per
share. We recognized the effect of triggering the down round
feature, $199,200, as a component of net loss attributable to
common stockholders in the quarter ended December 31,
2017.
Comparison of Nine Months Ended December 31, 2018 and
2017
The following table summarizes the results of our operations for
the nine months ended December 31, 2018 and 2017 (amounts in
thousands).
|
|
Nine Months Ended December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
$13,340
|
$5,125
|
|
General
and administrative
|
5,494
|
4,997
|
|
Total
operating expenses
|
18,834
|
10,122
|
|
|
|
|
|
Loss
from operations
|
(18,834)
|
(10,122)
|
|
|
|
|
|
Interest
expense (net)
|
(7)
|
(8)
|
|
Loss
on extinguishment of accounts payable
|
(23)
|
(135)
|
|
|
|
|
|
Loss
before income taxes
|
(18,864)
|
(10,265)
|
|
Income
taxes
|
(2)
|
(2)
|
|
|
|
|
|
Net
loss
|
(18,866)
|
(10,267)
|
|
Accrued
dividend on Series B Preferred Stock
|
(848)
|
(767)
|
|
Deemed dividend from trigger of down round
|
|
|
|
provision
feature
|
-
|
(199)
|
|
Net
loss attributable to common stockholders
|
$(19,714)
|
$(11,233)
|
Revenue
We reported no revenue for either period presented and we presently
have no recurring revenue generating arrangements with respect to
AV-101, PH94B, PH10, or other potential product candidates. While
we may potentially receive additional payments and royalties under
our December 2015 BlueRock Agreement in the future in the event
certain performance-based milestones and commercial sales are
achieved, there can be no assurance that the BlueRock Agreement
will provide additional revenue to us in the near term or at
all.
Research and Development Expense
Research and development expense increased to $13.3 million
compared to $5.1 million for the nine months ended December 31,
2018 and 2017, respectively. The noncash acquisition of the PH94B
license and the PH10 option and license through the issuance of our
common stock, which resulted in an aggregate of $4.25 million of
expense, coupled with expenses related to conducting the ELEVATE
Study and various nonclinical activities, including manufacturing
additional quantities of AV-101, are the primary drivers of the
increase in research and development expense. Other noncash
expenses included in research and development expense, including
stock compensation, depreciation and a portion of rent expense in
both periods and a portion of AV-101 project expenses in the nine
months ended December 31, 2018, aggregated approximately $1,026,000
and $1,228,000 for the nine months ended December 31, 2018 and 2017
respectively. The following table indicates the primary components
of research and development expense for each of the periods
(amounts in thousands):
|
|
Nine Months Ended December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Salaries
and benefits
|
$1,293
|
$1,231
|
|
Stock-based
compensation
|
956
|
627
|
|
Consulting
and other professional services
|
149
|
23
|
|
Technology
license expense
|
397
|
309
|
|
Project-related
research and supplies:
|
|
|
|
ELEVATE
study and other AV-101 expenses
|
5,801
|
2,465
|
|
PH94B
and PH10 licenses and other expenses
|
4,309
|
-
|
|
VistaStem
and all other projects
|
85
|
105
|
|
|
10,195
|
2,570
|
|
Rent
|
312
|
308
|
|
Depreciation
|
36
|
54
|
|
All
other
|
2
|
3
|
|
Total
Research and Development Expense
|
$13,340
|
$5,125
|
The increase in salaries and benefits expense reflects the impact
of salary increases and bonus payments granted to our CMO, CSO and
members of our scientific staff effective in July 2018, offset by
the impact of a staff termination in the quarter ended June 30,
2017.
Stock-based compensation expense increased significantly in the
nine months ended December 31, 2018 as a result of (i) the impact
of new options granted to our CMO, CSO, and members of our
scientific staff in August 2018 which options were 25% vested upon
grant and vest ratably until becoming fully-vested within two years
thereafter, and (ii) the modification in August 2018 of outstanding
options held by our CMO, CSO and members of our scientific staff
having exercise prices over $1.56 per share to reduce the exercise
price to $1.50 per share. Stock compensation expense attributable
to grants made subsequent to December 31, 2017 and including the
$104,000 immediately recognized impact of the modification of
exercise prices accounted for approximately $312,000 in the nine
months ended December 31, 2018. Current year expense is
attributable to grants made in June 2016 and thereafter, all
earlier grants having become fully vested and amortized prior to
September 30, 2018.
Consulting services reflects fees paid or accrued for scientific,
nonclinical and clinical development and regulatory advisory
services rendered to us by third-parties, in 2017, primarily by
members of our scientific and CNS clinical and regulatory advisory
boards. The increase in 2018 expense reflects consulting and
support services in connection with our acquisition of the
exclusive licenses to PH94B and PH10 and related consulting
arrangements.
Technology license expense reflects both recurring annual license
fees as well as legal counsel and other costs related to patent
prosecution and protection pursuant to our stem cell technology
license agreements or that we have elected to pursue for commercial
purposes. We recognize these costs as they are invoiced to us by
the licensors or counsel and they do not occur ratably throughout
the year or between years. In both periods, this expense includes
legal counsel and other costs we have incurred to advance pending
patent applications in the U.S. and numerous foreign countries with
respect to AV-101 and our stem cell technology platform.
Acquisition of the PH94B and PH10 licenses contributed only
nominally to this expense in 2018.
AV-101 project expense for the nine months ended December 31, 2018,
primarily reflects the continuing costs of conducting the ELEVATE
Study, including various CRO, investigator and clinical site costs,
as well as expense incurred to manufacture additional quantities of
AV-101 for use in future nonclinical and clinical trials of AV-101
for MDD and other potential CNS indications. AV-101 project expense
for the nine months ended December 31, 2017 primarily reflected
costs incurred to develop our current more efficient and
cost-effective proprietary manufacturing methods for AV-101, and to
produce quantities of AV-101 in preparation for the ELEVATE Study
and Baylor Study.
As indicated above, noncash expense related to the acquisition of
the PH94B and PH10 licenses and PH10 option reflects the $4.25
million fair value of an aggregate of 2,556,361 unregistered shares
of our common stock issued to Pherin in September 2018 and October
2018 under the terms of the license and option agreements.
Additional expense relates to initiatives advancing the further
development of PH94B.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years.
Rent expense is essentially unchanged between the periods and
reflects commercial property rents prevalent in the South San
Francisco real estate market at the time of our November 2016 lease
amendment extending the lease of our headquarters facilities in
South San Francisco by five years from July 31, 2017 to July 31,
2022 and the related accounting for the amendment.
General and Administrative Expense
General and administrative expense increased to approximately $5.5
million from approximately $5.0 million for the nine months ended
December 31, 2018 and 2017, respectively, due to a modest increase
in cash compensation costs and a significant increase in noncash
stock-based compensation expense offset by reductions in certain
professional services expenses and in noncash warrant modification
expense. Noncash expense components represented approximately
$1,883,000 and $2,232,000 for the nine months ended December 31,
2018 and 2017, respectively. Such non-cash expenses included, in
both periods, stock compensation expense, a portion of professional
services and investor relations expense, a portion of rent expense,
and warrant modification expense. The following table indicates the
primary components of general and administrative expense for each
of the periods (amounts in thousands):
|
|
Nine Months Ended December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Salaries
and benefits
|
$1,386
|
$1,260
|
|
Stock-based
compensation
|
1,564
|
760
|
|
Board
fees
|
117
|
117
|
|
Legal,
accounting and other professional fees
|
488
|
739
|
|
Investor
and public relations
|
1,244
|
1,229
|
|
Insurance
|
210
|
181
|
|
Travel
expenses
|
116
|
95
|
|
Rent
and utilities
|
215
|
209
|
|
Warrant
modification expense
|
26
|
293
|
|
All
other expenses
|
128
|
114
|
|
|
$5,494
|
$4,997
|
The increase in salaries and benefits primarily reflects the impact
of salary increases and bonus payments granted effective July 2018
to our CEO, CFO, VP Corporate Development and a non-officer member
of our administrative staff.
Stock-based compensation expense increased significantly for the
nine months ended December 31, 2018 as a result of (i) the impact
of new options granted to our CEO in February 2018 and to our CFO,
VP Corporate Development and our administrative staff in February
2018 and August 2018, each of which were 25% vested upon grant and
vest ratably until becoming fully-vested within two years
thereafter, and (ii) the modification in August 2018 of outstanding
options held by our CEO, CFO, VP Corporate Development and our
administrative staff having exercise prices over $1.56 per share to
reduce the exercise price to $1.50 per share. Stock compensation
expense attributable to grants made subsequent to December 31, 2017
and including the $154,000 immediately recognized impact of the
modification of exercise prices accounted for approximately
$660,000 in the nine months ended December 31, 2018. Current year
expense is attributable to grants made in June 2016 and thereafter,
all earlier grants having become fully vested and amortized prior
to the quarter ended September 30, 2018.
Board fees represents fees paid as consideration for the Board and
Board Committee services of the independent members of our
Board.
Legal, accounting and other professional fees for the nine months
ended December 31, 2018 and 2017 includes expense related to
routine legal fees as well as the accounting expense related to the
annual audit of the prior year’s financial statements and the
review of the financial statements for the first three quarters of
the current fiscal year. Additionally, in 2018, we incurred $81,000
attributable to services provided by an international business
development consultant. In addition to cash fees incurred, in the
nine months ended December 31, 2017, we granted an aggregate of
20,000 unregistered shares of our common stock having an aggregate
fair value of $30,800 to legal services providers as compensation
for services and an aggregate of 150,000 unregistered shares of our
common stock having an aggregate fair value of $234,000 to two
investment banking firms pursuant to financial advisory agreements.
We incurred no noncash expense in the nine months ended December
31, 2018.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations and public relations services, as well as market
awareness, strategic advisory and support functions and initiatives
that included numerous meetings in multiple U.S. markets and other
communication activities focused on expanding market awareness of
the Company and its research and development programs, including
among registered investment professionals and investment advisors,
and individual and institutional investors. During the nine months
ended December 31, 2018, in addition to cash fees and expenses, we
granted: (i) an aggregate of 100,000 unregistered shares of our
common stock to certain financial advisory service providers in the
quarter ended June 30, 2018 as full or partial compensation for
their services and recognized noncash expense of approximately
$123,000 representing the fair value of the stock at the time of
issuance; and (ii) an aggregate of 50,000 unregistered shares of
our common stock and four-year warrants to purchase an aggregate of
288,000 unregistered shares of our common stock having an aggregate
fair value of approximately $336,000 to various corporate
development, investor relations, and market awareness service
providers and recognized aggregate non-cash expense of
approximately $169,000 in the two quarters ended December 31, 2018.
The balance of the fair value of the securities granted in the
quarter ended September 30, 2018 remains recorded as a prepaid
expense and is being amortized over the remaining service period of
the respective contracts. In the nine months ended December 31,
2017, in addition to cash fees and expenses we incurred, we granted
an aggregate of 552,000 shares of our unregistered common stock to
various corporate development, investor relations, market awareness
and business advisory service providers as full or partial
compensation for their services and recognized noncash expense
totaling $847,300, representing the fair value of the stock at the
time of issuance.
In both periods, travel expense reflects costs associated with
management presentations and meetings held in multiple U.S.
markets, and certain international markets in 2018, with existing
and potential individual and institutional investors, investment
professionals and advisors, media, and securities analysts, as well
as various investor relations, market awareness and corporate
development and partnering initiatives and in monitoring the
progress of our ELEVATE Study in 2018.
Rent expense is essentially unchanged between the periods and
primarily reflects commercial property rents prevalent in the South
San Francisco real estate market at the time of our November 2016
lease amendment extending the lease of our headquarters facilities
in South San Francisco by five years from July 31, 2017 to July 31,
2022 and the related accounting for the amendment.
During
the quarter ended December 31, 2018, we modified certain warrants
issued in the Summer 2018 Private Placement to comply with certain
provisions of The Nasdaq Stock Market Rules applicable to the
offering by increasing the exercise price of such warrants to
purchase an aggregate of 304,000 shares of our common stock from
$1.50 per share to $1.59 per share or $1.69 per share, depending on
the effective date of the related subscription agreement. As
additional consideration for the modification, we granted the
investors additional warrants to purchase an aggregate of 23,800
unregistered shares of our common stock at an exercise price of
$1.75 per share through February 28, 2022. We determined that the modification decreased the
fair value of the modified warrants, which decrease is not
recognized; however, the fair value of the new warrants was
determined to be $25,800, which we recognized as noncash warrant
modification expense. In September 2017, we reduced the exercise
price of 247,500 warrants issued in our Spring 2017 private
placement offering from a weighted average exercise price of $3.99
per share to $2.00 per share. We also issued to each of the
investors in the spring 2017 private placement additional warrants
to purchase an aggregate total of 247,501 shares of common stock,
with an exercise price of $2.00 per share. We recognized noncash
expense of $279,700 in the quarter ended September 30, 2017
representing the increase in fair value of the warrants granted
initially and the fair value of the additional warrants granted.
During the quarter ended December 31, 2017, we modified outstanding
warrants issued in private placement transactions between August
2017 and November 2017 to purchase an aggregate of 178,572 shares
of our common stock to reduce the exercise prices from a weighted
average of $2.32 per share to a weighted average of $1.58 per
share. We recognized the calculated increase in the fair value of
the warrants, $13,000, as noncash warrant modification
expense.
Interest and Other Expenses
Interest expense totaled $6,800 for the nine months ended December
31, 2018 compared to $7,700 reported for the nine months ended
December 31, 2017. Interest expense in both periods relates to
interest paid on insurance premium financing and on a capital lease
of office equipment.
In
connection with the Fall 2018 Private Placement, we settled an
outstanding professional service payable by accepting a
subscription agreement in the amount of $40,000 and issuing the
corresponding number of shares of common stock and warrants. The
fair value of the common stock and warrant issued in settlement of
the payable was determined to be $62,700 on the effective date of
the agreement. Accordingly, we recognized a loss on extinguishment
of accounts payable in the amount of $22,700 in the quarter and
nine months ended December 31, 2018. During the quarter ended
December 31, 2017, we issued 500,000 unregistered shares of our
common stock having a fair value at the time of issuance of
$585,000 and a cash payment of $76,500 to a contract manufacturing
organization in settlement of $526,500 of open accounts payable. We
recognized a corresponding loss on settlement of accounts payable
in the amount of $135,000 for the quarter and nine months ended
December 31, 2017.
We
recognized $848,000 and $766,600 for
the nine months ended December 31, 2018 and 2017, respectively,
representing the 10% cumulative dividend payable on outstanding
shares of our Series B Preferred stock as an additional deduction
in arriving at net loss attributable to common stockholders in
the accompanying Condensed Consolidated Statement of
Operations and Comprehensive Loss included in Part I of this
Report. There have been no conversions of outstanding shares of
Series B Preferred stock into shares of our common stock since
August 2016.
Our
sale of units consisting of common stock and warrants in our
December 2017 public offering at an offering price of $1.50 per
unit triggered the anti-dilution provisions of the Series A2
Warrants to purchase an aggregate of 503,641 shares of our common
stock issued in our September 2017 public offering. In accordance
with the anti-dilution terms and formula contained in the Series A2
warrants, the exercise price of the Series A2 Warrants was reduced
from the initial exercise price of $1.82 per share to $0.001 per
share. We recognized the effect of triggering the down round
feature, $199,200, as a component of net loss attributable to
common stockholders in the quarter and nine months ended December
31, 2017.
