As filed with the Securities and Exchange Commission on
December 7, 2017
Registration No. 333-221009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
S-1
(Amendment No.
1)
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VISTAGEN THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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3841
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20-5093315
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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VistaGen Therapeutics, Inc.
343 Allerton Avenue
South San Francisco, CA 94080
(650) 577-3600
(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive
offices)
Shawn K. Singh
Chief Executive Officer
VistaGen Therapeutics, Inc.
343 Allerton Avenue
South San Francisco, CA 94080
(650) 577-3600
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies of all communications to:
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Daniel W. Rumsey, Esq.
Jessica R. Sudweeks, Esq.
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John D. Hogoboom, Esq.
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Disclosure Law Group,
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Lowenstein Sandler, LLP
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a Professional Corporation
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1251 Avenue of the Americas
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600 West Broadway, Suite 700
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New York, NY 10020
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San Diego, California 92101
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Tel: (212) 262-6700
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Tel: (619) 795-1134
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Fax: (212) 262-7402
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Fax: (619) 330-2101
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Approximate date of commencement of proposed sale to the
public: As soon as practicable
after this registration statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [
]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [
]
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,” “smaller
reporting company” and “emerging growth 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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(Do not check if a smaller reporting company)
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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. [
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CALCULATION OF REGISTRATION
FEE
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Title of each class of securities to be registered
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Proposed
maximum aggregate
offering price
(1)
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Amount of
registration fee
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Common stock, $0.001 par value (1)
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$ 1,867.50
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Warrants to purchase shares of common stock
(2)
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-
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-
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Shares of common stock issuable upon exercise of
warrants (1)(2)(3)
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15,000,000
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1,867.50
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Total
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$ 30,000,000
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$ 3,735.00(4)
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(1)
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Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities
Act of 1933, as amended.
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(2)
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No fee required pursuant to
Rule 457(g).
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(3)
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Pursuant to Rule 416, there is also being registered such
indeterminable additional securities as may be issued to prevent
dilution as a result of stock splits, stock dividends or similar
transactions.
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(4)
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$2,863.50 previously paid.
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The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933, as amended, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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The information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not
permitted.
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PRELIMINARY PROSPECTUS
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SUBJECT TO COMPLETION
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DATED DECEMBER , 2017
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8,333,333 Shares of Common
Stock
Warrants to Purchase up to 8,333,333 Shares of Common
Stock
We are offering 8,333,333 shares of our common stock and warrants to
purchase up to
8,333,333 shares of
our common stock. Each share of common
stock will be accompanied by a warrant to purchase one share of
common stock for an assumed combined
public offering price of $1.80 per share and
related warrant
(the last
reported sale price of our common stock on the NASDAQ Capital
Market on December 6, 2017). The common stock and warrants are
immediately separable but can only be purchased together in this
offering. The warrants are exercisable immediately and expire five
years from the date of issuance, at an exercise price per share
equal to 100% of the combined public offering price per share of
common stock and related warrant in this offering.
The shares of our common stock
issuable from time to time upon exercise of the warrants are also
being offered pursuant to this
prospectus.
Our common stock is presently traded on the NASDAQ
Capital Market under the symbol “VTGN.” On December 6,
2017, the last reported sale price of our common stock was $1.80
per share. The actual combined public offering price will be as
determined by us and the underwriters at the time of pricing, and
may be at a discount to the current market price. Accordingly, the
recent market price used throughout this prospectus may not be
indicative of the actual combined public offering price.
There is no established public trading
market for the warrants being offered by this prospectus and we do
not intend to have the warrants listed on a national securities
exchange or any other recognized trading system in the future.
Without an active market, the liquidity of any warrants sold by
means of this prospectus will be
limited.
Investing in our securities involves risks. See “Risk Factors” beginning on page 7
of this prospectus.
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Per
Share and Related Warrant
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Total
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Combined public offering price
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$
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$
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Underwriting discount (1)
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$
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$
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Proceeds,
before expenses, to us
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$
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$
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_______________
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(1)
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Please see the section titled “Underwriting”
beginning on page 105 of this prospectus for additional information
regarding the total compensation to be received by the
underwriters.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of
common stock and related warrants against payment on
or about December
, 2017.
___________________________
Sole
Book-Running Manager
Oppenheimer & Co.
Lead Manager
Chardan
The date of this prospectus is
, 2017
TABLE OF CONTENTS
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Page
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7
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100
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101
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105
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109
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109
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109
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110
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Neither we nor the underwriters have authorized anyone
to provide you with information that is different from that
contained in this prospectus or in any free writing prospectus we
may authorize to be delivered or made available to you. We take no
responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you. We
and the underwriters are offering to sell shares of
common stock and related warrants and seeking offers
to buy shares of common stock and related warrants
only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the
date on the front of this prospectus, regardless of the time of
delivery of this prospectus or any sale of shares of our common
stock and related warrants.
Neither we nor the underwriters have done anything
that would permit this offering or possession or distribution of
this prospectus in any jurisdiction where action for that purpose
is required, other than the U.S. You are required to inform
yourself about, and to observe any restrictions relating to, this
offering and the distribution of this prospectus.
This prospectus includes industry and market data that we obtained
from industry publications, internal estimates and other
third-party sources. These sources may include government and
industry sources. Industry publications and surveys generally state
that the information contained therein has been obtained from
sources believed to be reliable. Although we believe the industry
and market data to be reliable as of the date of this prospectus,
this information could prove to be inaccurate. Industry and market
data could be wrong because of the method by which sources obtained
their data and because information cannot always be verified with
complete certainty due to the limits on the availability and
reliability of raw data, the voluntary nature of the data gathering
process and other limitations and uncertainties. In addition, we do
not know all of the assumptions regarding general economic
conditions or growth that were used in preparing the forecasts from
the sources relied upon or cited herein.
We further note that the representations, warranties and covenants
made by us in any agreement that is filed as an exhibit to the
registration statement of which this prospectus forms a part were
made solely for the benefit of the parties to such agreement,
including, in some cases, for the purpose of allocating risk among
the parties to such agreements, and should not be deemed to be a
representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
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PROSPECTUS SUMMARY
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This summary highlights information contained elsewhere in this
prospectus and does not contain all of the information you should
consider in making your investment decision. Before deciding to
invest in our common stock, you should read this entire prospectus
carefully, including the sections of this prospectus entitled
“Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and
related notes contained elsewhere in this prospectus. Unless the
context otherwise requires, the words “VistaGen Therapeutics,
Inc.” “VistaGen,” “we,” “the
Company,” “us” and “our” refer to
VistaGen Therapeutics, Inc., a Nevada corporation. “VistaStem
Therapeutics, Inc.” and “VistaGen California”
refers to our wholly owned subsidiary, VistaGen Therapeutics, Inc.,
a California corporation doing business as VistaStem Therapeutics,
Inc.
Business Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
central nervous system (CNS) disorders. Unless the context otherwise
requires, the words “VistaGen Therapeutics,
Inc.”
“VistaGen,” “we,” “the Company,” “us” and “our” refer to VistaGen Therapeutics, Inc., a
Nevada corporation. All references to future quarters and years in
this prospectus refer to calendar quarters and calendar years,
unless reference is made otherwise.
AV-101 is our oral CNS product candidate in Phase 2 clinical
development in the United States, initially as a new generation
adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally differentiated from all FDA-approved antidepressants,
as well as all atypical antipsychotics, such as aripiprazole, often
used adjunctively to augment them. We believe AV-101 also has
potential as a non-opioid treatment alternative for neuropathic
pain, as well as several additional CNS indications
where
modulation of the NMDA receptors, activation of AMPA pathways
and/or key active metabolites of AV-101 may achieve therapeutic
benefit, including
Parkinson’s disease levodopa -induced dyskinesia
(PD
LID), epilepsy and
Huntington’s disease.
Clinical studies conducted at the U.S. National Institute of Mental
Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by 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, have focused on the antidepressant effects of ketamine
hydrochloride injection (ketamine), an ion-channel blocking NMDA receptor
antagonist approved by the FDA as an anesthetic, in MDD patients
with inadequate responses to multiple standard antidepressants.
These NIMH studies, as well as clinical research at Yale University
and other academic institutions, have demonstrated ketamine’s
robust antidepressant effects in treatment-resistant MDD patients
within twenty-four hours of a single sub-anesthetic dose
administered by intravenous (IV) injection.
We believe AV-101 may have potential to deliver ketamine-like
antidepressant effects, without the need for IV
administration and ketamine’s psychological and other
negative side effects. As published in the October 2015 issue of
the peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
both inhibiting the GlyB site of the NMDA receptor and activating
the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and Development
Agreement (CRADA) with the NIMH, the NIMH is currently funding,
and Dr. Zarate, as Principal Investigator, and his team are
currently conducting, a small Phase 2 clinical study of AV-101 as a
monotherapy in subjects with treatment-resistant MDD
(the NIMH AV-101 MDD Phase 2
Monotherapy Study). In October
2017, we received FDA authorization to launch our 180-patient Phase
2 multi-center, multi-dose, double blind, placebo-controlled
efficacy and safety study of AV-101 as a new generation adjunctive
treatment of MDD in adult patients with an inadequate therapeutic
response to standard, FDA-approved antidepressants
(the AV-101 MDD Phase 2 Adjunctive
Treatment Study). Subject
to completion of this offering, we intend to launch the AV-101 MDD
Phase 2 Adjunctive Treatment Study in the first quarter of 2018
with Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical
School and Director, Division of Clinical Research, Massachusetts
General Hospital (MGH) Research Institute, as the Principal
Investigator. Dr. Fava was the co-Principal Investigator with
Dr. A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We expect to complete this study by the end of
2018, with top line results available in the first quarter of
2019.
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-1-
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VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology to discover, rescue, develop and
commercialize (i) proprietary new chemical entities
(NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-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
pipeline. To advance potential RM applications of our cardiac
stem cell technology, in December 2016, we exclusively sublicensed
to BlueRock Therapeutics LP, a next generation RM company
established by Bayer AG 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 our exclusive sublicense agreement with BlueRock
Therapeutics, we may pursue additional RM collaborations or
licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue
engineering.
AV-101 and Major Depressive Disorder
Background
The World Health Organization (WHO) estimates that 300 million people worldwide are
affected by depression. According to the NIH, major depression is
one of the most common mental disorders in the U.S. The NIMH
reports that, in 2014, approximately 16 million adults in the U.S.
had at least one major depressive episode in the past year.
According to the U.S. Centers for Disease Control and Prevention
(CDC) one in 10 Americans over the age of 12 takes a
standard, FDA-approved antidepressant.
Most standard antidepressants target neurotransmitter reuptake
inhibition – either serotonin (antidepressants known
as SSRIs) or serotonin/norepinephrine (antidepressants
known as SNRIs). Even when effective, these standard
antidepressants take many weeks to achieve adequate therapeutic
effects. Nearly two out of every three drug-treated depression
patients do not obtain adequate therapeutic benefit from initial
treatment with a standard antidepressant. Even after treatment with
many different standard antidepressants, nearly one out of every
three drug-treated depression patients still do not achieve
adequate therapeutic benefits from their antidepressant
medication. Such patients with an inadequate response to
standard antidepressants often seek to augment their treatment
regimen by adding an atypical antipsychotic (drugs such as
aripiprazole), despite only modest potential therapeutic benefit
and the significant risk of additional side
effects.
All standard antidepressants have risks of side effects, including,
among others, anxiety, metabolic syndrome, sleep disturbance and
sexual dysfunction. Adjunctive use of atypical antipsychotics to
augment inadequately performing standard antidepressants may
increase the risk of significant side effects, including, tardive
dyskinesia, substantial weight gain, diabetes and heart disease,
while offering only a modest potential increase in therapeutic
benefit.
AV-101
AV-101 is our oral CNS product candidate in Phase 2 development in
the United States, initially focused as a new generation
antidepressant for the adjunctive treatment of MDD patients with an
inadequate therapeutic response to standard,
FDA-approved antidepressants. As published in the October 2015
issue of the peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article titled, “The prodrug
4-chlorokynurenine causes ketamine-like antidepressant effects, but
not side effects, by NMDA/glycineB-site
inhibition,” using well-established preclinical models
of depression, AV-101 was shown to induce fast-acting,
dose-dependent, persistent and statistically significant
ketamine-like antidepressant effects following a single treatment,
responses equivalent to those seen with a single sub-anesthetic
control dose of ketamine, but without the negative
side effects seen with ketamine. In addition, these studies
confirmed that the antidepressant effects of AV-101 were mediated
through both inhibition of the GlyB site of NMDA receptors and
activation of the AMPA receptor pathway in the brain, a key final
common pathway feature of certain new generation antidepressants
such as ketamine and AV-101, each with a MOA that is fundamentally
different from all standard antidepressants and atypical
antipsychotics used adjunctively to augment
them.
We have completed two NIH-funded, randomized, double blind,
placebo-controlled AV-101 Phase 1 safety studies. Currently,
pursuant to our CRADA with the NIMH and Dr. Carlos Zarate, Jr., the
NIMH is currently funding, and Dr. Zarate, as
Principal Investigator, and his team are currently
conducting, the NIMH AV-101 MDD Phase 2 Monotherapy Study. Although
we are not involved in conducting this study, we currently
anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2
Monotherapy Study during the first half of 2018.
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We are preparing to begin the AV-101 MDD Phase 2
Adjunctive Treatment Study, which will test the safety, efficacy
and tolerability of AV-101 as an adjunctive treatment of MDD in
adult patients with an inadequate therapeutic response to standard,
FDA-approved antidepressants. Subject to completion of this
offering, we intend to launch the AV-101 MDD Phase 2 Adjunctive
Treatment Study in the first quarter of 2018. In connection with
our preparation for this study, as well as potential Phase 3
development and commercialization of AV-101, we, together with our
contract manufacturing organization (CMO), developed a novel process for the production of
AV-101 drug substance. We believe our new proprietary production
process will significantly improve AV-101 manufacturing efficiency,
thereby reducing the current and future cost of manufacturing
AV-101 drug substance and improving the yield of AV-101 drug
substance manufactured. While developing our new manufacturing
process, our CMO produced a batch of AV-101 drug substance that
contained certain impurities not within the limits set out by the
International Conference on Harmonisation of Technical
Requirements for Registration of Pharmaceuticals for Human
Use (the ICH Guidelines). The FDA routinely utilizes the ICH Guidelines
as an industry standard for development stage programs such as our
AV-101 Phase 2 program. Consequently, the FDA placed a clinical
hold on the launch of the AV-101 MDD Phase 2 Adjunctive Treatment
Study until we either (a) further improved our AV-101 manufacturing
process to remove the impurities or reduce the impurities below
applicable limits in the ICH Guidelines, or (b) conducted a
bridging toxicology study to qualify the impurities as safe for
clinical use. In response to the FDA’s requests, we did both.
We further improved our AV-101 manufacturing process, produced a
new batch of AV-101 drug substance using the improved process, and
now have analytical results from that batch showing that the
impurities were reduced to a level below the limits of the ICH
Guidelines. In addition, we conducted a bridging toxicology study,
the results of which confirmed that the impurities were safe for
clinical use.
The
FDA also requested additional contraceptive protection in the
upcoming clinical study until we complete preclinical reproductive
toxicology studies that are routinely conducted later in stages of
clinical development. Although previous toxicology studies for
AV-101 do not suggest any reproductive organ involvement, and we
have confirmed with the FDA that our proposed study is a Phase 2
study, we have implemented additional contraceptive measures in the
revised protocol for the AV-101 MDD Phase 2 Adjunctive Treatment
Study that will remain in effect until standard reproductive
toxicology studies are completed in the ordinary course prior to
commencement of Phase 3 development. We have confirmed with the FDA
that our recently implemented contraceptive measures are
appropriate for the current stage of development of
AV-101.
In September 2017, we requested, and were granted,
a pre-IND Type A meeting with the FDA’s Division of
Psychiatry to discuss certain matters pertaining to our AV-101
development program and the AV-101 MDD Phase 2 Adjunctive Treatment
Study. Subsequent to our Type A Meeting with the FDA, we submitted
the supplemental data from our new manufacturing process, the
bridging toxicology report and our study protocol, revised to
address the FDA’s comments. These documents adequately
addressed all concerns raised by the FDA to date. Consequently, on
October 26, 2017, the FDA authorized us to proceed, under our
Investigational New Drug (IND) application, with the AV-101 MDD Phase 2
Adjunctive Treatment Study.
We believe preclinical studies and Phase 1 safety
studies support our hypothesis that AV-101 also has potential as a
non-opioid treatment alternative for neuropathic pain, as well as
several additional CNS indications where modulation of the
NMDA receptors, activation of AMPA pathways and/or key active
metabolites of AV-101 may achieve therapeutic
benefit, including PD LID,
epilepsy, and Huntington’s disease. We are beginning to plan
additional Phase 2 clinical studies to further evaluate the
therapeutic potential of AV-101 beyond
MDD.
CardioSafe 3D™; NCE Drug Rescue and Regenerative
Medicine
VistaStem Therapeutics is our wholly owned subsidiary focused on
applying hPSC technology to discover, rescue, develop and
commercialize proprietary small molecule NCEs for CNS and other
diseases, as well as potential cellular therapies involving stem
cell-derived blood, cartilage, heart and liver cells.
CardioSafe 3D™ is our
customized in vitro cardiac bioassay system capable of
predicting potential human heart toxicity of small molecule
NCEs in vitro, long before they are ever tested in animal and
human studies. Potential commercial applications of our stem cell
technology platform involve using CardioSafe 3D internally for NCE drug discovery and
drug rescue to expand our proprietary drug candidate pipeline. Drug
rescue involves leveraging substantial prior research and
development investments by pharmaceutical companies and others
related to public domain NCE programs terminated before FDA
approval due to heart toxicity risks and RM and cellular therapies.
To advance potential RM applications of our cardiac stem cell
technology, in December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, a next generation regenerative medicine
company established by Bayer AG and Versant Ventures, rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease. In a manner
similar to the BlueRock Agreement, we may also pursue additional
potential RM applications using blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy (injection of
stem cell-derived mature organ-specific cells obtained through
directed differentiation), (B) cell repair therapy (induction of
regeneration by biologically active molecules administered alone or
produced by infused genetically engineered cells), or (C) tissue
engineering (transplantation of in vitro grown complex tissues) using hPSC-derived
blood, bone, cartilage, and/or liver cells.
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Risk Factors
Our business is subject to substantial risk. Please carefully
consider the section titled “Risk
Factors” on page 7 of
this prospectus for a discussion of the factors you should
carefully consider before deciding to purchase the securities
offered by this prospectus. These risks include, among
others:
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we
are a development stage biopharmaceutical company with no current
revenues or approved products, and limited experience developing
new drug, biological and/or regenerative medicine candidates, which
makes it difficult to assess our future viability;
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we
depend heavily on the success of AV-101, and we cannot be certain
that we will be able to obtain regulatory approval for, or
successfully commercialize, AV-101, or any product
candidate;
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●
|
failures
or delays in the commencement or completion of our planned clinical
trials could delay, prevent or limit our ability to generate
revenue and continue our business;
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●
|
we
face significant competition, and if we are unable to compete
effectively, we may not be able to achieve or maintain significant
market penetration or improve our results of
operations;
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●
|
some
of our programs have been partially supported by government grants,
which may not be available to us in the future;
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●
|
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;
and
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●
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we have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future.
|
|
|
|
|
|
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business
operations. You should be able to bear a complete loss of your
investment.
Corporate information
VistaGen Therapeutics, Inc., a Nevada corporation, is the parent of
VistaGen Therapeutics, Inc. (dba VistaStem Therapeutics, Inc.), a
wholly-owned California corporation founded in 1998. Our principal
executive offices are located at 343 Allerton Avenue, South San
Francisco, California 94080, and our telephone number is (650)
577-3600. Our website address is www.vistagen.com.
The information contained on our website is not part of this
prospectus. We have included our website address as a factual
reference and do not intend it to be an active link to our
website.
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SUMMARY CONSOLIDATED FINANCIAL DATA
|
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The following tables summarize our consolidated
financial data. We have derived the summary consolidated statement
of operations data for the years ended March 31, 2017 and 2016 from
our audited consolidated financial statements included elsewhere in
this prospectus. We have derived the summary consolidated statement
of operations data for the six-months ended September 30, 2017 and
2016 and our balance sheet data as of September 30, 2017 from our
unaudited interim consolidated financial statements included
elsewhere in this prospectus. The unaudited interim consolidated
financial statements have been prepared on the same basis as the
audited consolidated financial statements and reflect, in our
opinion, only adjustments of a normal, recurring nature that are
necessary for a fair statement of the unaudited interim
consolidated financial statements. Our results for the six-months
ended September 30, 2017 are not necessarily indicative of results
to be expected for the full year or any other period. The following
summary consolidated financial data should be read in conjunction
with the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and our
consolidated financial statements and related notes included
elsewhere in this prospectus.