Liquidity and Capital Resources
Since our inception in May 1998 through December 31, 2018, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of our equity and debt securities for
cash proceeds of approximately $68.6 million, as well as from an
aggregate of approximately $17.6 million of government research
grant awards (excluding the fair market value of the NIMH Study and
the Baylor Study), strategic collaboration payments, intellectual
property sublicensing and other revenues. Additionally, we have
issued equity securities with an approximate value at issuance of
$38.1 million in non-cash acquisitions of product licenses and in
settlements of certain liabilities, including liabilities for
professional services rendered to us or as compensation for such
services.
At December 31, 2018, we had cash and cash equivalents of
approximately $6.3 million.
Although our cash position at December 31, 2018 considered with our
recurring and anticipated losses, negative cash flows from
operations and limited stockholders’ equity make it probable,
in the absence of additional financing, that we will not have
sufficient resources to fund our planned operations for the twelve
months following the issuance of these financial statements, during
which time we plan to complete our ELEVATE study, prepare for a
pivotal Phase 3 clinical trial of PH94B, conduct additional
clinical and nonclinical studies involving AV-101 and prepare for a
Phase 2 clinical trial of PH10, and raises substantial doubt that
we can continue as a going concern. Nevertheless, when necessary
and advantageous, we plan to raise additional capital, primarily
through the sale of our equity securities in one or more private
placements to accredited investors or in public offerings. Subject
to certain restrictions, our effective Registration Statement on
Form S-3 (Registration No. 333-215671) (the S-3 Registration
Statement) remains available
for future sales of our equity securities in one or more public
offerings from time to time. While we may make additional sales of
our equity securities under the S-3 Registration Statement, we do
not have an obligation to do so. As we have been in the past, we
expect that, if and as necessary, we will be successful in raising
additional capital from the sale of our equity securities either in
one or more public offerings or in one or more private placement
transactions with individual accredited investors or
institutions.
In addition to the potential sale of our equity securities, we may
also seek to enter research, development and/or commercialization
collaborations that could generate revenue or provide funding,
including non-dilutive funding, for development of AV-101, PH94B,
PH10 and/or additional product candidates. We may also seek
additional government grant awards or agreements similar, for
example, to our current CRADA with the NIMH, which provides for the
NIMH to fully fund the NIMH Study, or similar to our relationships
with Baylor and the VA in connection with the Baylor Study. Such
strategic collaborations may provide non-dilutive resources to
advance our strategic initiatives while reducing a portion of our
future cash outlays and working capital requirements. We may also
pursue intellectual property arrangements similar to the BlueRock
Agreement with other parties. Although we may seek additional
collaborations that could generate revenue and/or non-dilutive
funding for development of AV-101, PH94B, PH10 or other product
candidates, as well as new government grant awards and/or
agreements similar to our CRADA with NIMH, no assurance can be
provided that any such collaborations, awards or agreements will
occur in the future.
Our future working capital requirements will depend on many
factors, including, without limitation, the scope and nature of
opportunities related to our success and the success of certain
other companies in clinical trials, including our development and
commercialization of our current product candidates and various
applications of our stem cell technology platform, the availability
of, and our ability to obtain, government grant awards and
agreements, and our ability to enter into collaborations on terms
acceptable to us. To further advance the clinical development of
AV-101, PH94B, PH10 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and operating
costs.
Notwithstanding the foregoing, there can be no assurance that
future financings or government or other strategic collaborations
will be available to us in sufficient amounts, in a timely manner,
or on terms acceptable to us, if at all. If we are unable to obtain
substantial additional financing on a timely basis when needed in
2019 and beyond, our business, financial condition, and results of
operations may be harmed, the price of our stock may decline, we
may be required to reduce, defer, or discontinue certain of our
research and development activities and we may not be able to
continue as a going concern.
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents
for the periods stated (in thousands):
|
|
Nine Months Ended December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Net
cash used in operating activities
|
$(10,970)
|
$(6,454)
|
|
Net
cash used in investing activities
|
(170)
|
(2)
|
|
Net
cash provided by financing activities
|
7,047
|
16,567
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
(4,093)
|
10,111
|
|
Cash
and cash equivalents at beginning of period
|
10,378
|
2,921
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$6,285
|
$13,032
|
The increase in cash used in operations results primarily from the
conduct of our ELEVATE Study, which commenced at the end of the
fourth quarter of our fiscal year ended March 31, 2018.
Contributing additionally to the increase are modest increases in
employee cash compensation and benefits and an increase in various
investor relations and corporate development and awareness
initiatives. The increase in cash used in investing activities
reflects the cost of tenant improvements at our office and
laboratory facilities in South San Francisco, CA, substantially all
of which were reimbursed by our landlord under the terms of our
November 2016 lease extension, which reimbursement is reflected in
operating activities. Cash provided by financing activities in 2018
primarily reflects the cash proceeds from our Summer 2018 Private
Placement, Fall 2018 Private Placement and warrant exercises and,
in 2017, the proceeds of our September 2017 and December 2017
public offerings, net of routine note and capital lease payments in
both years.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
For information relating to recent accounting pronouncements and
the expected impact of such pronouncements on our condensed
consolidated financial statements, see Note 3 of the Notes to
Condensed Consolidated Financial Statements included elsewhere in
this Report.
|
Item 4.
|
|
CONTROLS AND
PROCEDURES
|
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) as of the end of the period covered
by this Report. Based on that evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures as of the end of the period
covered by this Report were effective.
Internal Control over Financial Reporting
In our Annual Report on Form 10-K for our fiscal year ended March
31, 2018 filed with the Securities and Exchange Commission on June
26, 2018, we identified two material weaknesses in our internal
control over financial reporting relating to (i) segregation of
duties and (ii) the functionality of our accounting
software. Management has determined that current resources
would be more appropriately applied elsewhere and when resources
permit, they will alleviate such material weaknesses through
various steps, which may include the addition of qualified
financial personnel and/or the acquisition and implementation of
alternative accounting software. Accordingly, there was no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange
Act) that occurred during the fiscal quarter to which this Report
relates that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
PART II: OTHER
INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all of the other information in this Quarterly
Report on Form 10-Q (Report) and in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal
year ended March 31, 2018 before investing in our securities. The
risks described below are not the only risks facing our
Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially adversely affect our business, financial
condition and/or operating results. If any of the following
risks are realized, our business, financial condition and
results of operations could be materially and adversely
affected.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of one or more of our current drug
candidates and we cannot be certain that we will be able to obtain
regulatory approval for, or successfully commercialize any of our
product candidates.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
currently depends heavily on the successful development, regulatory
approval and commercialization of one or more of our current drug
candidates, as well as, but to a more limited extent, our ability
to acquire, license or produce, develop and commercialize
additional product candidates. Each of our current drug candidates
will require substantial additional nonclinical and clinical
development and regulatory approval before any of them may be
commercialized, and there can be no assurance that any of them will
ever achieve regulatory approval. Any drug rescue NCE we produce
will require substantial nonclinical development, all phases of
clinical development, and regulatory approval before it may be
commercialized. The nonclinical and clinical development of our
product candidates are, and the manufacturing and marketing of our
product candidates will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the
United States and in other countries where we intend to test and,
if approved, market any product candidate. Before obtaining
regulatory approvals for the commercial sale of any product
candidate, we must demonstrate through numerous nonclinical and
clinical studies that the product candidate is safe and effective
for use in each target indication. Research and development of
product candidates in the pharmaceutical industry is a long,
expensive and uncertain process, and delay or failure can occur at
any stage of any of nonclinical or clinical studies. This process
takes many years and may also include post-marketing studies,
surveillance obligations and drug safety programs, which would
require the expenditure of substantial resources beyond the
proceeds we have raised to date. Of the large number of drug
candidates in development in the United States, only a small
percentage will successfully complete the required FDA regulatory
approval process and will be commercialized. Accordingly, we cannot
assure you that any of our current drug candidates or any future
product candidates will be successfully developed or
commercialized.
We are not permitted to market our product candidates in the United
States until we receive approval of an NDA from the FDA, or in any
foreign countries until we receive the requisite approval from such
countries. Obtaining FDA approval of a New Drug Application
(NDA) is a complex, lengthy, expensive and uncertain
process. The FDA may refuse to permit the filing of our NDA, delay,
limit or deny approval of an NDA for many reasons, including, among
others:
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if we submit an NDA and it is reviewed by an FDA 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 nonclinical
or clinical studies, limitations on approved labeling or
distribution and use restrictions;
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an FDA advisory committee may recommend, or the FDA may require, a
Risk Evaluation and Mitigation Strategy (REMS) safety program as a condition of approval or
post-approval;
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an FDA advisory committee or the FDA or applicable regulatory
agency may determine that there is insufficient evidence of overall
effectiveness in an NDA and require additional clinical
studies;
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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
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the FDA or applicable foreign regulatory agency may change its
approval policies or adopt new regulations.
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Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize any current or future drug product
candidate we may develop. Any such setback in our pursuit of
regulatory approval for any product candidate would have a material
adverse effect on our business and prospects.
Certain of our product candidates, including PH94B and PH10, may be
subject to regulation as combination products, which means that
they are composed of both a drug product and device product. If
marketed individually, each component would be subject to different
regulatory pathways and reviewed by different Centers within the
FDA. Our product candidates that are considered to be drug-device
combination products will require review and coordination by
FDA’s drug and device centers prior to approval, which may
delay approval. A
combination product with a drug primary mode of action generally
would be reviewed and approved pursuant to the drug approval
processes under the United States Federal Food, Drug and Cosmetic
Act of 1938. In reviewing the NDA application for such a product,
however, FDA reviewers in the drug center could consult with their
counterparts in the device center to ensure that the device
component of the combination product met applicable requirements
regarding safety, effectiveness, durability and
performance. Under FDA
regulations, combination products are subject to cGMP requirements
applicable to both drugs and devices, including the Quality System
(QS) regulations applicable to medical devices.
Problems associated with the device component of the combination
product candidate may delay or prevent
approval.
We have been granted Fast Track designation from the FDA for
development of AV-101 for the adjunctive treatment of MDD and for
the treatment of neuropathic pain. However, these designations may
not actually lead to faster development or regulatory review or
approval processes for AV-101. Further, there is no guarantee the
FDA will grant Fast Track designation for AV-101 as a treatment
option for other CNS indications or for any of our other product
candidates in the future.
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 FDA’s 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 FDA approval or expedited approval of any
application for the product candidate.
In December 2017, the FDA granted Fast Track designation for
development of AV-101 for the adjunctive treatment of MDD in
patients with an inadequate response to current antidepressants. In
September 2018, the FDA granted Fast Track designation for
development of AV-101 for the treatment of neuropathic pain.
However, these FDA Fast Track designations may not lead to a faster
development or regulatory review or approval process for AV-101 and
the FDA may withdraw Fast Track designation of AV-101 for either or
both indications if it believes that the respective designation is
no longer supported by data from our clinical development
programs.
In addition, we may apply for Fast Track designation for AV-101 as
a treatment option for other CNS indications, as well as for other
product candidates. The FDA has broad discretion whether or not to
grant a Fast Track designation, and even if we believe AV-101 and
other product candidates may be eligible for this designation, we
cannot be sure that the review or approval will compare to
conventional FDA procedures.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
AV-101, PH94B, PH10 and/or our other product candidates, if any,
including positive results, may not be predictive of the results of
later-stage clinical trials. AV-101, PH94B, PH10 or other product
candidates in later stages of clinical development may fail to show
the desired safety and efficacy results despite having progressed
through nonclinical studies and initial clinical trials. Many
companies in the biopharmaceutical industry have suffered
significant setbacks in advanced clinical trials due to adverse
safety profiles or lack of efficacy, notwithstanding promising
results in earlier studies. Similarly, our future clinical trial
results may not be successful for these or other
reasons.
Moreover, nonclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
nonclinical studies and clinical trials nonetheless failed to
obtain FDA approval. With respect to our current product
candidates, we have not yet completed a Phase 2 clinical trial for
AV-101, and if the NIMH Study and/or our ELEVATE Study, or any
future clinical study of AV-101, or if one or more of the future
Phase 3 clinical trials of PH94B for SAD or future Phase 2 clinical
trial of PH10 for MDD, fail(s) to produce positive results, the
development timeline and regulatory approval and commercialization
prospects for AV-101, PH94B, or PH10 and, correspondingly, our
business and financial prospects, could be materially adversely
affected.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early- and late-stage clinical trials
towards regulatory approval and commercialization, it is customary
that various aspects of the development program, such as
manufacturing and methods of administration, are altered along the
way in an effort to optimize processes and results. While these
types of changes are common and are intended to optimize the
product candidates for later stage clinical trials, approval and
commercialization, such changes do carry the risk that they will
not achieve these intended objectives.
For example, the results of planned clinical trials may be
adversely affected if we or our collaborator seek to optimize and
scale-up production of a product candidate. In such case, we will
need to demonstrate comparability between the newly manufactured
drug substance and/or drug product relative to the previously
manufactured drug substance and/or drug product. Demonstrating
comparability may cause us to incur additional costs or delay
initiation or completion of our clinical trials, including the need
to initiate a dose escalation study and, if unsuccessful, could
require us to complete additional nonclinical or clinical studies
of our product candidates.
If serious adverse events or other undesirable side effects or
safety concerns attributable to AV-101 are identified during the
NIMH Study, Baylor Study, other investigator-sponsored clinical
trials, in our clinical trials of AV-101, including our ELEVATE
study, or our clinical trials of PH94B or PH10, it may adversely
affect or delay our clinical development and commercialization of
AV-101, PH94B or PH10.
Undesirable side effects caused by our product candidates could
cause us or regulatory authorities to interrupt, delay or halt
clinical trials and could result in a more restrictive label or the
delay or denial of regulatory approval by the FDA. AV-101 is
currently being tested by the NIMH in the NIMH Study and by Baylor
in the Baylor Study and may be subjected to testing in the future
for other CNS indications in additional investigator-sponsored
clinical trials. If serious adverse events or other undesirable
side effects or safety concerns, or unexpected characteristics
attributable to AV-101 are observed in the NIMH Study, Baylor
Study, other investigator-sponsored clinical trials of AV-101, our
clinical trials of AV-101, including our ELEVATE Study, or in our
clinical trials of PH94B or PH10, it may adversely affect or delay
our clinical development and commercialization of AV-101, PH94B or
PH10, and the occurrence of these events could have a material
adverse effect on our business and financial prospects. Results of
our future clinical trials could reveal a high and unacceptable
severity and prevalence of adverse side effects. In such an event,
our trials could be suspended or terminated and the FDA could order
us to cease further development of or deny approval of our product
candidates for any or all targeted indications. The drug-related
side effects could affect patient recruitment or the ability of
enrolled patients to complete the trial or result in potential
product liability claims.
Additionally, if any of our product candidates receives marketing
approval and we or others later identify undesirable or
unacceptable side effects caused by these product candidates, a
number of potentially significant negative consequences could
result, including:
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regulatory
authorities may withdraw, suspend, or limit approvals of such
product and require us to take them off the market;
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regulatory
authorities may require the addition of labeling statements,
specific warnings, a contraindication or field alerts to physicians
and pharmacies;
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regulatory
authorities may require a medication guide outlining the risks of
such side effects for distribution to patients, or that we
implement a REMS plan to ensure that the benefits of the product
outweigh its risks;
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we
may be required to change the way a product is distributed or
administered, conduct additional clinical trials or change the
labeling of a product;
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we
may be required to conduct additional post-marketing studies or
surveillance;
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we
may be subject to limitations on how we may promote the
product;
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sales
of the product may decrease significantly;
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we
may be subject to regulatory investigations, government enforcement
actions, litigation or product liability claims; and
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our
products may become less competitive or our reputation may
suffer.
Any of these events could prevent us or any collaborators from
achieving or maintaining market acceptance of our product
candidates or could substantially increase commercialization costs
and expenses, which in turn could delay or prevent us from
generating significant revenue from the sale of our product
candidates.
Failures or delays in the commencement or completion of our planned
clinical trials and nonclinical studies of AV-101, PH94B, PH10 or
other our product candidates could result in increased costs to us
and could delay, prevent or limit our ability to generate revenue
and continue our business.
We will need to complete our ELEVATE Study, at least two pivotal
Phase 3 clinical trials, additional toxicology and other standard
nonclinical and clinical safety studies, as well as certain
standard smaller clinical studies prior to the submission of an NDA
to the FDA for AV-101 as an adjunctive treatment for MDD in
patients with an inadequate response to current antidepressants, or
any other CNS indication. Similarly, we will need to complete at
least two pivotal Phase 3 clinical studies of PH94B, additional
toxicology and other standard nonclinical and clinical safety
studies, as well as certain standard smaller clinical studies prior
to our submission of an NDA for PH94B as an on demand treatment for
SAD. For PH10, we will need to complete at least one additional
Phase 2 clinical study, two pivotal Phase 3 clinical trials,
additional toxicology and other standard nonclinical and clinical
safety studies, as well as certain standard smaller clinical
studies prior to the submission of an NDA to the FDA for PH10 as
treatment for MDD, or any other CNS indication. Successful
completion of our nonclinical and clinical trials is a prerequisite
to submitting an NDA to the FDA and, consequently, the ultimate
approval required before commercial marketing of any product
candidate we may develop. Except as disclosed herein, we do not
know whether the NIMH Study, Baylor Study, our ELEVATE Study or any
of our future-planned nonclinical and clinical trials of AV-101,
PH94B, PH10 or any other product candidate will be completed on
schedule, if at all, as the commencement and completion of
nonclinical and clinical trials can be delayed or prevented for a
number of reasons, including, among others:
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the FDA may deny permission to proceed with planned clinical trials
or any other clinical trials we may initiate, or may place a
planned or ongoing clinical trial on hold;
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delays in filing or receiving approvals from the FDA of additional
Investigational New Drug applications (INDs) that may be required;
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negative results from nonclinical or clinical studies;
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delays in reaching or failing to reach agreement on acceptable
terms with prospective CROs, investigators and clinical trial
sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs, investigators and
clinical trial sites;
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delays in the manufacturing of, or insufficient supply of product
candidates necessary to conduct nonclinical or clinical trials,
including delays in the manufacturing of sufficient supply of drug
substance or finished drug product;
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inability to manufacture or obtain clinical supplies of a product
candidate meeting required quality standards;
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difficulties obtaining Institutional Review Board
(IRB) approval to conduct a clinical trial at a
prospective clinical site or sites;
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challenges in recruiting and enrolling patients to participate in
clinical trials, including the proximity of patients to clinical
trial sites;
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eligibility criteria for a clinical trial, the nature of a 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 adverse 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 prior nonclinical studies or 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 nonclinical or clinical testing of other CNS
indications or 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
trial, lack of efficacy, side effects, personal issues or loss of
interest.
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Clinical trials may also be delayed or terminated prior to
completion as a result of ambiguous or negative interim results. In
addition, a clinical trial may be suspended or terminated by us,
the FDA, the IRBs at the sites where the IRBs are overseeing a
clinical trial, a data and safety monitoring board
(DSMB), overseeing the clinical trial at issue or other
regulatory authorities due to a number of factors, including, among
others:
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failure to conduct the clinical trial in accordance with regulatory
requirements or approved 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
nonclinical 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 that may lead to regulatory
actions; and
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lack of adequate funding to continue nonclinical or clinical
studies.
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Changes in regulatory requirements, FDA guidance or unanticipated
events during our nonclinical studies and clinical trials of
AV-101, PH94B, PH10 or other product candidates may occur, which
may result in changes to nonclinical studies and clinical trial
protocols or additional nonclinical studies and clinical trial
requirements, which could result in increased costs to us and could
delay our development timeline.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our nonclinical studies and clinical trials of
AV-101, PH94B, PH10 or other product candidates may force us to
amend nonclinical studies and clinical trial protocols or the FDA
may impose additional nonclinical studies and clinical trial
requirements. Amendments or changes to our clinical trial protocols
would require resubmission to the FDA and IRBs for review and
approval, which may adversely impact the cost, timing or successful
completion of clinical trials. Similarly, amendments to our
nonclinical studies may adversely impact the cost, timing, or
successful completion of those nonclinical studies. If we
experience delays completing, or if we terminate, any of our
nonclinical studies or clinical trials, or if we are required to
conduct additional nonclinical studies or clinical trials, the
commercial prospects for AV-101, PH94B, PH10 or other product
candidates may be harmed and our ability to generate product
revenue will be delayed.
We rely, and expect that we will continue to rely, on third parties
to conduct our nonclinical and clinical trials of our current
product candidates and will continue to do so for any other product
candidates. If these third parties do not successfully carry out
their contractual duties and/or meet expected deadlines, completion
of our nonclinical or clinical trials and development of AV-101,
PH94B, PH10 or other product candidates may be delayed and we may
not be able to obtain regulatory approval for or commercialize
AV-101, PH94B, PH10 or other product candidates and our business
could be substantially harmed.
We do not have the internal staff resources to independently
conduct nonclinical and clinical trials of our product candidates
completely on our own. We rely on our network of strategic
relationships with various academic research centers, medical
institutions, nonclinical and clinical investigators, contract
laboratories and other third parties, such as CROs, to assist us to
conduct and complete nonclinical and clinical trials of our product
candidates. We enter into agreements with third-party CROs to
provide monitors for and to manage data for our clinical trials, as
well as provide other services necessary to prepare for, conduct
and complete clinical trials. We rely heavily on these and other
third-parties for execution of nonclinical and clinical trials for
our product candidates and we control only certain aspects of their
activities. As a result, we have less direct control over the
conduct, timing and completion of these nonclinical and clinical
trials and the management of data developed through nonclinical and
clinical trials than would be the case if we were relying entirely
upon our own internal staff resources. Communicating with outside
parties can also be challenging, potentially leading to mistakes as
well as difficulties in coordinating activities. Outside parties
may:
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have staffing difficulties and/or undertake obligations beyond
their anticipated capabilities and resources;
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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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These factors may materially adversely affect the willingness or
ability of third parties to conduct our nonclinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our nonclinical studies and clinical trials is
conducted and completed in accordance with the applicable protocol,
legal, regulatory and scientific requirements and standards, and
our reliance on CROs, the NIMH, Baylor or other independent
investigators does not relieve us of our regulatory
responsibilities. We and our CROs, the NIMH, Baylor and any
investigator in an investigator-sponsored study are required to
comply with regulations and guidelines, including current Good
Clinical Practice regulations (cGCPs) for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data
and results are scientifically credible and accurate, and that the
trial patients are adequately informed of the potential risks of
participating in clinical trials. These regulations are enforced by
the FDA, the Competent Authorities of the Member States of the
European Economic Area and comparable foreign regulatory
authorities for any products in clinical development. The FDA
enforces cGCP regulations through periodic inspections of clinical
trial sponsors, principal investigators and trial sites. If we, any
of our CROs or any of our third-party collaborators fail to comply
with applicable cGCPs, the clinical data generated in clinical
trials involving our product candidates may be deemed unreliable
and the FDA or comparable foreign regulatory authorities may
require us to perform additional clinical trials before approving
our marketing applications. We cannot assure you that, upon
inspection, the FDA will determine that any of our clinical trials
comply with cGCPs. In addition, our clinical trials must be
conducted with product candidates produced under cGMPs and will
require a large number of test patients. Our failure or the failure
of our CROs or other third-party collaborators to comply with these
regulations may require us to repeat clinical trials, which would
delay the regulatory approval process and could also subject us to
enforcement action up to and including civil and criminal
penalties.
Although we design our clinical trials for our product candidates,
our clinical development strategy involves having CROs and other
third-party investigators and medical institutions conduct clinical
trials of our product candidates. As a result, many important
aspects of our drug development programs are outside of our direct
control. In addition, although CROs, or independent investigators
or medical institutions, as the case may be, may not perform all of
their obligations under arrangements with us or in compliance with
applicable regulatory requirements, under certain circumstances, we
may be responsible and subject to enforcement action that may
include civil penalties up to and including criminal prosecution
for any violations of FDA laws and regulations during the conduct
of clinical trials of our product candidates. If such third parties
do not perform clinical trials of our product candidates in a
satisfactory manner, breach their obligations to us or fail to
comply with applicable regulatory requirements, the development and
commercialization of our product candidates may be delayed or our
development program materially and irreversibly harmed. In certain
cases, including the NIMH Study, Baylor Study and other
investigator-sponsored clinical studies, we cannot control the
amount and timing of resources these third-parties devote to
clinical trials involving our product candidates. If we are unable
to rely on nonclinical and clinical data collected by our
third-party collaborators, we could be required to repeat, extend
the duration of, or increase the size of our clinical trials and
this could significantly delay commercialization and require
significantly greater expenditures.
If our relationships with one or more of our third-party
collaborators terminates, we may not be able to enter into
arrangements with alternative third-party
collaborators. If such third-party collaborators,
including our CROs, the NIMH, Baylor or the VA do not successfully
carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or
accuracy of the clinical data they obtain is compromised due to
their failure to adhere to applicable clinical protocols,
regulatory requirements or for other reasons, any clinical trials
that such third-parties are associated with may be extended,
delayed or terminated, and we may not be able to obtain regulatory
approval for or successfully develop and commercialize our product
candidates. As a result, we believe that our financial results and
the commercial prospects for our product candidates in the subject
indication would be harmed, our costs would increase and our
ability to generate revenue would be delayed.
We rely completely on third-parties to manufacture, formulate, hold
and distribute supplies of our product candidates for all
nonclinical and clinical studies, and we intend to continue to rely
on third parties to produce all nonclinical, clinical and
commercial supplies of our product candidates in the
future.
We do not currently have, nor do we plan to acquire or develop, any
internal infrastructure or technical capabilities to manufacture,
formulate, hold or distribute supplies of our product candidates,
for use in nonclinical and clinical studies or commercial scale.
As a result, with respect to our product candidates, we rely,
and will continue to rely, completely on contract manufacturing
organizations (CMOs) to manufacture active pharmaceutical ingredient
(API) and formulate, hold and distribute final drug
product. The facilities used by our CMOs to manufacture AV-101,
PH94B and PH10 API and AV-101, PH94B and PH10 final drug product
are subject to a pre-approval inspection by the FDA and other
comparable foreign regulatory agencies to assess compliance with
applicable regulatory guidelines and requirements, including cGMPs,
and may be required to undergo similar inspections by the FDA or
other comparable foreign regulatory agencies, after we submit INDs,
NDAs or relevant foreign regulatory submission equivalent to the
applicable regulatory agency.
We do not directly control the manufacturing process or the supply
or quality of materials used in the manufacturing and formulation
of our product candidates, and, with respect to all of our product
candidates, we are completely dependent on our CMOs to comply with
all applicable cGMPs for the manufacturing of both API and finished
drug product. If our CMOs cannot secure adequate supplies of
suitable raw materials or successfully manufacture our product
candidates, including AV-101, PH94B and PH10 API and finished drug
product, that conforms to our specifications and the strict
regulatory requirements of the FDA or applicable foreign regulatory
agencies, production of sufficient supplies of our product
candidates, including AV-101, PH94B and PH10 API and finished drug
product, may be delayed and our CMOs may not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities, or the FDA may take other actions, including the
imposition of a clinical hold. In addition, we have no direct
control over our CMOs’ ability to maintain adequate quality
control, quality assurance and qualified personnel. All of our CMOs
are engaged with other companies to supply and/or manufacture
materials or products for such other companies, which exposes our
CMOs to regulatory risks for the production of such materials and
products. As a result, failure to satisfy the regulatory
requirements for the production of those materials and products may
affect the regulatory clearance of our CMO’s facilities
generally or affect the timing of manufacture of AV-101, PH94B and
PH10 for required or planned nonclinical and/or clinical studies.
If the FDA or an applicable foreign regulatory agency determines
now or in the future that our CMOs’ facilities are
noncompliant, we may need to find alternative manufacturing
facilities, which would adversely impact our ability to develop,
obtain regulatory approval for or market our product candidates.
Our reliance on CMOs also exposes us to the possibility that they,
or third parties with access to their facilities, will have access
to and may appropriate our trade secrets or other proprietary
information.
With respect to AV-101, PH94B and PH10, we do not yet have
long-term supply agreements in place with our CMOs and each batch
of AV-101, PH94B and PH10 is or will be individually contracted
under a separate supply agreement. If we engage new CMOs, such
contractors must complete an inspection by the FDA and other
applicable foreign regulatory agencies. We plan to continue to rely
upon CMOs and, potentially, collaboration partners, to manufacture
research and development scale, and, if approved, commercial
quantities of our product candidates. Although we believe our
current scale of API manufacturing for AV-101, and our contemplated
scale of API manufacturing for PH94B and PH10, and the current and
projected supply of AV-101, PH94B and PH10 API and finished drug
product will be adequate to support our planned nonclinical and
clinical studies of AV-101, PH94B and PH10, no assurance can be
given that unanticipated supply shortages or CMO-related delays in
the manufacture and formulation of AV-101, PH94B or PH10 API and/or
finished drug product will not occur in the future.
Additionally, certain of our product candidates, including PH94B
and PH10, may be considered drug-device combination products.
Third-party manufacturers may not be able to comply with cGMP
requirements applicable to drug/device combination products,
including applicable provisions of the FDA’s drug cGMP
regulations, device cGMP requirements embodied in the Quality
System Regulation (QSR) or similar regulatory requirements outside the
United States. Our failure, or the failure of our third-party
manufacturers, to comply with applicable regulations could result
in sanctions being imposed on us, including clinical holds, fines,
injunctions, civil penalties, delays, suspension or withdrawal of
approvals, license revocation, seizures or recalls of product
candidates, operating restrictions and criminal prosecutions, any
of which could significantly affect supplies of our product
candidates. The facilities used by our CMOs to manufacture our
product candidates must be approved by the FDA pursuant to
inspections that will be conducted after we submit our NDA to the
FDA. We do not control the manufacturing process of, and are
completely dependent on, our CMO partners for compliance with cGMPs
and QSRs. If our CMOs cannot successfully manufacture material that
conforms to our specifications and the strict regulatory
requirements of the FDA or others, they will not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities. In addition, we have no control over the ability of our
contract manufacturers to maintain adequate quality control,
quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority does not approve these
facilities for the manufacture of our product candidates or if it
withdraws any such approval in the future, we may need to find
alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or
market our product candidates, if approved. CMOs may face
manufacturing or quality control problems causing drug substance
production and shipment delays or a situation where the contractor
may not be able to maintain compliance with the applicable cGMP and
QSR requirements. Any failure to comply with cGMP or QSR
requirements or other FDA, EMA and comparable foreign regulatory
requirements could adversely affect our clinical research
activities and our ability to develop our product candidates and
market our products following approval.