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Fiscal Year Ended
March 31,
|
Six-Months Ended
September 30,
|
||
|
|
2017
|
2016
|
2017
|
2016
|
|
Consolidated Statement of Operations Data:
|
(in thousands, except share and per share
amounts)
|
|||
|
Sublicense
revenue
|
$ 1,250
|
$ –
|
$ –
|
$ –
|
|
Operating
expenses:
|
|
|
|
|
|
Research
and development
|
5,204
|
3,932
|
3,523
|
2,432
|
|
General
and administrative
|
6,295
|
13,919
|
3,731
|
2,631
|
|
Total
operating expenses
|
11,499
|
17,851
|
7,254
|
5,063
|
|
Loss
from operations
|
(10,249)
|
(17,851)
|
(7,254)
|
(5,063)
|
|
Other
expenses, net:
|
|
|
|
|
|
Interest
expense, net
|
(5)
|
(771)
|
(6)
|
(3)
|
|
Change
in warrant liabilities
|
–
|
(1,895)
|
–
|
–
|
|
Loss
on early extinguishment of debt
|
–
|
(26,700)
|
–
|
–
|
|
Other
expense
|
–
|
(2)
|
–
|
–
|
|
Loss
before income taxes
|
(10,254)
|
(47,219)
|
(7,260)
|
(5,066)
|
|
Income
taxes
|
(2)
|
(2)
|
(2)
|
(2)
|
|
Net
loss
|
(10,256)
|
(47,221)
|
(7,262)
|
(5,068)
|
|
Accrued
dividend on Series B Preferred Stock
|
(1,257)
|
(2,140)
|
(504)
|
(781)
|
|
Deemed
dividend on Series B Preferred Units
|
(111)
|
(2,058)
|
–
|
(111)
|
|
Net
loss attributable to common stockholders
|
$ (11,624)
|
$ (51,419)
|
$ (7,766)
|
$ (5,960)
|
|
|
|
|
|
|
|
Basic
and diluted net loss attributable to common stockholders per common
share
|
$ (1.54)
|
$ (29.08)
|
$ (0.82)
|
$ (0.91)
|
|
|
|
|
|
|
|
Weighted
average shares used in computing:
|
|
|
|
|
|
Basic
and diluted net loss attributable to common stockholders per common
share
|
7,531,642
|
1,767,957
|
9,465,459
|
6,577,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
September 30, 2017
|
|
|
|
|
2017
|
Actual
|
Pro Forma(1)
|
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ 2,921
|
$ 1,764
|
$ 15,374
|
|
Total
assets
|
|
$ 3,712
|
$ 2,618
|
$ 16,228
|
|
Current
notes payable
|
|
$ 55
|
$ 105
|
$ 105
|
|
Working
capital
|
|
$ 2,010
|
$ 443
|
$ 14,053
|
|
Common
stock, preferred stock, treasury stock and additional paid-in
capital
|
|
$ 142,615
|
$ 147,589
|
$ 161,199
|
|
Total
stockholders’ equity (deficit)
|
|
$ 616
|
$ (1,672)
|
$11,938
|
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
prospectus, including our financial statements and related notes,
before deciding whether to purchase securities in the offering. 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 AV-101. We cannot be certain
that we will be able to obtain regulatory approval for, or
successfully commercialize AV-101, or any product
candidate.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
depends heavily on the successful development, regulatory approval
and commercialization of AV-101 for depression, including for MDD,
and, potentially, various other diseases and disorders involving
the CNS, as well as, but to a more limited extent, our ability to
produce, develop and commercialize NCEs from our drug rescue
programs. AV-101 will require substantial additional nonclinical
and clinical testing and regulatory approval before it may be
commercialized. It is unlikely to achieve regulatory approval, if
at all, until at least 2021. Each drug rescue NCE 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. Drug development is a long,
expensive and uncertain process, and delay or failure can occur at
any stage of any of our nonclinical or clinical studies. This
process takes many years and may also include post-marketing
studies and surveillance obligations, which would require the
expenditure of substantial resources beyond the proceeds we have
raised to date. Of the large number of drugs in development in the
United States, only a small percentage will successfully complete
the FDA regulatory approval process and will be commercialized.
Accordingly, we cannot assure you that AV-101, any drug rescue NCE,
or any other future product candidate will be successfully
developed or commercialized.
We are not permitted to market our product candidates in the United
States until we receive approval of a New Drug Application
(NDA) from the FDA, or in any foreign countries until
we receive the requisite approval from such countries. We expect
the FDA to require us to complete the planned AV-101 MDD Phase 2
Adjunctive Treatment Study and at least two pivotal Phase 3
clinical trials in order to submit an NDA for AV-101 as an
adjunctive treatment for MDD patients with an inadequate response
to standard, FDA-approved antidepressants. Also, we anticipate that
the FDA will require that we conduct additional toxicology
studies, additional nonclinical and certain small clinical studies
before submitting an NDA for AV-101. The results of all of these
studies are not known until after the studies are
concluded.
Obtaining FDA approval of an NDA is a complex, lengthy, expensive
and uncertain process, and the FDA may delay, limit or deny
approval of AV-101 or any other product candidate we may seek to
develop for many reasons, including, among others:
●
if
we submit an NDA and it is reviewed by an advisory committee, the
FDA may have difficulties scheduling an advisory committee meeting
in a timely manner or the advisory committee may recommend against
approval of our application or may recommend that the FDA require,
as a condition of approval, additional non-clinical or clinical
studies, limitations on approved labeling or distribution and use
restrictions;
●
the FDA may require development of a Risk
Evaluation and Mitigation Strategy (REMS) as a condition of approval or
post-approval;
●
the FDA or the applicable foreign regulatory
agency may determine that the manufacturing processes or facilities
of third-party contract manufacturers with which we contract do not
conform to applicable requirements, including current Good
Manufacturing Practices (cGMPs); or
●
the
FDA or applicable foreign regulatory agency may change its approval
policies or adopt new regulations.
Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize AV-101 or any other product candidate we
may develop, including drug rescue NCEs. Any such setback in our
pursuit of regulatory approval for any product candidate would have
a material adverse effect on our business and
prospects.
We have applied for a Fast Track designation from the
FDA for AV-101, initially for adjunctive treatment of MDD patients
with an inadequate response to standard antidepressants. Even if
the FDA approves Fast Track designation for AV-101 for this
indication, it may not actually lead to a faster development or
regulatory review or approval process.
The Fast Track designation is a program offered by the FDA pursuant
to certain mandates under the FDA Modernization Act of 1997,
designed to facilitate drug development and to expedite the review
of new drugs that are intended to treat serious or life threatening
conditions. Compounds selected must demonstrate the potential to
address unmet medical needs. The Fast Track designation allows for
close and frequent interaction with the FDA. A designated Fast
Track drug may also be considered for priority review with a
shortened review time, rolling submission, and accelerated approval
if applicable. The designation does not, however, guarantee
approval or expedited approval of any application for the
product.
In October 2017 we applied for FDA Fast Track
designation for AV-101, initially for adjunctive treatment of MDD
patients with an inadequate response to standard antidepressants,
and we may do so 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 are eligible for this designation, we
cannot be sure that the review or approval will compare to
conventional FDA procedures. Even if granted, the FDA may withdraw
Fast Track designation if it believes that the designation is no
longer supported by data from our clinical development
programs.
The number of patients suffering from MDD has not been established
with precision. If the actual number of patients with MDD is
smaller than we anticipate, we or our collaborators may encounter
difficulties in enrolling patients in AV-101 clinical trials,
including the NIMH AV-101 MDD Phase 2 Monotherapy Study and our
planned AV-101 MDD Phase 2 Adjunctive Treatment Study, thereby
delaying completion such studies or preventing additional clinical
development. Further, if AV-101 is approved for
adjunctive treatment of MDD patients with an inadequate response to
standard antidepressants, and the market for this indication is
smaller than we anticipate, our ability to achieve profitability
could be limited.
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 and/or other product candidates, including positive results,
may not be predictive of the results of later-stage clinical
trials. AV-101 or other product candidates in later stages of
clinical trials may fail to show the desired safety and efficacy
results despite having progressed through preclinical 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, preclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
preclinical studies and clinical trials nonetheless failed to
obtain FDA approval. We have not yet completed a Phase 2 clinical
trial for AV-101, and if the NIMH AV-101 MDD Phase 2 Monotherapy
Study and/or our AV-101 MDD Phase 2 Adjunctive Treatment Study
fail(s) to produce positive results, the development timeline and
regulatory approval and commercialization prospects for AV-101 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
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 are
identified during the use of AV-101 in clinical trials, it may
adversely affect our development of AV-101 for MDD and other CNS
indications.
AV-101 as a monotherapy is currently being tested by the NIMH in
the NIMH AV-101 MDD Phase 2 Monotherapy 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 unexpected characteristics of
AV-101 are observed in investigator-sponsored clinical trials of
AV-101 or our clinical trials of AV-101, it may adversely affect or
delay our clinical development of AV-101, and the occurrence of
these events would have a material adverse effect on our business
and financial prospects.
Failures or delays in the commencement or completion of our planned
clinical trials and nonclinical studies of 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.
Under our CRADA with the NIMH, the NIMH is conducting and funding
the NIMH AV-101 MDD Phase 2 Monotherapy Study. We will need to
complete the planned AV-101 MDD Phase 2 Adjunctive Treatment Study,
at least two additional large Phase 3 pivotal clinical trials,
additional toxicology and other nonclinical studies and certain
smaller clinical studies prior to the submission of an NDA for
AV-101 as a new generation adjunctive treatment for MDD. 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 AV-101 for MDD and
any other product candidates we may develop. Except as disclosed
herein, we do not know whether the NIMH AV-101 MDD Phase 2
Monotherapy Study, our AV-101 MDD Phase 2 Adjunctive Treatment
Study or any of our future-planned nonclinical and clinical trials
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:
●
the
FDA may deny permission to proceed with our planned clinical trials
or any other clinical trials we may initiate, or may place a
planned or ongoing clinical trial on hold;
●
delays
in filing or receiving approvals of additional INDs that may be
required;
●
negative
results from our ongoing nonclinical studies;
●
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;
●
delays
in the manufacturing of, or insufficient supply of, AV-101 or other
product candidates necessary to conduct nonclinical or clinical
trials, including delays in the manufacturing of sufficient supply
or finished drug product resulting from our new manufacturing
process for AV-101;
●
inability
to manufacture or obtain clinical supplies of a product candidate
meeting required quality standards;
●
difficulties obtaining Institutional Review Board
(IRB) approval to conduct a clinical trial at a
prospective clinical site or sites;
●
challenges
in recruiting and enrolling patients to participate in clinical
trials, including the proximity of patients to clinical trial
sites;
●
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;
●
severe
or unexpected drug-related side effects experienced by patients in
a clinical trial;
●
delays
in validating any endpoints utilized in a clinical
trial;
●
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;
●
reports
from nonclinical or clinical testing of other CNS indications or
therapies that raise safety or efficacy concerns; and
●
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.
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:
●
failure
to conduct the clinical trial in accordance with regulatory
requirements or approved clinical protocols;
●
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;
●
unforeseen
safety issues, including any that could be identified in our
ongoing nonclinical carcinogenicity studies, adverse side effects
or lack of effectiveness;
●
changes
in government regulations or administrative actions;
●
problems
with clinical supply materials that may lead to regulatory actions;
and
●
lack
of adequate funding to continue nonclinical or clinical
studies.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our nonclinical studies and clinical trials of AV-101
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 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 non-clinical 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 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 non-clinical and clinical trials of AV-101 and any other
product candidates. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines,
completion of non-clinical and clinical trials and development of
AV-101 and other product candidates may be delayed and we may not
be able to obtain regulatory approval for or commercialize AV-101
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 completely on our own. We
rely on our network of strategic relationships with various medical
institutions, nonclinical and clinical investigators, contract
laboratories and other third parties, such as contract research and
development organizations (CROs), to conduct 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 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 staff. Communicating with outside
parties can also be challenging, potentially leading to mistakes as
well as difficulties in coordinating activities. Outside parties
may:
●
have
staffing difficulties and/or undertake obligations beyond their
anticipated capabilities and resources;
●
fail
to comply with contractual obligations;
●
experience
regulatory compliance issues;
●
undergo
changes in priorities or become financially distressed;
or
●
form
relationships with other entities, some of which may be our
competitors.