Even if we receive marketing approval for AV-101, PH94B, PH10 or
any other product candidate in the United States, we may never
receive regulatory approval to market AV-101, PH94B, PH10 or any
other product candidate outside of the United States.
We have not yet selected any markets outside of the United States
where we intend to seek regulatory approval to market AV-101,
PH94B, PH10 or any other product candidate. In order to market
AV-101, PH94B, PH10 or any other product candidate outside of the
United States, we must establish and comply with the numerous and
varying safety, efficacy and other regulatory requirements of other
countries. Approval procedures vary among countries and can involve
additional product candidate testing and additional administrative
review periods. The time required to obtain approvals in other
countries might differ from that required to obtain FDA approval.
The marketing approval processes in other countries may implicate
all of the risks detailed above regarding FDA approval in the
United States as well as other risks. In particular, in many
countries outside of the United States, products must receive
pricing and reimbursement approval before the product can be
commercialized. Obtaining this approval can result in substantial
delays in bringing products to market in such countries. Marketing
approval in one country does not ensure marketing approval in
another, but a failure or delay in obtaining marketing approval in
one country may have a negative effect on the regulatory process in
others. Failure to obtain marketing approval in other countries or
any delay or other setback in obtaining such approval would impair
our ability to market our product candidates in such foreign
markets. Any such impairment would reduce the size of our potential
market, which could have a material adverse impact on our business,
results of operations and prospects.
If any of our product candidates are ultimately regulated as
controlled substances, we, our CMOs, as well as future
distributors, prescribers, and dispensers will be required to
comply with additional regulatory requirements which could delay
the marketing of our product candidates, and increase the cost and
burden of manufacturing, distributing, dispensing, and prescribing
our product candidates.
Before we can commercialize our product candidates, the United
States Drug Enforcement Administration (DEA) may need to determine whether such product
candidates will be considered to be a controlled substance, taking
into account the recommendation of the FDA. This may be
a lengthy process that could delay our marketing of a product
candidate and could potentially diminish any regulatory exclusivity
periods for which we may be eligible, which would increase the cost
associated with commercializing such products and, in turn, may
have an adverse impact on our results of operations. Although we
currently do not know whether the DEA will consider any of our
current or future product candidate to be controlled substances, we
cannot yet give any assurance that such product candidates,
including AV-101, will not be regulated as controlled
substances.
If any of our product candidates are regulated as controlled
substances, depending on the DEA controlled substance schedule in
which the product candidates are placed, we, our CMOs, and any
future distributers, prescribers, and dispensers of the scheduled
product candidates may be subject to significant regulatory
requirements, such as registration, security, recordkeeping,
reporting, storage, distribution, importation, exportation,
inventory, quota and other requirements administered by the DEA.
Moreover, if any of our product candidates are regulated as
controlled substances, we and our CMOs would be subject to initial
and periodic DEA inspection. If we or our CMOs are not able to
obtain or maintain any necessary DEA registrations, we may not be
able to commercialize any product candidates that are deemed to be
controlled substances or we may need to find alternative CMOs,
which would take time and cause us to incur additional costs,
delaying or limit our commercialization efforts.
Because of their restrictive nature, these laws and regulations
could limit commercialization of our product candidates, should
they be deemed to contain controlled substances. Failure to comply
with the applicable controlled substance laws and regulations can
also result in administrative, civil or criminal enforcement. The
DEA may seek civil penalties, refuse to renew necessary
registrations, or initiate administrative proceedings to revoke
those registrations. In some circumstances, violations could result
in criminal proceedings or consent decrees. Individual states also
independently regulate controlled substances.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may not be able to generate any
revenue.
We do not currently have any internal resources for the sale,
marketing and distribution of pharmaceutical products, and we may
not create such internal capabilities in the foreseeable future.
Therefore, to market our product candidates, if approved by the FDA
or any other regulatory body, we must make contractual arrangements
with third parties to perform services related to sales, marketing,
managerial and other non-technical capabilities relating to the
commercialization of our product candidates, or establish those
capabilities prior to market approval. If we are unable to
establish adequate contractual arrangements for such sales,
marketing and distribution capabilities, or if we are unable to do
so on commercially reasonable terms, or if we are unable to
establish such capabilities on our own, our business, results of
operations, financial condition and prospects will be materially
adversely affected.
Even if we receive marketing approval for our product candidates,
our product candidates may not achieve broad market acceptance,
which would limit the revenue that we generate from their
sales.
The commercial success of our product candidates, if approved by
the FDA or other applicable regulatory authorities, will depend
upon the awareness and acceptance of our product candidates among
the medical community, including physicians, patients and
healthcare payors. Market acceptance of our product candidates, if
approved, will depend on a number of factors, including, among
others:
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the efficacy and safety 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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If our product candidates are approved but do not achieve an
adequate level of acceptance by patients, physicians and payors, we
may not generate sufficient revenue from our product candidates to
become or remain profitable. Before granting reimbursement
approval, healthcare payors may require us to demonstrate that our
product candidates, in addition to treating these target
indications, also provide incremental health benefits to patients.
Our efforts to educate the medical community and third-party payors
about the benefits of our product candidates may require
significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and
side effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable safety concerns and side effects caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt nonclinical studies and clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other regulatory
authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
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regulatory authorities may withdraw or limit their approval of such
product candidates;
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regulatory authorities may require the addition of labeling
statements, such as a “black box” warning or a
contraindication;
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we may be required to change the way such product candidates are
distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
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we may be subject to regulatory investigations and government
enforcement actions;
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we may decide to remove such product candidates from the
marketplace;
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we could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
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our reputation may suffer.
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We believe that any of these events could prevent us from achieving
or maintaining market acceptance of the affected product candidates
and would substantially increase the costs of commercializing our
product candidates and significantly impact our ability to
successfully commercialize our product candidates and generate
revenues.
Even if we receive marketing approval for our product candidates,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our product candidates,
regulatory authorities may still impose significant restrictions on
our product candidates, indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies.
Our product candidates will also be subject to ongoing regulatory
requirements governing the labeling, packaging, storage and
promotion of the product and record keeping and submission of
safety and other post-market information. The FDA has significant
post-marketing authority, including, for example, the authority to
require labeling changes based on new safety information and to
require post-marketing studies or clinical trials to evaluate
serious safety risks related to the use of a drug. The FDA also has
the authority to require, as part of an NDA or post-approval, the
submission of a REMS safety program. Any REMS safety program
required by the FDA may lead to increased costs to assure
compliance with new post-approval regulatory requirements and
potential requirements or restrictions on the sale of approved
products, all of which could lead to lower sales volume and
revenue.
Manufacturers of drug and device products and their facilities are
subject to continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with cGMPs and other
regulations. If we or a regulatory agency discover problems with
our product candidates, such as adverse events of unanticipated
severity or frequency, or problems with the facility where our
product candidates are manufactured, a regulatory agency may impose
restrictions on our product candidates, the manufacturer or us,
including requiring withdrawal of our product candidates from the
market or suspension of manufacturing. If we, our product
candidates, or the manufacturing facilities for our product
candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
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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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Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceutical industry is highly competitive. There are many
public and private pharmaceutical companies, universities,
governmental agencies and other research organizations actively
engaged in the research and development of product candidates that
may be similar to and compete with our product candidates or
address similar markets. It is probable that the number of
companies seeking to develop product candidates similar to and
competitive with our product candidates will increase.
Currently, management is unaware of any FDA-approved oral
adjunctive therapy for MDD patients with an inadequate response to
standard antidepressants having the same mechanism of action and
safety profile as our orally administered AV-101 or our
intranasally-administered PH10. However, new antidepressant
products with other mechanisms of action or products approved for
other indications, including the FDA-approved anesthetic ketamine
hydrochloride administered intravenously, are being or may be used
off-label for treatment of MDD, as well as other CNS indications
for which AV-101 or PH10 may have therapeutic potential.
Additionally, other non-pharmaceutical treatment options, such
psychotherapy and electroconvulsive therapy (ECT) are used before or instead of standard
antidepressant medications to treat patients with MDD. Management
is also unaware of any FDA-approved rapid-onset, on-demand
treatment for SAD having the same mechanism of action and safety
profile as our PH94B.
In the field of new generation, oral adjunctive treatments for
adult patients with MDD with an inadequate response to standard
FDA-approved antidepressants, we believe our principal competitor
may be Allergan’s AGN-241751. Additional potential
competitors may include, but not be limited to, academic and
private commercial clinics providing intravenous ketamine therapy
on an off-label basis, Alkermes’ oral opioid system modulator
ALKS-5461, Allergan’s intravenous peptide rapastinel, and
Johnson & Johnson/Janssen’s intranasally-administered
esketamine. With respect to PH94B and current FDA-approved
treatment options for SAD, our competition may include, but is not
limited to, certain current generic antidepressants approved by the
FDA for treatment of SAD and certain classes of drugs used on an
off-label basis for SAD, including benzodiazapines such as
alprazolam, and beta blockers such as propranolol.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery, and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. With respect to AV-101 and PH10, we
believe that a range of pharmaceutical and biotechnology companies
have programs to develop drug candidates for the treatment of
depression, including MDD, Parkinson’s disease
levodopa-induced dyskinesia, neuropathic pain, epilepsy, and other
neurological conditions and diseases, including, but not limited
to, Abbott Laboratories, Acadia, Allergan, Alkermes, Aptynix,
AstraZeneca, Eli Lilly, GlaxoSmithKline, IntraCellular,
Johnson & Johnson/Janssen, Lundbeck, Merck, Novartis, Ono,
Otsuka, Pfizer, Roche, Sage, Sumitomo Dainippon, and Takeda, as
well as any affiliates of the foregoing companies. With
respect to PH94B, in addition to potential competition from certain
current FDA-approved antidepressants and off-label use of
benzodiazepines and beta blockers, we believe additional drug
candidates in development for SAD may include, but potentially not
be limited to, an oral fatty acid amide hydrolase inhibitor in
development by Johnson & Johnson/Janssen and a sublingual
formulation of the sodium channel blocker riluzole in development
by Biohaven. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being
concentrated among a smaller number of our competitors. Our
commercial opportunity could be reduced or eliminated if our
competitors develop and commercialize products that are safer, more
effective, have fewer or less severe side effects, are more
convenient or are less expensive than any products that we may
develop. Our competitors also may obtain FDA or other regulatory
approval for their products more rapidly than we may obtain
approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter
the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate
collaborators. Whether we reach a definitive agreement for
collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of nonclinical and
clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential
markets for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate
to patients, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to
the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be
available to collaborate on and whether such collaboration could be
more attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis,
on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which
we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we may not be
able to further develop our product candidates or bring them to
market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our collaborators.
Collaborators generally have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional product candidates, or we may expend our limited
resources to pursue a particular product candidate or indication
and fail to capitalize on product candidates or indications that
may be more profitable or for which there is a greater likelihood
of success.
The success of our business depends primarily upon our ability to
identify, develop and commercialize product candidates with
commercial and therapeutic potential. Although AV-101 is in Phase 2
clinical development for treatment of MDD, and we are preparing for
Phase 2 development of AV-101 for treatment of neuropathic pain and
PD LID, for Phase 3 development of PH94B for on-demand treatment of
SAD, and a Phase 2 study of PH10 for treatment of MDD, we may fail
to pursue additional development opportunities for AV-101, PH94B or
PH10, or identify additional product candidates for clinical
development for a number of reasons. Our research methodology may
be unsuccessful in identifying new product candidates or our
product candidates may be shown to have harmful side effects or may
have other characteristics that may make the products unmarketable
or unlikely to receive marketing approval.
Because we currently have limited financial and management
resources, we necessarily focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of AV-101, PH94B and PH10, with
additional limited focus on NCE drug rescue and, through a
third-party collaboration, RM. As a result, we may forego or delay
pursuit of opportunities with other product candidates or for other
potential CNS-related indications for AV-101, PH94B and/or PH10
that later prove to have greater commercial potential. Our resource
allocation decisions may cause us to fail to capitalize on viable
commercial drugs or profitable market opportunities. Our spending
on current and future research and development programs and product
candidates for specific indications may not yield any commercially
viable drugs. If we do not accurately evaluate the commercial
potential or target market for a particular product candidate, we
may relinquish valuable rights to that product candidate through
future collaboration, licensing or other royalty arrangements in
cases in which it would have been more advantageous for us to
retain sole development and commercialization rights to such
product candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our product candidates, we may be subject
to additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and others will play a primary role in the
recommendation and prescription of our product candidates, if
approved. Our future arrangements with third-party payors will
expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute our product candidates, if we obtain marketing
approval. Restrictions under applicable federal and state
healthcare laws and regulations include the following:
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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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Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to be out
of compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as AV-101, PH94B and PH10, if approved. In particular, a
product may not be promoted for uses that are not approved by the
FDA or such other regulatory agencies as reflected in the
product’s approved labeling. For example, if we receive FDA
marketing approval for AV-101 as an adjunctive treatment of MDD,
physicians may prescribe AV-101 to their patients in a manner that
is inconsistent with the FDA-approved label. However, if we are
found to have promoted such off-label uses, we may become subject
to significant liability. The federal government has levied large
civil and criminal fines against companies for alleged improper
off-label promotion and has enjoined several companies from
engaging in off-label promotion. The FDA has also requested that
companies enter into consent decrees or imposed permanent
injunctions under which specified promotional conduct is changed or
curtailed. If we cannot successfully manage the promotion of our
product candidates, if approved, we could become subject to
significant liability, which would materially adversely affect our
business and financial condition.
Even if approved, reimbursement policies could limit our ability to
sell our product candidates.
Market acceptance and sales of our product candidates will depend
heavily on reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels for those medications. Cost
containment is a primary concern in the United States healthcare
industry and elsewhere. Government authorities and these
third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular
medications. We cannot be sure that reimbursement will be available
for our product candidates and, if reimbursement is available, the
level of such reimbursement. Reimbursement may impact the demand
for, or the price of, our product candidates. If reimbursement is
not available or is available only at limited levels, we may not be
able to successfully commercialize our product
candidates.
In some foreign countries, particularly in Canada and European
countries, the pricing of prescription pharmaceuticals is subject
to strict governmental control. In these countries, pricing
negotiations with governmental authorities can take six months or
longer after the receipt of regulatory approval and product launch.
To obtain favorable reimbursement for the indications sought or
pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidates with other available therapies. If reimbursement for our
product candidates is unavailable in any country in which we seek
reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials, or
if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our
product candidates. Even if we have obtained FDA Orphan Drug
designation for a product candidate, there may be limits to the
regulatory exclusivity afforded by such designation.
We may, in the future, choose to seek FDA Orphan Drug designation
for one or more of our current or future product candidates. Even
if we obtain Orphan Drug designation from the FDA for a product
candidate, there are limitations to the exclusivity afforded by
such designation. In the U.S., the company that first obtains FDA
approval for a designated orphan drug for the specified rare
disease or condition receives orphan drug marketing exclusivity for
that drug for a period of seven years. This orphan drug exclusivity
prevents the FDA from approving another application, including a
full NDA to market the same drug for the same orphan indication,
except in very limited circumstances, including when the FDA
concludes that the later drug is safer, more effective or makes a
major contribution to patient care. For purposes of small molecule
drugs, the FDA defines “same drug” as a drug that
contains the same active moiety and is intended for the same use as
the drug in question. To obtain Orphan Drug status for a drug that
shares the same active moiety as an already approved drug, it must
be demonstrated to the FDA that the drug is safer or more effective
than the approved orphan designated drug, or that it makes a major
contribution to patient care. In addition, a designated orphan drug
may not receive orphan drug exclusivity if it is approved for a use
that is broader than the indication for which it received orphan
designation. In addition, orphan drug exclusive marketing rights in
the United States may be lost if the FDA later determines that the
request for designation was materially defective or if the
manufacturer is unable to assure sufficient quantity of the drug to
meet the needs of patients with the rare disease or condition or if
another drug with the same active moiety is determined to be safer,
more effective, or represents a major contribution to patient
care.
Our future growth may depend, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to
commercialize our product candidates in foreign markets for which
we may rely on collaboration with third parties. If we
commercialize our product candidates in foreign markets, we would
be subject to additional risks and uncertainties,
including:
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our customers’ ability to obtain reimbursement for our
product candidates in foreign markets;
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our inability to directly control commercial activities because we
are relying on third parties;
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the burden of complying with complex and changing foreign
regulatory, tax, accounting and legal requirements;
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different medical practices and customs in foreign countries
affecting acceptance in the marketplace;
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import or export licensing requirements;
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longer accounts receivable collection times;
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longer lead times for shipping;
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language barriers for technical training;
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reduced protection of intellectual property rights, different
standards of patentability and different availability of prior art
in some foreign countries as compared with the U.S.;
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the existence of additional potentially relevant third party
intellectual property rights;
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foreign currency exchange rate fluctuations; and
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the interpretation of contractual provisions governed by foreign
laws in the event of a contract dispute.
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Foreign sales of our product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are a development stage biopharmaceutical company with no
current revenues or approved products, and limited experience
developing new therapeutic product candidates, including conducting
clinical trials and other areas required for the successful
development and commercialization of therapeutic products, which
makes it difficult to assess our future viability.
We are a development stage biopharmaceutical company. Although we
have one drug candidate in Phase 2 development and are preparing to
advance another drug candidate into Phase 2 development and a third
drug candidate into pivotal Phase 3 clinical trials, we currently
have no approved products and currently generate no revenues, and
we have not yet fully demonstrated an ability to overcome many of
the fundamental risks and uncertainties frequently encountered by
development stage companies in new and rapidly evolving fields of
technology, particularly biotechnology. To execute our business
plan successfully, we will need to accomplish the following
fundamental objectives, either on our own or with
collaborators:
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develop and obtain required regulatory approvals for
commercialization of AV-101, PH94B, PH10 and/or other product
candidates;
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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 product candidates; 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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Our future success is highly dependent upon our ability to
successfully develop and commercialize any of our current product
candidates, acquire or license additional product candidates, or
discover, as well as produce, develop and commercialize proprietary
drug rescue NCEs using our stem cell technology, and we cannot
provide any assurance that we will successfully develop and
commercialize AV-101, PH94B, PH10 or acquire or license additional
product candidates or discover and develop drug rescue NCEs, or
that, if produced, AV-101, PH94B, PH10 or any other product
candidate will be successfully commercialized.
Business development and research and development programs designed
to identify, acquire or license additional product candidates, or,
as the case may be, produce drug rescue NCEs require substantial
technical, financial and human resources, whether or not any
additional product candidate is acquired or licensed or NCEs are
ultimately identified and produced.
In addition, we do not have a sales or marketing infrastructure,
and we, including our executive officers, do not have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize AV-101, PH94B, PH10, drug rescue NCEs and/or other
product candidates if and when they are acquired and developed, or
we may seek to establish those commercial capabilities
ourselves. If we enter into arrangements with third
parties to perform sales, marketing and distribution services for
our products, the resulting revenues or the profitability from
these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. In addition, we
may not be successful entering into arrangements with third parties
to sell, market and distribute AV-101, PH94B, PH10, any drug rescue
NCEs or other product candidates or may be unable to do so on terms
that are favorable to us. We likely will have little
control over such third parties, and any of these third parties may
fail to devote the necessary resources and attention to sell,
market and distribute our products effectively. If we do
not establish sales, marketing and distribution capabilities
successfully, either on our own or in collaboration with third
parties, we will not be successful in commercializing our product
candidates.
We have limited operating history with respect to drug development,
including our anticipated focus on the identification and
acquisition of additional product candidates or the assessment of
potential drug rescue NCEs and no operating history with respect to
the production of drug rescue NCEs, and we may never be able to
produce a drug rescue NCE.
If we are unable to develop and commercialize AV-101, PH94B,
PH10 or acquire or license additional product candidates, or
produce suitable drug rescue NCEs, we may not be able to generate
sufficient revenues to execute our business plan, which likely
would result in significant harm to our financial position and
results of operations, which could adversely impact our stock
price.
With respect to drug rescue, there are a number of factors, in
addition to the utility of CardioSafe 3D, that may impact our ability to identify
and produce, develop or out-license and commercialize drug rescue
NCEs, independently or with partners,
including:
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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 sell or out-license
them to partners, the resources such partners choose to dedicate to
development and commercialization of any drug rescue NCEs they
acquire or license from us.
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Even if we do acquire additional product candidates or produce
proprietary drug rescue NCEs, we can give no assurance that we will
be able to develop and commercialize them as marketable drugs, on
our own or in collaboration with others. Before we generate any
revenues from AV-101, PH94B, PH10 or additional acquired or
licensed products candidates or any drug rescue NCEs, we or our
potential collaborators must complete preclinical and clinical
development programs, submit clinical and manufacturing data to the
FDA, qualify a third party CMO, receive regulatory approval in one
or more jurisdictions, satisfy the FDA that our CMO is capable of
manufacturing the product in compliance with cGMP, build a
commercial organization, make substantial investments and undertake
significant marketing efforts ourselves or in partnership with
others. We are not permitted to market or promote any of our
product candidates before we receive regulatory approval from the
FDA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product
candidates.
If
CardioSafe 3D fails to predict accurately
and efficiently the cardiac effects, both toxic and nontoxic, of
drug rescue candidates and drug rescue NCEs, then our drug rescue
programs will be adversely affected.
Success of our subsidiary, VistaStem, is partly dependent on our
ability to use CardioSafe 3D to identify and predict, accurately and
efficiently, the potential toxic and nontoxic cardiac effects of
drug rescue candidates and drug rescue NCEs. If CardioSafe 3D is not capable of providing
physiologically relevant and clinically predictive information
regarding human cardiac biology, our drug rescue business will be
adversely affected.
CardioSafe 3D may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
Although not currently requiring significant investment of capital,
the success of our VistaStem drug rescue programs is highly
dependent upon CardioSafe 3D being more accurate, efficient and
clinically predictive than long-established surrogate safety
models, including animal cells and live animals, and immortalized,
primary and transformed cells, currently used by pharmaceutical
companies and others. We cannot give assurance
that CardioSafe 3D will be more efficient or accurate at
predicting the heart safety of new drug candidates than the testing
models currently used. If CardioSafe 3D fails to provide a meaningful difference
compared to existing or new models in predicting the behavior of
human heart, respectively, their utility for drug rescue will be
limited and our drug rescue business will be adversely
affected.
We may invest in producing drug rescue NCEs for which there proves
to be no demand.
To generate revenue from our VistaStem drug rescue activities, we
must produce proprietary drug rescue NCEs for which there proves to
be demand within the healthcare marketplace, and, if we intend to
out-license a particular drug rescue NCE for development and
commercialization prior to market approval, then also among
pharmaceutical companies and other potential collaborators.
However, we may produce drug rescue NCEs for which there proves to
be no or limited demand in the healthcare market and/or among
pharmaceutical companies and others. If we misinterpret market
conditions, underestimate development costs and/or seek to rescue
the wrong drug rescue candidates, we may fail to generate
sufficient revenue or other value, on our own or in collaboration
with others, to justify our investments, and our drug rescue
business may be adversely affected.
We may experience difficulty in producing human cells and our
future stem cell technology research and development efforts may
not be successful within the timeline anticipated, if at
all.
Our human pluripotent stem cell technology is technically complex,
and the time and resources necessary to develop various human cell
types and customized bioassay systems, although not significant at
present, are difficult to predict in advance. We might decide to
devote significant additional personnel and financial resources to
research and development activities designed to expand, in the case
of drug rescue, and explore, in the case of drug discovery and RM,
potential applications of our stem cell technology platform. In
particular, we may conduct exploratory nonclinical RM programs
involving blood, bone, cartilage, and/or liver cells. Although we
and our third-party collaborators have developed proprietary
protocols to produce multiple differentiated cell types, we could
encounter difficulties in differentiating and producing sufficient
quantities of particular cell types, even when following these
proprietary protocols. These difficulties could result in delays in
production of certain cells, assessment of certain drug rescue
candidates and drug rescue NCEs, design and development of certain
human cellular assays and performance of certain exploratory
non-clinical regenerative medicine studies. In the past, our stem
cell research and development projects have been significantly
delayed when we encountered unanticipated difficulties in
differentiating human pluripotent stem cells into heart and liver
cells. Although we have overcome such difficulties in the past, we
may have similar delays in the future, and we may not be able to
overcome them or obtain any benefits from our future stem cell
technology research and development activities. Any delay or
failure by us, for example, to produce functional, mature blood,
bone, cartilage, and liver cells could have a substantial and
material adverse effect on our potential drug discovery, drug
rescue and regenerative medicine business opportunities and results
of operations.
Restrictions on research and development involving human embryonic
stem cells and religious and political pressure regarding such stem
cell research and development could impair our ability to conduct
or sponsor certain potential collaborative research and development
programs and adversely affect our prospects, the market price of
our common stock and our business model.
Some of our research and development programs may involve the use
of human cells derived from our controlled differentiation of human
embryonic stem cells (hESCs). Some believe the use of hESCs gives rise to
ethical and social issues regarding the appropriate use of these
cells. Our research related to differentiation of hESCs may become
the subject of adverse commentary or publicity, which could
significantly harm the market price of our common stock. Although
now substantially less than in years past, certain political and
religious groups in the United States and elsewhere voice
opposition to hESC technology and practices. We may use hESCs
derived from excess fertilized eggs that have been created for
clinical use in in vitro fertilization (IVF) procedures and have been donated for research
purposes with the informed consent of the donors after a successful
IVF procedure because they are no longer desired or suitable for
IVF. Certain academic research institutions have adopted policies
regarding the ethical use of human embryonic tissue. These policies
may have the effect of limiting the scope of future collaborative
research opportunities with such institutions, thereby potentially
impairing our ability to conduct certain research and development
in this field that we believe is necessary to expand the drug
rescue capabilities of our technology, which would have a material
adverse effect on our business.
The use of embryonic or fetal tissue in research (including the
derivation of hESCs) in other countries is regulated by the
government, and such regulation varies widely from country to
country. Government-imposed restrictions with respect to use of
hESCs in research and development could have a material adverse
effect on us by harming our ability to establish critical
collaborations, delaying or preventing progress in our research and
development, and causing a decrease in the market interest in our
stock.
The foregoing potential ethical concerns do not apply to our use of
induced pluripotent stem cells (iPSCs) because their derivation does not involve the
use of embryonic tissues.
We have assumed that the biological capabilities of iPSCs and hESCs
are likely to be comparable. If it is discovered that this
assumption is incorrect, our exploratory research and development
activities focused on potential regenerative medicine applications
of our stem cell technology platform could be harmed.
We may use both hESCs and iPSCs to produce human cells for our
customized in vitro assays for drug discovery and drug rescue
purposes. However, we anticipate that our future exploratory
research and development, if any, focused on potential regenerative
medicine applications of our stem cell technology platform
primarily will involve iPSCs. With respect to iPSCs, we believe
scientists are still somewhat uncertain about the clinical utility,
life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from hESCs. If we discover that
iPSCs will not be useful for whatever reason for potential
regenerative medicine programs, this would negatively affect our
ability to explore expansion of our platform in that manner,
including, in particular, where it would be preferable to use iPSCs
to reproduce rather than approximate the effects of certain
specific genetic variations.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of
our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological
materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although we maintain workers' compensation insurance to cover us
for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or
radioactive materials.
In addition, we may incur substantial costs to comply with current
or future environmental, health and safety laws and regulations.
These current or future laws and regulations may impair our
research, development, or production efforts. Failure to comply
with these laws and regulations also may result in substantial
fines, penalties, or other sanctions, which could have a material
adverse effect on our operations.
To the extent our research and development activities involve using
iPSCs, we will be subject to complex and evolving laws and
regulations regarding privacy and informed consent. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our research
and development programs and objectives, increased cost of
operations or otherwise harm the Company.
To the extent that we pursue research and development activities
involving iPSCs, we will be subject to a variety of laws and
regulations in the United States and abroad that involve matters
central to such research and development activities, including
obligations to seek informed consent from donors for the use of
their blood and other tissue to produce, or have produced for us,
iPSCs, as well as state and federal laws that protect the privacy
of such donors. United States federal and state and foreign laws
and regulations are constantly evolving and can be subject to
significant change. If we engage in iPSC-related research and
development activities in countries other than the United States,
we may become subject to foreign laws and regulations relating to
human-subjects research and other laws and regulations that are
often more restrictive than those in the United States. In
addition, both the application and interpretation of these laws and
regulations are often uncertain, particularly in the rapidly
evolving stem cell technology sector. Compliance with these laws
and regulations can be costly, can delay or impede our research and
development activities, result in negative publicity, increase our
operating costs, require significant management time and attention
and subject us to claims or other remedies, including fines or
demands that we modify or cease existing business
practices.
Legal, social and ethical concerns surrounding the use of iPSCs,
biological materials and genetic information could impair our
operations.
To the extent that our future stem cell research and development
activities involve the use of iPSCs and the manipulation of human
tissue and genetic information, the information we derive from such
iPSC-related research and development activities could be used in a
variety of applications, which may have underlying legal, social
and ethical concerns, including the genetic engineering or
modification of human cells, testing for genetic predisposition for
certain medical conditions and stem cell banking. Governmental
authorities could, for safety, social or other purposes, call for
limits on or impose regulations on the use of iPSCs and genetic
testing or the manufacture or use of certain biological materials
involved in our iPSC-related research and development programs.
Such concerns or governmental restrictions could limit our future
research and development activities, which could have a material
adverse effect on our business, financial condition and results of
operations.
Our human cellular bioassay systems and human cells we derive from
human pluripotent stem cells, although not currently subject to
regulation by the FDA or other regulatory agencies as biological
products or drugs, could become subject to regulation in the
future.
The human cells we produce from hPSCs and our customized bioassay
systems using such cells, including CardioSafe 3D, are not currently sold, for research
purposes or any other purpose, to biotechnology or pharmaceutical
companies, government research institutions, academic and nonprofit
research institutions, medical research organizations or stem cell
banks, and they are not therapeutic procedures. As a result, they
are not subject to regulation as biological products or drugs by
the FDA or comparable agencies in other countries. However, if, in
the future, we seek to include human cells we derive from hPSCs in
therapeutic applications or product candidates, such applications
and/or product candidates would be subject to the FDA’s pre-
and post-market regulations. For example, if we seek to develop and
market human cells we produce for use in performing regenerative
medicine applications, such as tissue engineering or organ
replacement, we would first need to obtain FDA pre-market clearance
or approval. Obtaining such clearance or approval from the FDA is
expensive, time-consuming and uncertain, generally requiring many
years to obtain, and requiring detailed and comprehensive
scientific and clinical data. Notwithstanding the time and expense,
these efforts may not result in FDA approval or clearance. Even if
we were to obtain regulatory approval or clearance, it may not be
for the uses that we believe are important or commercially
attractive.