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 in accordance with the applicable protocol, legal,
regulatory and scientific requirements and standards, and our
reliance on CROs or the NIH does not relieve us of our regulatory
responsibilities. We and our CROs and the NIMH are required to
comply with regulations and guidelines, including current 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 or any of our CROs fail to
comply with applicable cGCPs, the clinical data generated in our
clinical trials 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 regulations and will require a large number of test
patients. Our failure or the failure of our CROs 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,
we plan to have CROs, and in the case of the NIMH AV-101 MDD Phase
2 Monotherapy Study, the NIMH, conduct the AV-101 Phase 2 and Phase
3 clinical trials. As a result, many important aspects of our drug
development programs are outside of our direct control. In
addition, the CROs or the NIMH, as the case may be, may not perform
all of their obligations under arrangements with us or in
compliance with regulatory requirements, but we remain responsible
and are 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 our
clinical trials. If the NIMH or CROs do not perform clinical trials
in a satisfactory manner, breach their obligations to us or fail to
comply with regulatory requirements, the development and
commercialization of AV-101 and other product candidates may be
delayed or our development program materially and irreversibly
harmed. We cannot control the amount and timing of resources these
CROs or the NIMH devote to our program or our clinical products. If
we are unable to rely on non-clinical and clinical data collected
by our CROs or the NIMH, 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 any of our relationships with these third-party CROs or the NIMH
terminate, we may not be able to enter into arrangements with
alternative CROs or collaborators. If CROs or the NIMH
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 the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, any clinical trials
that such CROs or the NIMH 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 and prepare
supplies of AV-101 for all nonclinical and clinical studies of
AV-101, and we intend to continue to rely on third parties to
produce all nonclinical, clinical and commercial supplies of AV-101
in the future.
We do not currently have, nor do we plan to acquire or develop, the
necessary infrastructure internal resources or technical
capabilities to manufacture and prepare supplies of AV-101, or any
future product candidates, for use in nonclinical and clinical
studies, and we lack the internal resources and the capability to
manufacture any product candidate on a clinical or commercial
scale. As a result, we rely completely on third party
contract manufacturing organizations (CMOs) to manufacture AV-101 active pharmaceutical
ingredient (API) and prepare AV-101 final drug product. The
facilities used by our CMOs to manufacture AV-101 API and final
drug product must complete a pre-approval inspection by the FDA and
other comparable foreign regulatory agencies to assess compliance
with applicable requirements, including cGMPs, after we submit our
AV-101 INDs, NDAs or relevant foreign regulatory submission
equivalent to the applicable regulatory agency.
We do not directly control either the supply or quality of
materials used in the manufacturing and preparation of AV-101 or
the AV-101 manufacturing process, and we are completely dependent
on our CMOs to comply with all cGMPs for manufacture of both AV-101
API and AV-101 finished drug product. If our CMOs cannot secure
adequate supplies of suitable raw materials or successfully
manufacture AV-101 API that conforms to our specifications and the
strict regulatory requirements of the FDA or applicable foreign
regulatory agencies, production of sufficient supplies of AV-101
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
for required or planned nonclinical and/or clinical studies of
AV-101. 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 AV-101. 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.
We do not yet have long-term AV-101 supply agreements in place with
our CMOs and each batch of AV-101 is 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, development and, if approved, commercial quantities of
AV-101 and any other product candidates we may seek to develop in
the future. Although we believe our current scale of manufacturing
for AV-101 and current and projected supply of AV-101 API and
finished drug product will be adequate to support our planned
nonclinical and clinical studies of AV-101, no assurance can be
given that unanticipated AV-101 supply shortages, CMO-related
delays in manufacture and production of AV-101 API and finished
drug product will not occur in the future.
Even if we receive marketing approval for AV-101 or any other
product candidate in the United States, we may never receive
regulatory approval to market AV-101 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 our product
candidates. In order to market any product outside of the United
States, however, 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 contract manufacturers, 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 the controlled substance
schedule, 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. While we currently do not know whether any of our
product candidates will be considered to be controlled substances,
certain of our product candidates, including AV-101, may be
regulated as controlled substances.
If
any of our product candidates are regulated as controlled
substances, depending on the controlled substance schedule in which
the product candidates are placed, we, our contract manufacturers,
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 contract
manufacturers would be subject to initial and periodic DEA
inspection.If we or our contract manufacturers 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 contract
manufacturers, 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 an infrastructure for the sale, marketing
and distribution of pharmaceutical products, nor do we intend to
create such capabilities. Therefore, in order 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. 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, 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:
●
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;
●
limitations
or warnings contained in the labeling approved for our product
candidates by the FDA or other applicable regulatory
authorities;
●
the
clinical indications for which our product candidates are
approved;
●
availability
of alternative treatments already approved or expected to be
commercially launched in the near future;
●
the
potential and perceived advantages of our product candidates over
current treatment options or alternative treatments, including
future alternative treatments;
●
the
willingness of the target patient population to try new therapies
and of physicians to prescribe these therapies;
●
the
strength of marketing and distribution support and timing of market
introduction of competitive products;
●
publicity
concerning our products or competing products and
treatments;
●
pricing
and cost effectiveness;
●
the
effectiveness of our sales and marketing strategies;
●
our
ability to increase awareness of our product candidates through
marketing efforts;
●
our
ability to obtain sufficient third-party coverage or reimbursement;
or
●
the
willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
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 non-clinical 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:
●
regulatory
authorities may withdraw or limit their approval of such product
candidates;
●
regulatory
authorities may require the addition of labeling statements, such
as a “black box” warning or a
contraindication;
●
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;
●
we
may be subject to regulatory investigations and government
enforcement actions;
●
we
may decide to remove such product candidates from the
marketplace;
●
we
could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
●
our
reputation may suffer.
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. Any REMS 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 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:
●
issue
warning letters or untitled letters;
●
seek
an injunction or impose civil or criminal penalties or monetary
fines;
●
suspend
or withdraw marketing approval;
●
suspend
any ongoing clinical trials;
●
refuse
to approve pending applications or supplements to applications
submitted by us;
●
suspend
or impose restrictions on operations, including costly new
manufacturing requirements; or
●
seize
or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceuticals 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 our product candidates or address similar
markets. It is probable that the number of companies seeking to
develop product candidates similar to 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 AV-101. However, new antidepressant products with
other mechanisms of action or products approved for other
indications, including the anesthetic ketamine hydrochloride, are
being or may be used off-label for treatment of MDD, as well as
other CNS indications for which AV-101 may have therapeutic
potential. Additionally, other non-pharmaceutical treatment
options, such psychotherapy and electroconvulsive therapy
(ECT) are sometimes used before or instead of standard
antidepressant medications to treat patients with
MDD.
In the field of new generation, orally available, adjunctive
treatments of adult MDD patients with an inadequate response to
standard antidepressants, we believe our principal competitor is
Alkermes’ orally available drug candidate in Phase 3
development, ALKS-5461.
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. We believe that a range of
pharmaceutical and biotechnology companies have programs to develop
small molecule 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, Astra Zeneca, 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. 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 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 depression, we may fail to
pursue additional CNS-related Phase 2 development opportunities for
AV-101, 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, with additional limited
focus on NCE drug rescue and 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 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 products, 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:
●
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.
●
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.
●
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.
●
The
federal false statements statute prohibits knowingly and willfully
falsifying, concealing or covering up a material fact or making any
materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services.
●
The
federal transparency requirements, 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.
●
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.
●
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.
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,
including anticipated activities to be conducted by our sales team,
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 is found not to be
in 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, 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 marketing approval for AV-101
as an adjunctive treatment of MDD, physicians may nevertheless
prescribe AV-101 to their patients in a manner that is inconsistent
with the approved label. 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 promotion and has enjoined
several companies from engaging in off-label promotion. The FDA has
also requested that companies enter into consent decrees or
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 U.S. 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, including AV-101. Even if we have obtained FDA
Orphan Drug designation for AV-101 of other product candidates,
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 product candidates, including AV-101. Even
if we obtain Orphan Drug designation from the FDA for AV-101 or any
other product candidates, there are limitations to the exclusivity
afforded by such designation. In the United States, 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:
●
our
customers’ ability to obtain reimbursement for our product
candidates in foreign markets;
●
our
inability to directly control commercial activities because we are
relying on third parties;
●
the
burden of complying with complex and changing foreign regulatory,
tax, accounting and legal requirements;
●
different
medical practices and customs in foreign countries affecting
acceptance in the marketplace;
●
import
or export licensing requirements;
●
longer
accounts receivable collection times;
●
longer
lead times for shipping;
●
language
barriers for technical training;
●
reduced
protection of intellectual property rights in some foreign
countries;
●
the
existence of additional potentially relevant third party
intellectual property rights;
●
foreign
currency exchange rate fluctuations; and
●
the
interpretation of contractual provisions governed by foreign laws
in the event of a contract dispute.
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 drug, biological and/or regenerative medicine
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 our
lead drug candidate is in Phase 2 development, 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 strategic
collaborators:
●
produce
product candidates;
●
develop
and obtain required regulatory approvals for commercialization of
product candidates we produce;
●
maintain,
leverage and expand our intellectual property
portfolio;
●
establish
and maintain sales, distribution and marketing capabilities, and/or
enter into strategic partnering arrangements to access such
capabilities;
●
gain
market acceptance for our products; and
●
obtain
adequate capital resources and manage our spending as costs and
expenses increase due to research, production, development,
regulatory approval and commercialization of product
candidates.
Our future success is highly dependent upon our ability to
successfully develop and commercialize AV-101 and 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 or drug
rescue NCEs, or that, if produced, AV-101 or any drug rescue NCE
will be successfully commercialized.
Research programs designed to identify and produce drug rescue NCEs
require substantial technical, financial and human resources,
whether or not any NCEs are ultimately identified and produced. In
particular, our drug rescue programs may initially show promise in
identifying potential NCEs, yet fail to yield a lead NCE suitable
for preclinical, clinical development or commercialization for many
reasons, including the following:
●
our
drug rescue research and development methodology may not be
successful in identifying and developing potential drug rescue
NCEs;
●
competitors
may develop alternatives that render our drug rescue NCEs
obsolete;
●
a
drug rescue NCE may, on further study, be shown to have harmful
side effects or other characteristics that indicate it is unlikely
to be effective or otherwise does not meet applicable regulatory
criteria;
●
a
drug rescue NCE may not be capable of being produced in commercial
quantities at an acceptable cost, or at all; or
●
a
drug rescue NCE may not be accepted as safe and effective by
regulatory authorities, patients, the medical community or
third-party payors.
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, drug rescue NCEs and/or other product
candidates if and when they are developed. 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 in entering into
arrangements with third parties to sell, market and distribute
AV-101, 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, 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
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 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.