Risks Related to Our Financial Position
We have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future. We may never achieve or sustain profitability, which would
depress the market price of our common stock and could cause you to
lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since
our inception in 1998, including net losses of $14.3 million and
$10.3 million during the fiscal years ended March 31, 2018 and
2017, respectively. We incurred a net loss of approximately $18.9
million in the nine months ended December 31, 2018, and, as of that
date, we had an accumulated deficit of approximately $175.4
million. We do not know whether or when we will become profitable.
Substantially all of our operating losses have resulted from costs
incurred in connection with our research and development programs
and from general and administrative costs associated with our
operations. We expect to incur increasing levels of operating
losses over the next several years and for the foreseeable future.
Our prior losses, combined with expected future losses, have had
and will continue to have an adverse effect on our
stockholders’ equity (deficit) and working capital. We expect
our research and development expenses to significantly increase in
connection with nonclinical studies and clinical trials of our
product candidates. In addition, if we obtain marketing approval
for our product candidates, we may incur significant sales,
marketing and outsourced-manufacturing expenses should we elect not
to collaborate with one or more third parties for such services and
capabilities. As a public company, we incur additional costs
associated with operating as a public company. As a result, we
expect to continue to incur significant and increasing operating
losses for the foreseeable future. Because of the numerous risks
and uncertainties associated with developing pharmaceutical
products, we are unable to predict the extent of any future losses
or when we will become profitable, if at all. Even if we do become
profitable, we may not be able to sustain or increase our
profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate revenues. To date, we have generated approximately $17.7
million in revenues, including receipt of non-dilutive cash
payments from collaborators, sublicense revenue, and research and
development grant awards from the NIH, however not including the
fair market value of the NIMH Study sponsored and conducted by the
NIMH under our NIMH CRADA, or the Baylor Study being conducted by
Baylor. We have not yet commercialized any product or generated any
revenues from product sales, and we do not know when, or if, we
will generate any revenue from product sales. We do not expect to
generate significant revenue unless and until we obtain marketing
approval of, and begin to experience sales of, AV-101, PH94B, PH10
or another product candidate, or we enter into one or more
development and commercialization agreements with respect to
AV-101, PH94B, PH10 or one or more other product candidates. Our
ability to generate revenue depends on a number of factors,
including, but not limited to, our ability to:
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initiate and successfully complete nonclinical and clinical trials
that meet their prescribed endpoints;
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initiate and successfully complete all safety studies required to
obtain United States and foreign marketing approval for our product
candidates;
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timely complete and compose successful regulatory submissions such
as NDAs or comparable documents for both United States and foreign
jurisdictions;
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commercialize our product candidates, if approved, by developing a
sales force or entering into collaborations with third parties for
sales and marketing capabilities; 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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Unless we enter into a commercialization collaboration or
partnership with respect to the commercialization of our product
candidates, we expect to incur significant sales and marketing
costs as we prepare to commercialize our product candidates. Even
if we initiate and successfully complete pivotal clinical trials of
our product candidates, and our product candidates are approved for
commercial sale, and despite expending these costs, our product
candidates may not be commercially successful. We may not achieve
profitability soon after generating product sales, if ever. If we
are unable to generate product revenue, we will not become
profitable and may be unable to continue operations without
continued funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2018 as well as the unaudited condensed consolidated
financial statements for the quarter ended December 31, 2018
included elsewhere in this Report were prepared assuming we will
continue to operate as a going concern, although we and our
auditors have indicated that our continuing losses and negative
cash flows from operations raise substantial doubt about our
ability to continue as such. Because we continue to experience net
operating losses, our ability to continue as a going concern is
subject to our ability to obtain necessary funding from outside
sources, including obtaining additional funding from this offering
as well as future sales of our securities or potentially obtaining
loans and grant awards from financial institutions and/or
government agencies where possible. Our continued net operating
losses increase the difficulty in completing such sales or securing
alternative sources of funding, and there can be no assurances that
we will be able to obtain any future funding on favorable terms or
at all. If we are unable to obtain sufficient financing from the
sale of our securities or from alternative sources, we may be
required to reduce, defer, or discontinue certain or all of our
research and development activities or we may not be able to
continue as a going concern.
Since our inception, most of our resources have been dedicated to
research and development of AV-101 and the drug rescue capabilities
of VistaStem’s stem cell technology platform. In particular,
we have expended substantial resources on research and development
of methods and processes relating to the production of AV-101 API
and drug product, advancing AV-101 through IND-enabling preclinical
development, Phase 1 clinical safety studies, and into ongoing
Phase 2 clinical development, including preparation for and launch
of our ELEVATE Study, as well as research and development of our
stem cell technology platform, including development
of CardioSafe 3D for drug rescue and our cardiac stem cell
technology for potential regenerative medicine applications in
connection with the Bluerock Agreement, and we expect to continue
to expend substantial resources for the foreseeable future
developing and commercializing our product candidates on our own or
in collaborations. These expenditures will include costs associated
with general and administrative costs, facilities costs, research
and development, acquiring new technologies, manufacturing product
candidates, conducting nonclinical experiments and clinical trials
and obtaining regulatory approvals, as well as commercializing any
products approved for sale.
At December 31, 2018, we had cash and cash equivalents of
approximately $6.3 million. We do not believe this amount alone is
sufficient to enable us to fund our planned operations for at least
the twelve months following the issuance of the financial
statements included elsewhere in this Report. We expect to seek
additional capital to produce additional AV-101 study material
for future nonclinical and clinical studies of AV-101, conduct
AV-101 Phase 3-enabling studies, conduct pivotal Phase 3 clinical
studies of AV-101 in MDD, conduct AV-101 Phase 2 studies in CNS
indications other than MDD, produce PH94B study material, conduct
PH94B pivotal Phase 3 clinical trials, produce PH10 study material
and conduct a Phase 2 clinical trial of PH10, acquire or license
and conduct research and development of additional product
candidates and to fund our internal operations.
Further, we have no current source of revenue to sustain our
present activities, and we do not expect to generate revenue until,
and unless, we (i) out-license or sell a product candidate to a
third-party, (ii) enter into additional license arrangements
involving our stem cell technology, or (iii) obtain approval from
the FDA or other regulatory authorities and successfully
commercialize, on our own or through a future collaboration, one or
more of our product candidates.
As the outcome of our ongoing research and development activities,
including the outcome of ongoing and future anticipated clinical
trials is highly uncertain, we cannot reasonably estimate the
actual amounts necessary to successfully complete the development
and commercialization of our product candidates, on our own or in
collaboration with others. In addition, other unanticipated costs
may arise. As a result of these and other factors, we will need to
seek additional capital in the near term to meet our future
operating requirements, including capital necessary to develop,
obtain regulatory approval for, and to commercialize our product
candidates, and may seek additional capital in the event there
exists favorable market conditions or strategic considerations even
if we believe we have sufficient funds for our current or future
operating plans. We have completed in the past, and are
considering, a range of potential financing transactions, including
the offering described herein, additional public or private equity
or debt financings, government or other third-party funding,
marketing and distribution arrangements and other collaborations,
strategic alliances and licensing arrangements or a combination of
these approaches, and we may complete additional financing
arrangements later in 2018 or thereafter. Raising funds in the
current economic environment may present additional challenges.
Even if we believe we have sufficient funds for our current or
future operating plans, we may seek additional capital if market
conditions are favorable or if we have specific strategic
considerations.
Our future capital requirements depend on many factors,
including:
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the number and characteristics of the product candidates we
pursue;
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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 collaborative arrangements and the financial
terms of such agreements;
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market acceptance of our product candidates;
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the effect of competing technological and market
developments;
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our ability to obtain government funding for our research and
development programs;
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the costs involved in obtaining, maintaining 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 may acquire or invest in additional
businesses, product candidates and technologies.
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Any additional fundraising efforts will divert certain members of
our management team from their day-to-day activities, which may
adversely affect our ability to develop and commercialize our
product candidates. In addition, we cannot guarantee that future
financing will be available in sufficient amounts, in a timely
manner, or on terms acceptable to us, if at all. The terms of any
future financing may adversely affect the holdings or the rights of
our stockholders and the issuance of additional securities, whether
equity or debt, by us, or the possibility of such issuance, may
cause the market price of our shares to decline. The sale of
additional equity securities and the conversion, exchange or
exercise of certain of our outstanding securities will dilute all
of our stockholders. The incurrence of debt could result in
increased fixed payment obligations and we could be required to
agree to certain restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to
acquire, sell or license intellectual property rights and other
operating restrictions that could adversely impact our ability to
conduct our business. We could also be required to seek funds
through arrangements with collaborative partners or otherwise at an
earlier stage than otherwise would be desirable and we may be
required to relinquish rights to some of our technologies or
product candidates or otherwise agree to terms unfavorable to us,
any of which may have a material adverse effect on our business,
operating results and prospects.
If we are unable to obtain additional funding on a timely basis and
on acceptable terms, we may be required to significantly curtail,
delay or discontinue one or more of our research or product
development programs or the commercialization of any product
candidate or be unable to continue or expand our operations or
otherwise capitalize on our business opportunities, as desired,
which could materially affect our business, financial condition and
results of operations.
We have identified
material weaknesses in our internal control over financial
reporting, and our business and stock price may be adversely
affected if we do not adequately address those weaknesses or if we
have other material weaknesses or significant deficiencies in our
internal control over financial reporting.
We have identified material weaknesses in our internal control over
financial reporting. In particular, we concluded that (i) the size
and capabilities of the Company’s staff does not permit
appropriate segregation of duties to prevent one individual from
overriding the internal control system by initiating, authorizing
and completing all transactions, and (ii) the Company utilizes
accounting software that does not prevent erroneous or unauthorized
changes to previous reporting periods and/or can be adjusted so as
to not provide an adequate auditing trail of entries made in the
accounting software.
The existence of one or more
material weaknesses or significant deficiencies could result in
errors in our financial statements, and substantial costs and
resources may be required to rectify any internal control
deficiencies. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial
information, we may be unable to obtain additional financing to
operate and expand our business and our business and financial
condition could be harmed.
Raising additional capital will cause substantial dilution to our
existing stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt
financings, strategic collaborations and licensing arrangements
during 2019 and beyond. To the extent that we raise additional
capital through the sale of common stock or securities convertible
or exchangeable into common stock, or to the extent, for strategic
purposes, we convert or exchange certain of our outstanding
securities into common stock, our current stockholders’
ownership interest in our company will be substantially diluted. In
addition, the terms of any such securities may include liquidation
or other preferences that materially adversely affect rights of our
stockholders. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing
arrangements with third parties, we may have to relinquish valuable
rights to our product candidates, our intellectual property, future
revenue streams or grant licenses on terms that are not favorable
to us.
Some of our programs have been partially supported by government
grant awards, which may not be available to us in the
future.
Since inception, we have received substantial funds under grant
award programs funded by state and federal governmental agencies,
such as the NIH, the NIH’s National Institute of Neurological
Disease and Stroke (NINDS) and the NIMH, and the California Institute for
Regenerative Medicine (CIRM). To fund a portion of our future research and
development programs, we may apply for additional grant funding
from such or similar governmental
organizations. However, funding by these governmental
organizations may be significantly reduced or eliminated in the
future for a number of reasons. For example, some programs are
subject to a yearly appropriations process in Congress. In
addition, we may not receive funds under future grants because of
budgeting constraints of the agency administering the program.
Therefore, we cannot assure you that we will receive any future
grant funding from any government organization or
otherwise. A restriction on the government funding
available to us could reduce the resources that we would be able to
devote to future research and development efforts. Such a reduction
could delay the introduction of new products and hurt our
competitive position.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2018, we had federal and state net operating
loss carryforwards of approximately $88.5 million and $63.5
million, respectively, which begin to expire in fiscal
2019. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the Code) changes in our ownership may limit the amount of
our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key
scientific personnel, we may be unable to successfully produce,
develop and commercialize our product candidates.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific and
technical personnel. We are highly dependent upon our Chief
Executive Officer, President and Chief Scientific Officer, Chief
Medical Officer, Chief Financial Officer, and Vice President
– Corporate Development as well as our other employees,
consultants and scientific collaborators. As of the date of this
Report, we have nine full-time employees, which may make us more
reliant on our individual employees than companies with a greater
number of employees. The loss of services of any of these
individuals could delay or prevent the successful development of
our product candidates or disrupt our administrative
functions.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience
such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is
intense. We will need to hire additional personnel should we elect
to expand our research and development and administrative
activities. We may not be able to attract and retain quality
personnel on acceptable terms.
In addition, we rely on a broad and diverse range of strategic
consultants and advisors, including manufacturing, nonclinical and
clinical development, and regulatory advisors, to assist us in
designing and implementing our research and development and
regulatory strategies and plans for our product candidates. Our
consultants and advisors may be employed by employers other than us
and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to
us.
As we seek to advance development of our product candidates, we may
need to expand our research and development capabilities and/or
contract with third parties to provide these capabilities for us.
As our operations expand, we expect that we will need to manage
additional relationships with various strategic partners and other
third parties. Future growth will impose significant added
responsibilities on members of management. Our future financial
performance and our ability to develop and commercialize our
product candidates and to compete effectively will depend, in part,
on our ability to manage any future growth effectively. To that
end, we must be able to manage our research and development efforts
effectively and hire, train and integrate additional management,
administrative and technical personnel. The hiring, training and
integration of new employees may be more difficult, costly and/or
time-consuming for us because we have fewer resources than a larger
organization. We may not be able to accomplish these tasks, and our
failure to accomplish any of them could prevent us from
successfully growing the company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
As we develop our product candidates. either on our own or in
collaboration with others, we will face inherent risks of product
liability as a result of the required clinical testing of such
product candidates, and will face an even greater risk if we or our
collaborators commercialize any such product candidates. For
example, we may be sued if AV-101, PH94B, PH10, any drug rescue
NCE, other product candidate, or RM product candidate we develop
allegedly causes injury or is found to be otherwise unsuitable
during product testing, manufacturing, marketing or sale. Any such
product liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers
inherent in the product, negligence, strict liability, and a breach
of warranties. Claims could also be asserted under state consumer
protection acts. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or
be required to limit commercialization of our product candidates.
Even successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
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decreased demand for product candidates 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;
or
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product recalls, withdrawals or labeling, marketing or promotional
restrictions.
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Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
general and product liability insurance, any claim that may be
brought against us could result in a court judgment or settlement
in an amount that is not covered, in whole or in part, by our
insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions, and
we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or
negotiated in a settlement that exceed our coverage limitations or
that are not covered by our insurance, and we may not have, or be
able to obtain, sufficient capital to pay such
amounts.
As a public company, we incur significant administrative workload
and expenses to comply with U.S. regulations and requirements
imposed by the Nasdaq Stock Market concerning corporate governance
and public disclosure.
As a public company with common stock listed on the Nasdaq Capital
Market, we must comply with various laws, regulations and
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002, as well as rules implemented by the SEC and the Nasdaq
Stock Market. Complying with these statutes, regulations and
requirements, including our public company reporting requirements,
continues to occupy a significant amount of the time of management
and involves significant accounting, legal and other expenses. Our
efforts to comply with these regulations are likely to result in
increased general and administrative expenses and management time
and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our product candidates and our
ability to raise additional capital when needed on acceptable
terms, if at all. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our
customers to delay making payments for our services. Any of the
foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CMOs, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
Our business and
operations would suffer in the event of cybersecurity or other
system failures. Our business depends on complex information
systems, and any failure to successfully maintain these systems or
implement new systems to handle our changing needs could result in
a material disruption of our product candidates’ development
programs or otherwise materially harm our
operations.