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 strategic partners,
including:
●
our
ability to identify potential drug rescue candidates in the public
domain, obtain sufficient quantities of them, and assess them using
our bioassay systems;
●
if
we seek to rescue drug rescue candidates that are not available to
us in the public domain, the extent to which third parties may be
willing to out-license or sell certain drug rescue candidates to us
on commercially reasonable terms;
●
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
●
financial
resources available to us to develop and commercialize lead drug
rescue NCEs internally, or, if we out-license them to strategic
partners, the resources such partners choose to dedicate to
development and commercialization of any drug rescue NCEs they
license from us.
Even if we do produce proprietary drug rescue NCEs, we can give no
assurance that we will be able to develop and commercialize them as
a marketable drug, on our own or in collaboration with others.
Before we generate any revenues from AV-101 and/or additional drug
rescue NCEs we or our potential collaborators must complete
preclinical and clinical developments, submit clinical and
manufacturing data to the FDA, qualify a third party contract
manufacturer, receive regulatory approval in one or more
jurisdictions, satisfy the FDA that our contract manufacturer 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.
Our success 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.
The success of our 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 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 are difficult to predict in
advance. We might decide to devote significant 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 regenerative medicine, potential applications of
our stem cell technology platform. In particular, we may conduct
exploratory non-clinical RM programs involving blood, bone,
cartilage, and/or liver cells. Although we and our collaborators
have developed proprietary protocols for the production of 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 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 in order 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 in which we operate. These
laws and regulations can be costly to comply with and 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 $10.3 million and
$47.2 million, which includes $26.7 million of non-cash expense
related to the extinguishment of essentially all of our outstanding
promissory notes and certain other indebtedness, during the fiscal
years ended March 31, 2017 and 2016, respectively. We incurred a
net loss of approximately $7.3 million in the
six months ended September 30, 2017 and,
as of that date, we had an accumulated deficit of approximately
$149.3 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 non-clinical 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, not including the fair
market value of the ongoing NIMH AV-101 MDD Phase 2 Monotherapy
Study under our NIMH CRADA. 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, or we enter into one or more development and
commercialization agreements with respect to AV-101 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:
●
initiate
and successfully complete non-clinical and clinical trials that
meet their prescribed endpoints;
●
initiate
and successfully complete all safety studies required to obtain
U.S. and foreign marketing approval for our product
candidates;
●
commercialize
our product candidates, if approved, by developing a sales force or
entering into collaborations with third parties; and
●
achieve
market acceptance of our product candidates in the medical
community and with third-party payors.
Unless we enter into a development and commercialization
collaboration or partnership agreement, we expect to incur
significant sales and marketing costs as we prepare to
commercialize AV-101 or other product candidates. Even if we
initiate and successfully complete pivotal clinical trials of
AV-101 or other product candidates, and AV-101 or other product
candidates are approved for commercial sale, and despite expending
these costs, AV-101 or other 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, 2017 as well as the unaudited condensed consolidated
financial statements for the period ended September
30, 2017 included elsewhere in this Report have been 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 the sale of
our securities or 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 such
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 our stem cell technology platform. In particular, we have
expended substantial resources advancing AV-101 through preclinical
development and Phase 1 clinical safety studies, and
developing CardioSafe 3D and our cardiac stem cell technology for
drug rescue and potential regenerative medicine applications, and
we will continue to expend substantial resources for the
foreseeable future developing and commercializing AV-101 for
multiple CNS indications, and, potentially, developing drug rescue
NCEs and RM therapies, on our own or in collaborations similar to
the BlueRock Agreement. 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 September 30, 2017, our existing cash and cash
equivalents were not sufficient to fund our current operations for
the next 12 months or to complete our proposed AV-101 MDD Phase 2
Adjunctive Treatment Study. 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
AV-101, a drug rescue NCE, and/or another drug candidate unrelated
to AV-101 to third-parties, (ii) enter into 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 compounds.
As the outcome of our AV-101 and NCE drug rescue activities 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 are considering
a range of potential sources of funding, including 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 in 2017 and beyond. 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:
●
the
number and characteristics of the product candidates we pursue,
including AV-101 and drug rescue NCEs;
●
the
scope, progress, results and costs of researching and developing
our product candidates, and conducting preclinical and clinical
studies;
●
the
timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
●
the
cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
●
the
cost of manufacturing our product candidates and any products we
successfully commercialize;
●
our
ability to establish and maintain strategic partnerships, licensing
or other arrangements and the financial terms of such
agreements;
●
market
acceptance of our products;
●
the
effect of competing technological and market
developments;
●
our
ability to obtain government funding for our programs;
●
the
costs involved in obtaining and enforcing patents to preserve our
intellectual property;
●
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;
●
the
timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
●
the
extent to which we acquire or invest in businesses, products and
technologies, although we currently have no commitments or
agreements relating to any of these types of
transactions.
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, and the terms of
any 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 or exchange 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 candidate
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 2017 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, 2017, we had federal and state net operating
loss carryforwards of $77.1 million and $67.6 million,
respectively, which begin to expire in fiscal
2018. 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 AV-101, drug rescue NCEs, other potential
product candidates and other commercial applications of our stem
cell technology.
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 and Chief Financial Officer, as well as 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
AV-101, drug rescue NCEs, other product candidates, and other
applications of our stem cell technology, including our production
and assessment of potential drug recuse NCEs 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 as we 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 diverse range of strategic consultants
and advisors, including manufacturing, scientific and clinical
development, and regulatory advisors, to assist us in designing and
implementing our research and development and regulatory strategies
and plans, including our AV-101 development and drug rescue
strategies and plans. 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 AV-101 for MDD and other
CNS-related conditions, as well as stem cell technology-related
drug rescue and RM programs, we will 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.
If we develop AV-101, drug rescue NCEs, other product candidates,
or regenerative medicine 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, any drug rescue NCE, other
product candidate, or regenerative medicine 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:
●
decreased
demand for products that we may develop;
●
injury
to our reputation;
●
withdrawal
of clinical trial participants;
●
costs
to defend the related litigation;
●
a
diversion of management's time and our resources;
●
substantial
monetary awards to trial participants or
patients;or
●
product
recalls, withdrawals or labeling, marketing or promotional
restrictions.
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
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. Furthermore, these laws,
regulations and requirements require us to observe greater
corporate governance practices than we have employed in the past,
including, but not limited to maintaining a sufficient number of
independent directors, increased frequency of board meetings, and
holding annual stockholder meetings. 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 internal computer systems, or those of our third-party CROs or
other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our
product candidates’ development programs.
Despite the implementation of security measures, our internal
computer systems and those of our third-party CROs and other
contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. 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
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 products, or form strategic alliances,
in the future, and we may not realize the benefits of such
acquisitions.
We may acquire additional businesses or products, 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
products resulting from a strategic alliance 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, 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, should they issue, 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 patent applications related to AV-101
and we own and have licensed patents and patent applications
related to human pluripotent stem cell technology.
Although we have an issued patent relating to AV-101 in the
U.S. and the European Union, we cannot yet provide any
assurances that any of our other numerous pending U.S. and
additional foreign patent applications relating to AV-101 will
mature into issued patents and, if they do, that such patents will
include claims with a scope sufficient to protect AV-101 or
otherwise provide any competitive advantage. 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
patent protection.
The patent positions of biotechnology and pharmaceutical companies,
including our patent position, 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. Patents, if issued, may be
challenged, deemed unenforceable, invalidated, or circumvented.
U.S. 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, or comparable
proceedings lodged in various foreign, both national and regional,
patent offices. 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 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 a 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 effective
technologies, 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, former employees and 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:
●
any
of our AV-101 or other pending patent applications, if issued, will
include claims having a scope sufficient to protect AV-101 or any
other products or product candidates, particularly considering that
the compound patent to AV-101 has expired;
●
any
of our pending patent applications will issue as patents at
all;
●
we
will be able to successfully commercialize our product candidates,
if approved, before our relevant patents expire;
●
we
were the first to make the inventions covered by each of our
patents and pending patent applications;
●
we
were the first to file patent applications for these
inventions;
●
others
will not develop similar or alternative technologies that do not
infringe our patents;
●
others
will not use pre-existing technology to effectively compete against
us;
●
any
of our patents, if issued, will be found to ultimately be valid and
enforceable;
●
any
patents issued to us will provide a basis for an exclusive market
for our commercially viable products, will provide us with any
competitive advantages or will not be challenged by third
parties;
●
we
will develop additional proprietary technologies or product
candidates that are separately patentable; or
●
that
our commercial activities or products will not infringe upon the
patents or proprietary rights of others.
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:
●
cease
developing, selling or otherwise commercializing our product
candidates;
●
pay
substantial damages for past use of the asserted intellectual
property;
●
obtain
a license from the holder of the asserted intellectual property,
which license may not be available on reasonable terms, if at all;
and
●
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.
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 U.S. Patent and Trademark Office (USPTO), 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, if and when issued,
covering one of our product candidates, 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 property 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. See
“Business —Intellectual
Property” herein for a
description of our license agreements, which includes a description
of the termination provisions of these
agreements.
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:
●
the
scope of rights granted under the license agreement and other
interpretation-related issues;
●
whether
and the extent to which our technology and processes infringe on
intellectual property of the licensor that is not subject to the
licensing agreement;
●
our
right to sublicense patent and other rights to third parties under
collaborative development relationships;
●
our
diligence obligations with respect to the use of the licensed
technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence
obligations; and
●
the
ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us
and our partners.
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-U.S.
product manufacturers for products covered by such intellectual
property.
In the event we apply for additional U.S. 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 U.S. 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 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 U.S. 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 U.S. 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 U.S. 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 with regard to 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 U.S. 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:
●
others
may be able to develop and/or practice technology that is similar
to our technology or aspects of our technology but that is not
covered by the claims of patents, should such patents issue from
our patent applications;
●
we
might not have been the first to make the inventions covered by a
pending patent application that we own;
●
we
might not have been the first to file patent applications covering
an invention;
●
others
may independently develop similar or alternative technologies
without infringing our intellectual property rights;
●
pending
patent applications that we own or license may not lead to issued
patents;
●
patents,
if issued, that we own or license may not provide us with any
competitive advantages, or may be held invalid or unenforceable, as
a result of legal challenges by our competitors;
●
third
parties may compete with us in jurisdictions where we do not pursue
and obtain patent protection;
●
we
may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
●
the
patents of others may have an adverse effect on our
business.
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
The limited public market for our securities may adversely affect
an investor’s ability to liquidate an investment in the
Company.
Our common stock is currently quoted on the NASDAQ
Capital Market, however, there is presently limited trading
activity. We can give no assurance that an active market
will develop, or if developed, that it will be
sustained. If an investor acquires shares of our common
stock, the investor may not be able to liquidate the shares should
there be a need or desire to do so.