In the ordinary course of our business, we collect and store
sensitive data, including intellectual property, our proprietary
business information and that of our suppliers, as well as
personally identifiable information of employees. Similarly, our
third-party CROs, CMOs and other contractors and consultants
possess certain of our sensitive data. The secure maintenance of
this information is material to our operations and business
strategy. Despite the implementation of security measures, our
internal computer systems and those of our third-party CROs, CMOs
and other contractors and consultants are vulnerable to attacks by
hackers, damage from computer viruses, unauthorized access, breach
due to employee error, malfeasance or other disruptions, natural
disasters, terrorism and telecommunication and electrical failures.
Any such attack or breach could compromise our networks and the
information stored there could be accessed, publicly disclosed,
lost or stolen. The legislative and regulatory landscape for
privacy and data protection continues to evolve, and there has been
an increasing amount of focus on privacy and data protection issues
with the potential to affect our business, including recently
enacted laws in a majority of states requiring security breach
notification. Thus, any access, disclosure or other loss of
information, including our data being breached at our partners or
third-party providers, could result in legal claims or proceedings
and liability under laws that protect the privacy of personal
information, disruption of our operations, and damage to our
reputation, which could adversely affect our business.
While we have not experienced any such system failure, accident, or
security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material
disruption of our programs. For example, the loss of clinical trial
data for AV-101, PH94B, PH10 or other product candidates could
result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data.
To the extent that any disruption or security breach results in a
loss of or damage to our data or applications or other data or
applications relating to our technology or product candidates, or
inappropriate disclosure of confidential or proprietary
information, we could incur liabilities and the further development
of our product candidates could be delayed.
We may acquire businesses or product candidates, or form strategic
alliances, in the future, and we may not realize the benefits of
such acquisitions.
We may acquire additional businesses or product candidates, form
strategic alliances or create joint ventures with third parties
that we believe will complement or augment our existing business.
If we acquire businesses with promising markets or technologies, we
may not be able to realize the benefit of acquiring such businesses
if we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
product candidates resulting from a strategic alliance, licensing
transaction or acquisition that delay or prevent us from realizing
their expected benefits or enhancing our business. We cannot assure
you that, following any such acquisition or licensing transaction,
we will achieve the expected synergies to justify the
transaction.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We strive to protect and enhance the proprietary technologies that
we believe are important to our business, including seeking patents
intended to cover our products and compositions, their methods of
use and any other inventions we consider important to the
development of our business. We also rely on trade secrets to
protect aspects of our business that are not amenable to, or that
we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and
maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our
business, to defend and enforce our patents, to preserve the
confidentiality of our trade secrets and to operate without
infringing the valid and enforceable patents and proprietary rights
of third parties. We also rely on know-how, continuing
technological innovation and in-licensing opportunities to develop,
strengthen and maintain the proprietary position of our product
candidates. We own or have licensed patents and patent applications
related to AV-101, PH94B, PH10 and human pluripotent stem cell
technology.
Although we own or have licensed issued patents and patent
applications relating to AV-101, PH94B and PH10 in the United
States, selected countries in the European Union and other
jurisdictions, we cannot yet, with respect to AV-101 or PH10,
provide any assurances that any of our pending United States and
additional foreign patent applications will mature into issued
patents and, if they do, that any of our patents will include
claims with a scope sufficient to protect our product candidates or
otherwise provide any competitive advantage. Nor can we provide any
assurances that any of our issued patents, if challenged, will be
found to be valid and enforceable. Moreover, other parties may have
developed technologies that may be related or competitive to our
approach and may have filed or may file patent applications and may
have received or may receive patents that may overlap or conflict
with our patent applications, either by claiming the same methods
or formulations or by claiming subject matter that could dominate
our patent position. Such third-party patent positions may limit or
even eliminate our ability to obtain or maintain patent
protection.
The patent positions of biotechnology and pharmaceutical companies,
including our patent positions with respect to our product
candidates, involve complex legal and factual questions, and,
therefore, the issuance, scope, validity and enforceability of any
additional patent claims that we may obtain cannot be predicted
with certainty. This uncertainty includes changes to the patent
laws through either legislative action to change statutory patent
law or court action that may reinterpret existing law in ways
affecting the scope or validity of issued patents.
In addition, some patent-related uncertainty exists because of the
challenge in finding and addressing all of the relevant and
material prior art in the biotechnology and pharmaceutical
fields. Such prior art includes scientific publications, investment
blogs, granted patents and published patent applications. For
example, some reports in the trade press and announcements by the
Company, made public before the filing date of our AV-101 patent
applications, mentioned that AV-101 was in development for certain
therapeutic purposes. These include a web post, published by the
Company on the NIH clinical trials website prior to filing the
Company’s initial AV-101 patent applications, which stated
that our then contemplated Phase 1b study would assess the safety,
pharmacokinetics and antihyperalgesic effect of AV-101 at
particular unit doses on capsaicin-induced hyperalgesia. This web
post was not submitted to the United States Patent and Trademark
Office (USPTO) in our two granted US patents related to (1)
unit dose formulations of AV-101 effective to treat depression and
(2) methods of treating depression with AV-101, respectively. It
has been submitted in our pending AV-101 patent applications which
also claim (1) unit dose formulations of AV-101 effective to treat
depression and (2) methods of treating depression with AV-101. This
prior art web post describes unit doses for a then future study
contemplated by the Company, does not mention treatment of
depression and does not provide any preclinical or clinical study
data relating to depression or any other medical condition, disease
or disorder. The Company is considering entering this web post in
the record for the aforementioned two issued US patents. Such prior
art, as well as the potential existence of other prior art about
which we are currently unaware may be related to our patent
applications and patents, may provide patent uncertainty and could
prevent a pending patent application from being granted or result
in an issued patent being held invalid or
unenforceable.
Our ability to obtain and maintain valid and enforceable patents
depends on whether the differences between our technology and
the prior art allow our technology to be patentable over
the prior art. Even if patents do successfully issue, third
parties may challenge the validity, enforceability or scope of such
issued patents or any other issued patents we own or license, which
may result in such patents being narrowed, invalidated or held
unenforceable. United States patents and patent applications may
also be subject to interference
proceedings, ex parte reexamination, or inter
partes review proceedings,
supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, invalidity
actions, or comparable proceedings lodged in various foreign, both
national and regional, patent offices or courts. These proceedings
could result in either loss of the patent or denial of the patent
application or loss or reduction in the scope of one or more of the
claims of the patent or patent application. In addition, such
proceedings may be costly. Thus, any patents that we may own or
exclusively license ultimately may not provide any protection
against competitors. Furthermore, an adverse decision in an
interference proceeding can result in a third party receiving the
patent right sought by us, which in turn could affect our ability
to develop, market or otherwise commercialize our product
candidates.
Furthermore, though an issued patent is presumed valid and
enforceable, its issuance is not conclusive as to its validity or
its enforceability and it may not provide us with adequate
proprietary protection or competitive advantages against
competitors with similar products. Even if a patent issues and is
held to be valid and enforceable, competitors may be able to design
around our patents, such as using pre-existing or newly developed
technology. Other parties may develop and obtain patent protection
for more effectivetechnologies, designs or methods. We may not be
able to prevent the unauthorized disclosure or use of our technical
knowledge or trade secrets by consultants, vendors, or former or
current employees. The laws of some foreign countries do not
protect our proprietary rights to the same extent as the laws of
the United States, and we may encounter significant problems in
protecting our proprietary rights in these countries. If these
developments were to occur, they could have a material adverse
effect on our sales.
Our ability to enforce our patent rights depends on our ability to
detect infringement. It is difficult to detect infringers who do
not advertise the components that are used in their products.
Moreover, it may be difficult or impossible to obtain evidence of
infringement in a competitor’s or potential
competitor’s product. Any litigation to enforce or defend our
patent rights, even if we were to prevail, could be costly and
time-consuming and would divert the attention of our management and
key personnel from our business operations. We may not prevail in
any lawsuits that we initiate and the damages or other remedies
awarded if we were to prevail may not be commercially
meaningful.
In addition, proceedings to enforce or defend our patents could put
our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. Such proceedings could also provoke third
parties to assert claims against us, including that some or all of
the claims in one or more of our patents are invalid or otherwise
unenforceable. If any patents covering our product candidates are
invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted.
In addition, if a court found that valid, enforceable patents held
by third parties covered our product candidates, our financial
position and results of operations would also be materially and
adversely impacted.
The degree of future protection for our proprietary rights is
uncertain, and we cannot ensure that:
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any issued patents related to AV-101, PH94B, PH10 or any
pending patent applications, if issued, will include claims having
a scope sufficient to protect AV-101, PH94B, PH10 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 ultimately be found to be valid
and enforceable, including on the basis of prior art relating to
our patent applications and patents;
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any patents currently held or issued to us in the future 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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our commercial activities or products will not infringe upon the
patents or proprietary rights of others.
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We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our
business will be independently developed by a person that is not a
party to such an agreement. Furthermore, if the
employees and consultants who are parties to these agreements
breach or violate the terms of these agreements, we may not have
adequate remedies for any such breach or violation, and we could
lose our trade secrets through such breaches or violations.
Further, our trade secrets could otherwise become known or be
independently discovered by our competitors.
We
may infringe the intellectual property rights of others, which may
prevent or delay our product development efforts and stop us from
commercializing or increase the costs of commercializing our
product candidates, if approved.
Our success will depend in part on our ability to operate without
infringing the intellectual property and proprietary rights of
third parties. We cannot assure you that our business, products and
methods do not or will not infringe the patents or other
intellectual property rights of third parties.
The pharmaceutical industry is characterized by extensive
litigation regarding patents and other intellectual property
rights. Other parties may allege that our product candidates or the
use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing
their proprietary technology without authorization. As we continue
to develop and, if approved, commercialize our current product
candidates and future product candidates, competitors may claim
that our technology infringes their intellectual property rights as
part of business strategies designed to impede our successful
commercialization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, third parties may have currently
pending patent applications that may later result in issued patents
that our product candidates may infringe, or which such third
parties claim are infringed by our technologies. The outcome of
intellectual property litigation is subject to uncertainties that
cannot be adequately quantified in advance. The coverage of patents
is subject to interpretation by the courts, and the interpretation
is not always uniform. If we are sued for patent infringement, we
would need to demonstrate that our product candidates, products or
methods either do not infringe the patent claims of the relevant
patent or that the patent claims are invalid, and we may not be
able to do this. Even if we are successful in these proceedings, we
may incur substantial costs and the time and attention of our
management and scientific personnel could be diverted in pursuing
these proceedings, which could have a material adverse effect on
us. In addition, we may not have sufficient resources to bring
these actions to a successful conclusion.
Patent and other types of intellectual property litigation can
involve complex factual and legal questions, and their outcome is
uncertain. Any claim relating to intellectual property infringement
that is successfully asserted against us may require us to pay
substantial damages, including treble damages and attorney’s
fees if we are found to be willfully infringing another
party’s patents, for past use of the asserted intellectual
property and royalties and other consideration going forward if we
are forced to take a license. In addition, if any such claim was
successfully asserted against us and we could not obtain such a
license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product
candidates.
Even if we are successful in these proceedings, we may incur
substantial costs and divert management time and attention in
pursuing these proceedings, which could have a material adverse
effect on us. If we are unable to avoid infringing the patent
rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court, or redesign our products. Patent litigation is costly and
time-consuming. We may not have sufficient resources to bring these
actions to a successful conclusion. In addition, intellectual
property litigation or claims could force us to do one or more of
the following:
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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.
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Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
We may be subject to claims challenging the inventorship or
ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign all such intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a
distraction to management and other employees.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The USPTO, the European Patent Office (EPO) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
Third parties may initiate legal proceedings against us alleging
that we infringe their intellectual property rights or we may
initiate legal proceedings against third parties to challenge the
validity or scope of intellectual property rights controlled by
third parties, the outcome of which would be uncertain and could
have a material adverse effect on the success of our
business. Any lawsuit we are engaged in to protect or enforce
our patents or the patents of our licensors could be expensive,
time-consuming and unsuccessful.
Even if the patent applications we own or license are issued,
competitors may infringe these patents. To counter infringement or
unauthorized use, we may be required to file infringement claims,
which can be expensive and time-consuming. In addition, in an
infringement proceeding, a court may decide that a patent of ours
or our licensors is not valid, is unenforceable and/or is not
infringed, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover
the technology in question. An adverse result in any litigation or
defense proceedings could put one or more of our patents at risk of
being invalidated or interpreted narrowly and could put our patent
applications at risk of not issuing.
Further, third parties may initiate legal proceedings against us or
our licensors or collaborators alleging that we or our licensors or
collaborators infringe their intellectual property rights or we or
our licensors or collaborators may initiate legal proceedings
against third parties to challenge the validity or scope of
intellectual property rights controlled by third parties, including
in oppositions, interferences, reexaminations, inter partes
reviews or derivation proceedings
before the United States or other jurisdictions. These proceedings
can be expensive and time-consuming and many of our or our
licensors’ or collaborators’ adversaries in these
proceedings may have the ability to dedicate substantially greater
resources to prosecuting these legal actions than we or our
licensors or collaborators can. Our defense of litigation or
interference proceedings may fail and, even if successful, may
result in substantial costs and distract our management and other
employees. We may not be able to prevent, alone or with our
licensors, misappropriation of our intellectual property rights,
particularly in countries where the laws may not protect those
rights as fully as in the United States or European
Union.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Issued patents covering our product candidates could be found
invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiated legal proceedings
against a third-party to enforce a patent covering one of our
product candidates, including patents related to AV-101, PH94B or
PH10, the defendant could counterclaim that the patent covering our
product candidate is invalid and/or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a
validity challenge include alleged failures to meet any of several
statutory requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or EPO, or made a
misleading statement, during prosecution. Third parties may also
raise similar claims before administrative bodies in the United
States or abroad, even outside the context of litigation. Such
mechanisms include re-examination, post grant review and equivalent
proceedings in foreign jurisdictions, e.g., opposition proceedings.
Such proceedings could result in revocation or amendment of our
patents in such a way that they no longer cover our product
candidates or competitive products. The outcome following legal
assertions of invalidity and unenforceability is unpredictable.
With respect to validity, for example, we cannot be certain that
there is no invalidating prior art, of which we and the patent
examiner were unaware during prosecution. If a defendant were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
We will not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the United States could be less extensive
than those in the United States, assuming that rights are obtained
in the United States. In addition, the laws of some foreign
countries do not protect intellectual property rights to the same
extent as federal and state laws in the United States.
Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United
States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions.
The statutory deadlines for pursuing patent protection in
individual foreign jurisdictions are based on the priority date of
each of our patent applications. For the patent applications
relating to AV-101, as well as for many of the patent families that
we own or license, the relevant statutory deadlines have not yet
expired. Thus, for each of the patent families that we believe
provide coverage for our lead product candidates or technologies,
we will need to decide whether and where to pursue protection
outside the United States.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the United States. These products may compete
with our products and our patents or other intellectual property
rights may not be effective or sufficient to prevent them from
competing. Even if we pursue and obtain issued patents in
particular jurisdictions, our patent claims or other intellectual
property rights may not be effective or sufficient to prevent third
parties from so competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United
States. Many companies have encountered significant problems in
protecting and defending intellectual property rights in certain
foreign jurisdictions. The legal systems of some countries,
particularly developing countries, do not favor the enforcement of
patents and other intellectual property protection, especially
those relating to biotechnology. This could make it difficult for
us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. In
addition, many countries limit the enforceability of patents
against third parties, including government agencies or government
contractors. In these countries, patents may provide limited or no
benefit. Patent protection must ultimately be sought on a
country-by-country basis, which is an expensive and time-consuming
process with uncertain outcomes. Accordingly, we may choose not to
seek patent protection in certain countries, and we will not have
the benefit of patent protection in such countries.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop
or license.