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:
●
plans
for, progress of or results from non-clinical and clinical
development activities related to our product
candidates;
●
the
failure of the FDA to approve our product candidates;
●
announcements
of new products, technologies, commercial relationships,
acquisitions or other events by us or our competitors;
●
the
success or failure of other CNS therapies;
●
regulatory
or legal developments in the United States and other
countries;
●
failure
of our product candidates, if approved, to achieve commercial
success;
●
fluctuations
in stock market prices and trading volumes of similar
companies;
●
general
market conditions and overall fluctuations in U.S. equity
markets;
●
variations
in our quarterly operating results;
●
changes
in our financial guidance or securities analysts’ estimates
of our financial performance;
●
changes
in accounting principles;
●
our
ability to raise additional capital and the terms on which we can
raise it;
●
sales
of large blocks of our common stock, including sales by our
executive officers, directors and significant
stockholders;
●
additions
or departures of key personnel;
●
discussion
of us or our stock price by the press and by online investor
communities; and
●
other
risks and uncertainties described in these risk
factors.
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 recent situations in which the market price
of a stock has been volatile, holders of that stock have instituted
securities class action litigation against such 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 significant 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.
Our principal institutional stockholders may continue to have
substantial control over us and could limit your ability to
influence the outcome of key transactions, including changes in
control.
Certain of our current institutional stockholders own a substantial
portion of our outstanding capital stock, including our common
stock, Series A Preferred, Series B Preferred, and Series C
Preferred, all of which preferred stock is convertible into a
substantial number of shares of common
stock. Accordingly, institutional stockholders may exert
significant 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 us, even if such a change of control would benefit
our other stockholders. The significant concentration of stock
ownership may adversely affect the trading price of our common
stock due to investors’ perception that conflicts of interest
may exist or arise. Furthermore, the interests of our principal
institutional stockholders may not always coincide with your
interests or the interests of other stockholders may act in a
manner that advances its best interests and not necessarily those
of other stockholders, including seeking a premium value for its
common stock, which might affect the prevailing market price for
our common stock.
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 September 30, 2017; (ii) 4.0 million
shares of Series B 10% Convertible Preferred stock, of which
approximately 1.2 million shares remain issued and outstanding at
September 30, 2017; and (iii) 3.0 million shares of Series C
Convertible Preferred Stock, of which approximately 2.3 million
shares are issued and outstanding at September 30, 2017. 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.
Since becoming a public company by means of a reverse merger in
2011, we have been 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 money 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.
Risks Related to this Offering
Our management
team may invest or spend the proceeds of this offering in ways with
which you may not agree or in ways which may not yield a
significant return.
Our management will have broad discretion over the use of proceeds
from this offering. We currently intend to use the net proceeds
from the sale of securities offered by this prospectus for
general corporate purposes, including research and development,
working capital and capital expenditures. We may use a portion
of the net proceeds to fund production of, and nonclinical and
clinical studies related to Phase 2 and Phase 3 development of,
AV-101 and other drug candidates. We may also use the net proceeds
from the sale of the securities under this prospectus to
in-license, acquire or invest in complementary businesses,
technologies, products or assets. However, our management will
have broad discretion in the application of the net proceeds from
this offering and could spend the proceeds in ways that do not
improve our results of operations or enhance the value of our
common stock. The failure by management to apply these funds
effectively could result in financial losses that could have a
material adverse effect on our business, cause the price of our
common stock to decline and delay the development of our product
candidates.
Purchasers in this offering will experience immediate and
substantial dilution in the book value of their
investment.
Because the combined public offering price per
share and related warrant is substantially higher than the book
value per share of our common stock, you will incur immediate and
substantial dilution in the net tangible book value of the common
stock you purchase in this offering. After giving effect to the
assumed sale by us of 8,333,333 shares of our common stock
and warrants to purchase up to
8,333,333 shares of common stock at an assumed combined public offering price of $1.80 per share
(the last reported sale price of our common stock on the NASDAQ
Capital Market on December 6, 2017), and after deducting the
estimated underwriting discount and estimated offering expenses
payable by us, you will suffer immediate and substantial dilution
of $1.20 per share in the pro forma net tangible book value of the
common stock you purchase in this offering, assuming no value is attributed to the warrants,
and the warrants are accounted for and classified as equity. To the
extent outstanding options, warrants or other derivative securities
are ultimately exercised or converted, or if we issue restricted
stock to our employees under the 2016 Plan, there will be further
dilution to investors who purchase shares in this offering. In
addition, if we issue additional equity securities or derivative
securities, investors purchasing shares in this offering will
experience additional dilution. For a further description of the
dilution that you will experience immediately after this offering,
see “Dilution” on page 43.
Sales of a substantial number of shares of our common stock, or the
perception that such sales may occur, may adversely impact the
price of our common stock.
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 that
such sales may occur, may adversely impact the price of our common
stock, even if there is no relationship between such sales and the
performance of our business. As of December 6, 2017, we had
11,848,974 shares of common stock outstanding, as well as
outstanding options to purchase an aggregate
of 3,279,871 shares of our common stock at a weighted
average exercise price of $3.23 per share, up to 4,228,252 shares
of common stock issuable upon conversion of outstanding shares of
our preferred stock, and outstanding warrants to purchase up to an
aggregate of 7,107,157 shares of our common stock at a weighted
average exercise price of $4.70 per share. The exercise of such
outstanding derivative securities may result in further dilution of
your investment.
There is no public market for the warrants being offered by this
prospectus, and we do not anticipate such a market ever developing
in the future.
There
is no established public trading market for the warrants being
offered by this prospectus and we do not intend to have the
warrants listed on a national securities exchange or any other
recognized trading system in the future. Without an active market,
the liquidity of any warrants sold by means of this prospectus will
be limited.
The warrants being offered by means of this prospectus may not have
any value.
The warrants offered by
us in this offering do not confer any rights of ownership of shares
of common stock on its holders, such as voting rights or the right
to receive dividends, but only represent the right to acquire
shares of common stock at a fixed price for a limited period of
time. In the event that
the market price of our common stock does not exceed the exercise
price of the warrants sold in this offering during the period when
the warrants are exercisable, the warrants may not have any
value.
CAUTIONARY
NOTES REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements contained in
this prospectus, other than statements of historical facts, are
forward-looking statements including statements regarding our
strategy, future operations, future financial position, future
revenue, projected costs, prospects, plans, objectives of
management and expected market growth. These statements involve
known and unknown risks, uncertainties and other important factors
that may cause our actual results, performance or achievements to
be materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements.
The words “anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“may,” “plan,” “predict,”
“project,” “target,”
“potential,” “will,” “would,”
“could,” “should,” “continue,”
and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. These forward-looking statements include,
among other things, statements about:
●
the availability of capital to
satisfy our working capital requirements;
●
the accuracy of our estimates
regarding expenses, future revenues and capital
requirements;
●
our plans to develop and
commercialize our lead product candidate, AV-101, initially as an
adjunctive treatment for MDD in patients with an inadequate
response to standard, FDA-approved antidepressants, and
subsequently as a treatment for additional CNS diseases and
disorders;
●
our ability to initiate and complete
our clinical trials and to advance our product candidates into
additional clinical trials, including pivotal clinical trials, and
successfully complete such clinical trials;
●
regulatory developments in the U.S.
and foreign countries;
●
the performance of the U.S. National
Institute of Mental Health, our third-party contractors involved
with the manufacturer and production of our drug candidates for
nonclinical and clinical development activities, contract research
organizations and other third-party nonclinical and clinical
development collaborators and regulatory service
providers;
●
our ability to obtain and maintain
intellectual property protection for our core
assets;
●
the size of the potential markets
for our product candidates and our ability to serve those
markets;
●
the rate and degree of market
acceptance of our product candidates for any indication once
approved;
●
the success of competing products
and product candidates in development by others that are or become
available for the indications that we are
pursuing;
●
the loss of key scientific, clinical
and nonclinical development, and/or management personnel,
internally or from one of our third-party collaborators;
and
●
other risks and uncertainties,
including those described under “Risk
Factors.”
These forward-looking statements are only predictions and we may
not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements, so you should not
place undue reliance on our forward-looking statements. Actual
results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking
statements we make. 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 business,
financial condition and operating results. We have included
important factors in the cautionary statements included in this
prospectus that could cause actual future results or events to
differ materially from the forward-looking statements that we make.
Our forward-looking statements do not reflect the potential impact
of any future acquisitions, mergers, dispositions, joint ventures
or investments we may make.
You should read this prospectus with the understanding that our
actual future results may be materially different from what we
expect. We do not assume any obligation to update any
forward-looking statements whether as a result of new information,
future events or otherwise, except as required by applicable
law.
We estimate that
the net proceeds to us from this offering will be approximately
$13.6 million, assuming the sale of 8,333,333 shares of common
stock
and warrants to purchase up to 8,333,333 shares of
our common stock at an assumed combined public offering price of
$1.80 per share and related warrant (the last reported sale price of our common stock
on the NASDAQ Capital Market on December 6, 2017) after
deducting the estimated underwriting discount and estimated
offering expenses payable by us.
Each $0.20 increase
(decrease) in the assumed combined public offering price of $1.80
per share and related warrant would increase (decrease) the net
proceeds to us from this offering by approximately $1.6 million,
assuming the number of shares of common stock and related warrants
offered by us, as set forth on the cover page of this prospectus,
remains the same and after deducting the estimated underwriting
discount and estimated offering expenses payable by us. We may also
increase or decrease the number of shares of common stock and
related warrants we are offering. Each increase (decrease) of
1,000,000 shares in the number of shares of common stock and
related warrants we are offering would increase (decrease) the net
proceeds to us from this offering by approximately $1.7 million,
assuming that the assumed combined public offering price remains
the same, and after deducting the estimated underwriting discount
and estimated offering expenses payable by us. This
information is illustrative only, and we will adjust this
information based on the actual combined public offering price and
other terms of this offering determined at pricing. We do not
expect that a change in the combined public offering price or the
number of shares of common stock and related warrants by these
amounts would have a material effect on our intended uses of the
net proceeds from this offering, although it may impact the amount
of time prior to which we may need to seek additional
capital.
We
expect to use the net proceeds from this offering for research and development, primarily related to
the AV-101 MDD Phase 2 Adjunctive Treatment Study, ordinary course
working capital needs and other general corporate purposes. We may
also use a portion of the net proceeds to (i) produce additional
supplies of AV-101 for future nonclinical and clinical studies,
(ii) conduct certain standard nonclinical studies necessary to
enable longer term oral administration (initially at least 90 days)
of AV-101 for MDD and multiple other potential CNS indications and
to facilitate a smooth transition to Phase 3 development of AV-101
for adjunctive treatment of MDD should the results of the AV-101
MDD Phase 2 Adjunctive Treatment Study be positive and warrant
further clinical development of AV-101 for MDD, and (iii) conduct a
small, single dose, food effects clinical study of AV-101 in
healthy volunteers (not MDD patients) to enable Phase 3 development
of AV-101. We may also use a portion of the net proceeds from the
sale of the securities under this prospectus to in-license,
acquire or invest in complementary businesses, technologies,
products or assets. The table below reflects our
current planned use of the net proceeds from this offering. Each of
these amounts is an estimate only, and is subject to change at any
time before or after closing of the offering.
|
Assumed
gross proceeds
|
$
|
|
Underwriting
discount and other offering expenses
|
$
|
|
Net
proceeds
|
$
|
|
Research
and development
|
$
|
|
Working
capital and other general and administrative purposes
|
$
|
We expect net proceeds from this
offering to provide sufficient funding to launch and complete our
AV-101 MDD Phase 2 Adjunctive Treatment Study in
2018.
Pending
other uses, we intend to invest the net proceeds from this offering
in short-term investments or hold them as cash. We cannot predict
whether the proceeds invested will yield a favorable return. Our
management will have broad discretion in the use of the net
proceeds from this offering, and investors will be relying on the
judgment of our management regarding the application of the net
proceeds.
Market Information
Our common stock is listed on the NASDAQ Capital Market under the
symbol “VTGN.”
Shown
below is the range of high and low sales prices for our common
stock for the periods indicated as reported by the NASDAQ Capital
Market.
|
|
High
|
Low
|
|
Fiscal
Year Ending March 31, 2018
|
|
|
|
First quarter
ending June 30, 2017
|
$2.40
|
$1.72
|
|
Second quarter
ending September 30, 2017
|
$2.05
|
$1.53
|
|
Third quarter
ending December 31, 2017 (through December 6,
2017)
|
$2.65
|
$0.69
|
|
|
|
|
|
Fiscal
Year Ending March 31, 2017
|
|
|
|
First quarter
ending June 30, 2016
|
$9.00
|
$3.00
|
|
Second quarter
ending September 30, 2016
|
$4.69
|
$2.81
|
|
Third quarter
ending December 31, 2016
|
$4.50
|
$3.11
|
|
Fourth quarter
ending March 31, 2017
|
$3.90
|
$1.74
|
|
|
|
|
|
Fiscal
Year Ending March 31, 2016
|
|
|
|
First quarter
ending June 30, 2015
|
$16.50
|
$8.00
|
|
Second quarter
ending September 30, 2015
|
$14.90
|
$6.50
|
|
Third quarter
ending December 31, 2015
|
$10.25
|
$4.00
|
|
Fourth quarter
ending March 31, 2016
|
$9.97
|
$6.50
|
On December 6, 2017, the closing price of our common
stock on the NASDAQ Capital
Market was $1.80 per share. As of
December 6, 2017, there were approximately 1,300
holders of our common stock.
We have
never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds for use in the
operation and expansion of our business, and do not anticipate
paying any cash dividends in the foreseeable future. Our Series B
Preferred accrues dividends at a rate of 10% per annum, which
dividends are payable solely in unregistered shares of our common
stock at the time the Series B Preferred is converted into common
stock. Any future determination related to dividend policy will be
made at the discretion of our Board of Directors, subject to
applicable laws, and will depend on a number of factors, including
our financial condition, results of operations, capital
requirements, contractual restrictions, general business conditions
and other factors that our Board of Directors may deem
relevant.
DILUTION
If you purchase shares of our common stock
and related warrants in this offering,
you will experience dilution to the extent of the difference
between the combined public offering price per share and related
warrant in this offering and our pro forma as adjusted net tangible
book value per share immediately after this offering assuming no
value is attributed to the warrants, and the warrants are accounted
for and classified as equity. As of September 30, 2017, our net
tangible book value (deficit) was approximately $(1,671,600), or
approximately $(0.14) per share. Net tangible book value (deficit)
is equal to our total assets minus the sum of liabilities and
intangible assets. Net tangible book value (deficit) per share is
net tangible book value (deficit) divided by the total number of
shares of common stock outstanding.
After giving effect to the assumed sale by us
of
8,333,333 shares of
our common stock and warrants
to purchase up to 8,333,333 shares of our common stock in this
offering at an assumed combined
public offering price of $1.80 per share and related warrant
(the last reported sale price of our
common stock on the NASDAQ Capital Market on December 6, 2017), and
after deducting the estimated underwriting discount and estimated
offering expenses payable by us, our as-adjusted net tangible book
value as of September 30, 2017 would have been approximately
$11.9 million, or approximately
$0.60 per share. This amount represents an immediate increase in
net tangible book value of $0.74 per share to existing stockholders
and an immediate dilution in net tangible book value of $1.20 per
share to purchasers of our common stock and related
warrants in this
offering.
The following table illustrates the dilution in net tangible book
value per share to new investors:
|
Assumed
combined public offering price per share and
related warrant:
|
|
$1.80
|
|
Net
tangible book value (deficit) per share as of
September 30, 2017
|
$(0.14)
|
|
|
Increase
in pro forma net tangible book value per share after this
offering
|
$0.74
|
|
|
|
|
|
|
Pro
forma net tangible book value per share after this
offering
|
|
$0.60
|
|
|
|
|
|
Dilution
per share to new investors
|
|
$1.20
|
Each $0.20 increase (decrease) in the
assumed combined public
offering price of $1.80 per share and related warrant would
increase (decrease) our pro forma net tangible book value by
approximately $0.08 per share of common stock and the dilution to
new investors by approximately $0.12 per share, assuming that the
number of shares and
related warrants offered by us, as set forth on the cover page of
this prospectus, remains the same, after deducting the estimated
underwriting discount and estimated offering expenses payable by
us.
We may also increase or decrease the number of
shares and related warrants we
are offering. An increase of 1,000,000 shares in the number of
shares of common stock and warrants offered by us, as set forth on
the cover page of this prospectus, would increase our pro forma net
tangible book value by approximately $1.7 million, or approximately $0.05 per share, and
decrease the dilution per share to new investors in this offering
by approximately $0.05 share, assuming that the assumed
combined public offering price per
share and related warrant remains the same, and after deducting the
estimated underwriting discount and estimated offering expenses
payable by us. Similarly, a decrease of 1,000,000 shares in the
number of shares of common stock and related warrants offered by us, as set forth on
the cover page of this prospectus, would decrease our pro forma net
tangible book value by approximately $1.7 million, or approximately $0.05 per share, and
increase the dilution per share to new investors in this offering
by approximately $0.05 per share, assuming that the assumed
combined public offering price per
share and related warrant remains the same, and after deducting the
estimated underwriting discount and estimated offering expenses
payable by us. The information discussed above is illustrative only
and will change based on the actual combined public offering price and other terms of
this offering determined at pricing.
The foregoing discussion and table do not take
into account further dilution to new investors that could occur
upon the exercise of outstanding options or warrants having a per
share exercise price less than the combined public offering price in this offering.
To the extent that we raise additional capital through the sale of
equity or convertible debt securities, the issuance of those
securities could result in further dilution to our
stockholders.
The
table and discussion above are based on 11,628,974 shares of our
common stock outstanding as of September 30, 2017, and excludes as
of that date the following:
●
3,279,871 shares of common stock issuable upon exercise of
outstanding stock options with a weighted average exercise price of
$3.23 per share;
●
6,965,151 shares of common stock issuable upon exercise of
outstanding warrants with a weighted average exercise price of
$4.77 per share;
●
750,000 shares of common stock issuable upon conversion of all
outstanding shares of our Series A Preferred;
●
1,160,240 shares of common stock issuable upon conversion of all
outstanding shares of our Series B Preferred and 663,460 shares of
common stock reserved for issuance as payment of accrued dividends
on outstanding shares of Series B Preferred;
●
2,318,012 shares of common stock issuable upon conversion of all
outstanding shares of our Series C Preferred;
●
6,082,162 shares of common stock reserved
for future issuance in connection with future grants under our
Amended and Restated 2016 Stock Incentive Plan; and
●
shares of common stock issuable upon the
exercise of the warrants offered hereby.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 2017:
●
on an actual basis; and
●
on a pro forma basis giving effect to the
assumed sale and issuance by us of 8,333,333 shares of common stock
warrants to purchase up
to 8,333,333 shares of
our common stock in this offering, at an assumed
combined public offering price
of $1.80 per share and
related warrant (the last reported sale price of our common stock
on the NASDAQ Capital Market on December 6, 2017), and after
deducting the estimated underwriting discount and estimated
offering expenses payable by us assuming no value is attributed to the
warrants, and the warrants are accounted for and classified as
equity.
|
As of September 30, 2017
(amounts in dollars and in thousands, except share and per share
amounts)
|
Actual
|
Pro forma
|
|
Cash
and cash equivalents
|
$ 1,764
|
$ 15,374
|
|
|
|
|
|
Long-term
debt
|
$–
|
$–
|
|
Stockholders’
equity (deficit):
|
|
|
|
Preferred
stock, $0.001 par value, 10,000,000 shares
authorized:
|
|
|
|
Series
A Preferred, 500,000 shares authorized and outstanding, actual and
pro forma
|
1
|
1
|
|
Series B Preferred, 4,000,000 shares authorized and 1,160,240
shares outstanding, actual and pro forma
|
1
|
1
|
|
Series C Preferred, 3,000,000 shares authorized and 2,318,012
shares outstanding, actual and pro forma
|
2
|
2
|
|
Common stock, $0.001 par value, 100,000,000 shares
authorized;11,764,639 shares issued,
actual; 20,097,972 shares issued, pro
forma
|
12
|
20
|
|
Additional
paid-in capital
|
151,541
|
165,143
|
|
Treasury
stock, at cost, 135,665 shares, actual and pro
forma
|
(3,968)
|
(3,968)
|
|
Accumulated
deficit
|
(149,261)
|
(149,261)
|
|
Total
stockholders’ equity (deficit)
|
(1,672)
|
11,938
|
|
Total
capitalization
|
$ 1,672
|
$11,938
|
Common stock outstanding in the table above excludes the following shares
as of September 30, 2017:
●
3,279,871 shares of common stock issuable upon exercise of
outstanding stock options with a weighted average exercise price of
$3.23 per share;
●
6,965,151 shares of common stock issuable upon exercise of
outstanding warrants with a weighted average exercise price of
$4.77 per share;
●
750,000 shares of common stock issuable upon conversion of all
outstanding shares of our Series A Preferred;
●
1,160,240 shares of common stock issuable upon conversion of all
outstanding shares of our Series B Preferred and 663,460 shares of
common stock reserved for issuance as payment of accrued dividends
on outstanding shares of Series B Preferred;
●
2,318,012 shares of common stock issuable upon conversion of all
outstanding shares of our Series C Preferred;
●
6,082,162 shares of common stock reserved
for future issuance in connection with future grants under our
Amended and Restated 2016 Stock Incentive Plan ; and
●
shares of common stock issuable upon the exercise of the warrants
offered hereby.