We are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
We are a party to a number of license agreements under which we are
granted rights to intellectual properties that are or could become
important to our business, and we expect that we may need to enter
into additional license agreements in the future. Our existing
license agreements impose, and we expect that future license
agreements will impose on us, various development, regulatory
and/or commercial diligence obligations, payment of fees,
milestones and/or royalties and other obligations. If we fail to
comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to
terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. Even if we are able to
obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
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the scope of rights granted under the license agreement and other
interpretation-related issues;
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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;
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our right to sublicense patent and other rights to third parties
under collaborative development relationships;
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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
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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.
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If disputes over intellectual property that we have licensed
prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully
develop and commercialize the affected product
candidates.
We have entered into several licenses to support our various stem
cell technology-related programs. We may enter into additional
license(s) to third-party intellectual property that are necessary
or useful to our business. Our current licenses and any future
licenses that we may enter into impose various royalty payments,
milestone, and other obligations on us. For example, the licensor
may retain control over patent prosecution and maintenance under a
license agreement, in which case, we may not be able to adequately
influence patent prosecution or prevent inadvertent lapses of
coverage due to failure to pay maintenance fees. If we fail to
comply with any of our obligations under a current or future
license agreement, our licensor(s) may allege that we have breached
our license agreement and may accordingly seek to terminate our
license with them. In addition, future licensor(s) may decide to
terminate our license at will. Termination of any of our current or
future licenses could result in our loss of the right to use the
licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize a product candidate
or product, if approved, as well as harm our competitive business
position and our business prospects.
In addition, if our licensors fail to abide by the terms of the
license, if the licensors fail to prevent infringement by third
parties, if the licensed patents or other rights are found to be
invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms our business could
suffer.
Some intellectual property which we have licensed may have been
discovered through government funded programs and thus may be
subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for U.S.
industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to
reporting requirements, and limit our ability to contract with
non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or
license in the future may have been generated through the use of
U.S. government funding and may therefore be subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980
(Bayh-Dole
Act). These U.S. government
rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable
worldwide license to use inventions for any governmental purpose.
In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to
any of these inventions to a third party if it determines that:
(i) adequate steps have not been taken to commercialize the
invention; (ii) government action is necessary to meet public
health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if we fail, or the applicable licensor fails, to
disclose the invention to the government and fail to file an
application to register the intellectual property within specified
time limits. In addition, the U.S. government may acquire title to
these inventions in any country in which a patent application is
not filed within specified time limits. Intellectual property
generated under a government funded program is also subject to
certain reporting requirements, compliance with which may require
us, or the applicable licensor, to expend substantial resources. In
addition, the U.S. government requires that any products embodying
the subject invention or produced through the use of the subject
invention be manufactured substantially in the U.S. The
manufacturing preference requirement can be waived if the owner of
the intellectual property can show that reasonable but unsuccessful
efforts have been made to grant licenses on similar terms to
potential licensees that would be likely to manufacture
substantially in the U.S. or that under the circumstances domestic
manufacture is not commercially feasible. This preference for U.S.
manufacturers may limit our ability to contract with non-United
States product manufacturers for products covered by such
intellectual property.
In the event we apply for additional United States government
funding, and we discover compounds or drug candidates as a result
of such funding, intellectual property rights to such discoveries
may be subject to the applicable provisions of the Bayh-Dole
Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidates,
our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing
approval of our product candidates, one or more of the United
States patents we own or license may be eligible for limited patent
term restoration under the Drug Price Competition and Patent Term
Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process.
However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. For example, we may not be
granted an extension if the active ingredient of AV-101, PH94B or
PH10 is used in another drug company’s product candidate and
that product candidate is the first to obtain FDA approval.
Moreover, the applicable time period or the scope of patent
protection afforded could be less than we request. If we are unable
to obtain patent term extension or restoration or the term of any
such extension is less than we request, our competitors may obtain
approval of competing products following our patent expiration, and
our ability to generate revenues could be materially adversely
affected.
Changes in United States patent law could diminish the value of
patents in general, thereby impairing our ability to protect our
products.
As is the case with other biotechnology companies, our success is
heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biotechnology industry
involve both technological and legal complexity, and is therefore
costly, time-consuming and inherently uncertain. In addition, the
United States has recently enacted and is currently implementing
wide-ranging patent reform legislation: the Leahy-Smith America
Invents Act, referred to as the America Invents Act. The America
Invents Act includes a number of significant changes to United
States patent law. These include provisions that affect the way
patent applications will be prosecuted and may also affect patent
litigation. It is not yet clear what, if any, impact the America
Invents Act will have on the operation of our business. However,
the America Invents Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of any patents that may
issue from our patent applications, all of which could have a
material adverse effect on our business and financial
condition.
In addition, recent United States Supreme Court rulings have
narrowed the scope of patent protection available in certain
circumstances and weakened the rights of patent owners in certain
situations. The full impact of these decisions is not yet known.
For example, on March 20, 2012 in Mayo Collaborative Services,
DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories,
Inc., the Court held that
several claims drawn to measuring drug metabolite levels from
patient samples and correlating them to drug doses were not
patentable subject matter. The decision appears to impact
diagnostics patents that merely apply a law of nature via a series
of routine steps and it has created uncertainty around the ability
to obtain patent protection for certain inventions. Additionally,
on June 13, 2013 in Association for Molecular
Pathology v. Myriad Genetics, Inc., the Court held that claims to isolated genomic
DNA are not patentable, but claims to complementary DNA molecules
are patent eligible because they are not a natural product. The
effect of the decision on patents for other isolated natural
products is uncertain. Additionally, on March 4, 2014, the
USPTO issued a memorandum to patent examiners providing guidance
for examining claims that recite laws of nature, natural phenomena
or natural products under the Myriad and Prometheus decisions. This
guidance did not limit the application of Myriad to DNA but,
rather, applied the decision to other natural products. Further, in
2015, in Ariosa Diagnostics, Inc. v.
Sequenom, Inc., the Court of
Appeals for the Federal Circuit held that methods for detecting
fetal genetic defects were not patent eligible subject
matter.
In addition to increasing uncertainty regarding our ability to
obtain future patents, this combination of events has created
uncertainty with respect to the value of patents, once obtained.
Depending on these and other decisions by the United States
Congress, the federal courts and the USPTO, the laws and
regulations governing patents could change in unpredictable ways
that would weaken our ability to obtain new patents or to enforce
any patents that may issue in the future.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of their former employers.
Certain of our current employees have been, and certain of our
future employees may have been, previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and
consultants who are concurrently employed at universities or who
perform services for other entities.
Although we are not aware of any claims currently pending or
threatened against us, we may be subject to claims that we or our
employees, advisors or consultants have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or
other proprietary information, of a former employer or other third
party. We have and may in the future also be subject to claims that
an employee, advisor or consultant performed work for us that
conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an
ownership interest in the intellectual property arising out of work
performed for us. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in
addition to paying monetary claims, we may lose valuable
intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to
commercialize our product candidates, which would materially
adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business,
provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage.
Moreover, if a third party has intellectual property rights that
cover the practice of our technology, we may not be able to fully
exercise or extract value from our intellectual property rights.
The following examples are illustrative:
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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;
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we might not have been the first to make the inventions covered by
a pending patent application that we own;
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we might not have been the first to file patent applications
covering an invention;
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others may independently develop similar or alternative
technologies without infringing our intellectual property
rights;
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pending patent applications that we own or license may not lead to
issued patents;
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patents, if issued, that we own or license may not provide us with
any competitive advantages, or may be held invalid or unenforceable
or be narrowed, as a result of legal challenges by our
competitors;
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third parties may compete with us in jurisdictions where we do not
pursue and obtain patent protection;
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we may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
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the patents of others may have an adverse effect on our
business.
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Should any of these events occur, they could significantly harm our
business and results of operations.
If, instead of identifying drug rescue candidates based on
information available to us in the public domain, we seek to
in-license drug rescue candidates from biotechnology, medicinal
chemistry and pharmaceutical companies, academic, governmental and
nonprofit research institutions, including the NIH, or other third
parties, there can be no assurances that we will obtain material
ownership or economic participation rights over intellectual
property we may derive from such licenses or similar rights to the
drug rescue NCEs we may produce and develop. If we are unable to
obtain ownership or substantial economic participation rights over
intellectual property related to drug rescue NCEs we produce and
develop, our business may be adversely affected.
Risks Related to our Securities
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to other
biopharmaceutical companies, is likely to be highly volatile. The
market price of our common stock may fluctuate significantly in
response to a number of factors, most of which we cannot control,
including, among others:
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plans for, progress of or results from nonclinical and clinical
development activities related to our product
candidates;
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the failure of the FDA to approve our product
candidates;
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announcements of new products, technologies, commercial
relationships, acquisitions or other events by us or our
competitors;
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the success or failure of other CNS therapies;
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regulatory or legal developments in the United States and other
countries;
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announcements regarding our intellectual property
portfolio;
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failure of our product candidates, if approved, to achieve
commercial success;
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fluctuations in stock market prices and trading volumes of similar
companies;
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general market conditions and overall fluctuations in U.S. equity
markets;
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variations in our quarterly operating results;
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changes in our financial guidance or securities analysts’
estimates of our financial performance;
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changes in accounting principles;
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our ability to raise additional capital and the terms on which we
can raise it;
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sales of large blocks of our common stock, including sales by our
executive officers, directors and significant
stockholders;
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additions or departures of key personnel;
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discussion of us or our stock price by the press and by online
investor communities; and
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other risks and uncertainties described in these risk
factors.
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Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that such sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced significant
volatility in the market prices for securities that often has been
unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect
the market price of our common stock, regardless of our actual
operating performance. In certain situations in which the market
price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the company
that issued the stock. If any of our stockholders were to bring a
lawsuit against us, the defense and disposition of the lawsuit
could be costly and divert the time and attention of our management
and harm our operating results. Additionally, if the trading volume
of our common stock remains low and limited there will be an
increased level of volatility and you may not be able to generate a
return on your investment.
A portion of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near
future. Future sales of shares by existing stockholders could cause
our stock price to decline, even if our business is doing
well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Historically, there has been a limited public market
for shares of our common stock. Future sales and issuances of a
substantial number of shares of our common stock in the public
market, including shares issued upon the conversion of our Series A
Preferred, Series B Preferred or Series C Preferred, and the
exercise of outstanding options and warrants for common stock which
are issuable upon exercise, in the public market, or the perception
that these sales and issuances are occurring or might occur, could
significantly reduce the market price for our common stock and
impair our ability to raise adequate capital through the sale of
equity securities.
A limited number of institutional stockholders could limit your
ability to influence the outcome of key transactions, including
changes in control.
A limited number of institutional stockholders own a substantial
portion of our outstanding preferred stock, consisting of shares of
our Series A Preferred, Series B Preferred, and Series C Preferred,
all of which is convertible, at the option of the holders (but
subject to certain beneficial ownership restrictions), into a
substantial number of shares of our common
stock. Accordingly, should a few of these institutional
holders convert their shares of preferred stock into common stock,
such stockholders may exert influence over us and over the outcome
of any corporate actions requiring approval of holders of our
common stock, including the election of directors and amendments to
our organizational documents, such as increases in our authorized
shares of common stock, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate
transactions. These stockholders may also delay or prevent a change
of control of the Company, even if such a change of control is
approved by our Board and would benefit our other stockholders.
Furthermore, the interests of such institutional stockholders may
not always coincide with your interests or the interests of other
common stockholders and an institutional holder may act in a manner
that advances its best interests and not necessarily those of other
stockholders.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if such analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation
(the Articles)
permit us to issue up to 10.0 million shares of preferred
stock. Our Board has authorized the issuance of (i) 500,000
shares of Series A Preferred, all of which shares are issued and
outstanding at December 31, 2018; (ii) 4.0 million shares of Series
B 10% Convertible Preferred stock, of which approximately 1.2
million shares remain issued and outstanding at December 31, 2018;
and (iii) 3.0 million shares of Series C Convertible Preferred
Stock, of which approximately 2.3 million shares are issued and
outstanding at December 31, 2018. Our Board could authorize the
issuance of additional series of preferred stock in the future and
such preferred stock could grant holders preferred rights to our
assets upon liquidation, the right to receive dividends before
dividends would be declared to holders of our common stock, and the
right to the redemption of such shares, possibly together with a
premium, prior to the redemption of the common stock. In the event
and to the extent that we do issue additional preferred stock in
the future, the rights of holders of our common stock could be
impaired thereby, including without limitation, with respect to
liquidation.
We do not intend to pay dividends on our common stock and,
consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our common
stock and do not currently intend to do so in the foreseeable
future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the
foreseeable future. Therefore, the success of an investment in
shares of our common stock will depend upon any future appreciation
in their value. There is no guarantee that shares of our common
stock will appreciate in value or even maintain the price at which
our stockholders purchased them.
We incur significant costs to ensure compliance with corporate
governance, federal securities law and accounting
requirements.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (Exchange
Act), which requires that we
file annual, quarterly and current reports with respect to our
business and financial condition, and the rules and regulations
implemented by the SEC, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Act, and the Public Company Accounting Oversight Board,
each of which imposes additional reporting and other obligations on
public companies. We have incurred and will continue to
incur significant costs to comply with these public company
reporting requirements, including accounting and related audit
costs, legal costs to comply with corporate governance requirements
and other costs of operating as a public company. These legal and
financial compliance costs will continue to require us to divert a
significant amount of resources that we could otherwise use to
achieve our research and development and other strategic
objectives.
The filing and internal control reporting requirements imposed by
federal securities laws, rules and regulations on companies that
are not “smaller reporting companies” under federal
securities laws are rigorous and, once we are no longer a smaller
reporting company, we may not be able to meet them, resulting in a
possible decline in the price of our common stock and our inability
to obtain future financing. Certain of these requirements may
require us to carry out activities we have not done previously and
complying with such requirements may divert management’s
attention from other business concerns, which could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. Any failure to adequately comply with
applicable federal securities laws, rules or regulations could
subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial
condition.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We will continue to invest resources to
comply with evolving laws, regulations and standards, however this
investment may result in increased general and administrative
expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults
Upon Senior Securities
None.
Item 6. EXHIBITS
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Exhibit
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Number
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Description
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Indemnification Agreement, dated January 10, 2019, by and between
VistaGen Therapeutics, Inc. and Ann Cunningham, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 15,
2019.
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Certification of the Principal Executive Officer required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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Certification of the Principal Financial Officer required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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Certification of the Principal Executive and Financial Officers
required by Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
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VISTAGEN THERAPEUTICS, INC.
/s/
Shawn K. Singh
Shawn K. Singh
Chief Executive Officer (Principal Executive Officer)
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/s/
Jerrold D. Dotson
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Jerrold D. Dotson
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Chief Financial Officer (Principal Financial and Accounting
Officer)
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Dated: February 12, 2019
-72-