SELECTED CONSOLIDATED FINANCIAL
DATA
\
The following selected consolidated financial data
of VistaGen Therapeutics, Inc. should be read in conjunction with,
and are qualified by reference to, the section titled
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and the
consolidated financial statements and notes thereto included
elsewhere in this prospectus. The consolidated statement of
operations data for the years ended March 31, 2017 and 2016,
and the consolidated balance sheet data as of March 31, 2017 and
2016 are derived from, and qualified by reference to, our audited
consolidated financial statements included elsewhere in this
prospectus and should be read in conjunction with those
consolidated financial statements and notes thereto. The
consolidated statement of operations data for the six-month periods
ended September 30, 2017 and 2016 and the consolidated balance
sheet data as of September 30, 2017 are derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus which, in our opinion, have been prepared on the same
basis as the audited consolidated financial statements and reflect
only adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of our results of operations and
financial position. Our results for the six months ended September
30, 2017 are not necessarily indicative of results to be expected
for the full year or any other period.
|
|
Fiscal Year Ended
March 31,
|
Six-Months
Ended September 30,
|
||
|
|
2017
|
2016
|
2017
|
2016
|
|
Consolidated Statement of Operations Data:
|
(in thousands, except share and per share
amounts)
|
|||
|
|
|
|
|
|
|
Revenues
|
$ 1,250
|
$ –
|
$ –
|
$ –
|
|
Operating
expenses:
|
|
|
|
|
|
Research
and development
|
5,204
|
3,932
|
3,523
|
2,432
|
|
General
and administrative
|
6,295
|
13,919
|
3,731
|
2,631
|
|
Total
operating expenses
|
11,499
|
17,851
|
7,254
|
5,063
|
|
Loss
from operations
|
(10,249)
|
(17,851)
|
(7,254)
|
(5,063)
|
|
Other
expenses, net:
|
|
|
|
|
|
Interest
expense, net
|
(5)
|
(771)
|
(6)
|
(3)
|
|
Change
in warrant liabilities
|
–
|
(1,895)
|
–
|
–
|
|
Loss
on early extinguishment of debt
|
–
|
(26,700)
|
–
|
–
|
|
Other
expense
|
–
|
(2)
|
–
|
–
|
|
Loss
before income taxes
|
(10,254)
|
(47,219)
|
(7,260)
|
(5,063)
|
|
Income
taxes
|
(2)
|
(2)
|
(2)
|
(2)
|
|
Net
loss and comprehensive loss
|
(10,256)
|
(47,221)
|
(7,262)
|
(5,068)
|
|
Accrued
dividend on Series B Preferred Stock
|
(1,257)
|
(2,140)
|
(504)
|
(781)
|
|
Deemed
dividend on Series B Preferred Units
|
(111)
|
(2,058)
|
–
|
(111)
|
|
Net
loss attributable to common stockholders
|
$ (11,624)
|
$ (51,419)
|
$ (7,766)
|
$ (5,960)
|
|
|
|
|
|
|
|
Basic
and diluted net loss attributable to common stockholders per
common share
|
$ (1.54)
|
$ (29.08)
|
$ (0.82)
|
$ (0.91)
|
|
|
|
|
|
|
|
Weighted
average shares used in computing basic and diluted net loss
attributable to common stockholders per common
share
|
7,531,642
|
1,767,957
|
9,465,459
|
6,577,769
|
|
|
As of March 31,
|
As of September 30, 2017
|
||
|
|
2017
|
2016
|
2017
|
Pro Forma (1)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
Cash
and cash equivalents
|
$ 2,921
|
$ 429
|
$ 1,764
|
$ 15,374
|
|
Total
assets
|
$ 3,712
|
$ 990
|
$ 2,618
|
$ 16,228
|
|
Current
portion of notes payable and accrued interest
|
$ 55
|
$ 44
|
$ 105
|
$ 105
|
|
Working
capital
|
$ 2,010
|
$ (939)
|
$ 443
|
$ 14,053
|
|
Common
stock, preferred stock, treasury stock and additional paid-in
capital
|
$ 142,615
|
$ 132,734
|
$ 147,589
|
$ 161,199
|
|
Total
stockholders’ equity (deficit)
|
$ 616
|
$ (2,977)
|
$ (1,672)
|
$11,938
|
(1)
The pro forma column
gives effect to the assumed sale and
issuance by us of 8,333,333 shares of our common stock and
warrants to
purchase up to 8,333,333 shares of our common stock in this
offering, assuming a combined public
offering price of $1.80 per share and related warrant
(the last reported sale price
of our common stock on the NASDAQ Capital Market on December 6,
2017), after deducting the estimated underwriting
discount and estimated offering expenses payable by
usassuming no value is
attributed to the warrants, and the warrants are accounted for and
classified as equity.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion of our financial condition
and results of operations in conjunction with the financial
statements and the notes thereto included elsewhere in this
prospectus. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below and elsewhere in
this prospectus, particularly in “Risk
Factors.”
Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
central nervous system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase 2 clinical
development in the United States, initially as a new generation
adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally differentiated from all FDA-approved antidepressants,
as well as all atypical antipsychotics such as aripiprazole often
used adjunctively to augment them. We believe AV-101 also has
potential as a non-opioid treatment alternative for neuropathic
pain, as well as several additional CNS indications
where
modulation of the NMDA receptors, activation of AMPA pathways
and/or key active metabolites of AV-101 may achieve therapeutic
benefit, including
Parkinson’s disease levodopa -induced dyskinesia
(PD
LID), epilepsy and
Huntington’s disease.
Clinical studies conducted at the U.S. National Institute of Mental
Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by 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, have focused on the antidepressant effects of low dose
intravenous (IV) administration of ketamine hydrochloride
(ketamine), an NMDAR antagonist, in patients with
treatment-resistant MDD. These NIMH studies, as well as clinical
research at Yale University and other academic institutions, have
demonstrated robust antidepressant effects in treatment-resistant
MDD patients within twenty-four hours of a single IV dose of
ketamine.
As published in the October 2015 issue of the
peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article entitled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
the GlyB site and also involved the activation of another key
neurological pathway, the
alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid
(AMPA) receptor
pathway.
Pursuant to our Cooperative Research
and Development Agreement (CRADA) with the NIMH, the NIMH is currently funding,
and Dr. Zarate, as Principal Investigator, and his team are
currently conducting, a small Phase 2 clinical study of AV-101
monotherapy in subjects with treatment-resistant MDD
(the NIMH AV-101 MDD Phase 2
Monotherapy Study). In October
2017, we received FDA authorization to launch our 180-patient Phase
2 multi-center, multi-dose, double blind, placebo-controlled
efficacy and safety study of AV-101 as a new generation adjunctive
treatment of MDD in adult patients with an inadequate therapeutic
response to standard, FDA-approved antidepressants
(the AV-101 MDD Phase 2 Adjunctive
Treatment Study). Subject to
completion of this offering,. we intend to launch the AV-101 MDD
Phase 2 Adjunctive Treatment Study in the first quarter of 2018
with Dr. Maurizio Fava, Professor of Psychiatry at Harvard
Medical School and Director, Division of Clinical Research,
Massachusetts General Hospital (MGH) Research Institute, as the Principal
Investigator. Dr. Fava was the co-Principal
Investigator with Dr. A. John Rush of the STAR*D study, the largest
clinical trial conducted in depression to date, whose findings were
published in journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA).
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology, internally and with third-party
collaborators, to discover, rescue, develop and commercialize (i)
proprietary new chemical entities (NCEs), including small molecule NCEs with regenerative
potential, for CNS and other diseases and (ii) cellular therapies
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
pipeline. In December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, a next generation regenerative medicine
company established by Bayer AG 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). Through
VistaStem, we may also pursue additional potential regenerative
medicine (RM) applications, including using blood, cartilage,
and/or liver cells derived from hPSCs for (A) cell-based therapy,
(B) cell repair therapy, and/or (C) tissue engineering. In a
manner similar to our exclusive sublicense agreement with BlueRock
Therapeutics, we may pursue these additional RM applications in
collaboration with third-parties.
Financial Operations Overview
Net Loss.
Despite generating
$1.25 million of sublicense revenue from the BlueRock Agreement in
December 2016, we have not yet achieved recurring
revenue-generating status from any of our product candidates or
technologies. Since our inception in
May 1998, we have devoted substantially all of our time and efforts
to developing our lead 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
related to our product candidates and technologies, with the
corollary initiatives of recruiting and retaining personnel and
raising working capital. As of September 30, 2017, we had an
accumulated deficit of approximately $149.3 million. Our net loss
for the six months ended September 30, 2017 and 2016 was
approximately $7.3 million and $5.1 million, respectively. We
expect losses to continue for the foreseeable future, primarily
related to our further development of AV-101 for the adjunctive
treatment of MDD, as well as other CNS
indications.
Summary of Our Fiscal Year Ended March 31, 2017 and Six
Months Ended September 30, 2017.
During Fiscal 2017 and the first two
quarters of Fiscal 2018, we have continued to (i)
advance nonclinical, including manufacturing, and clinical development of AV-101 as a potential
new generation antidepressant and as a potential
new therapeutic alternative for
several other CNS indications with significant unmet medical 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,
and (iii) on a limited basis, advance the predictive
toxicology capabilities of CardioSafe 3D for small molecule new chemical entity drug
rescue and development applications and collaborative regenerative
medicine opportunities related to our cardiac stem cell technology
platform .
Pursuant
to our Cooperative Research and Development Agreement (CRADA) with the NIH, the NIH continues
to fund, and Dr. Carlos Zarate Jr. of the NIMH continues to
conduct, the NIMH AV-101 MDD Phase 2 Monotherapy Study, at no cost
to us other than supplying clinical trial material. Although we do
not direct or control the progress of this study, we currently
anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2
Monotherapy Study in the first half of 2018.
In addition to bolstering our Clinical and Regulatory Advisory
Board with the appointment of Dr. Maurizio Fava (Harvard
University) as Chairman and the addition of members Dr. Sanjay
Matthew (Baylor University) and Dr. Thomas Laughren (former
director, FDA’s Division of Psychiatry), all pre-eminent
opinion leaders in the field of depression, and the addition of
veteran healthcare executive Jerry Gin, Ph.D., MBA to our Board of
Directors, we enhanced our management team with the addition
of Mark A. Smith, MD, Ph.D., as our Chief Medical Officer in June
2016. Dr. Smith has over 20 years of pharmaceutical industry and
CNS drug development experience. He has been a successful
project leader in both drug discovery and development on projects
resulting in approximately 20 investigational new drugs
(INDs). Dr. Smith has
directed clinical trials examining depression, bipolar disorder,
anxiety, schizophrenia, Alzheimer’s disease, ADHD and
agitation in Phase 1 through Phase 2b. In addition, Dr. Smith has
vast knowledge and expertise in translational neuroscience,
clinical trial design and regulatory interactions. In September
2016, we appointed Mark A. McPartland as our Vice President of
Corporate Development. Mr. McPartland has over 20 years of
experience in corporate development, capital markets, corporate
communications and management consulting for companies at varying
stage of their corporate evolution, including early- and mid-stage
biopharmaceutical companies. Mr. McPartland is primarily
concentrating his efforts in expanding awareness of VistaGen across
a range of investors, researchers, patients, clinicians and
potential partners. In July 2017, we appointed Mark Wallace, M.D., Distinguished
Professor of Clinical Anesthesiology at the University of
California, San Diego, to our Clinical and Regulatory Advisory
Board to assist us in advancing development of AV-101 as a
potential non-opioid treatment alternative for neuropathic pain.
Dr. Wallace is an internationally recognized leader in the field of
multi-modal pain management, with over 30 years of professional
experience, board certifications, licensures, honors/awards,
grants, articles and abstracts.
In December 2016, we entered into the BlueRock Agreement
with BlueRock Therapeutics, LP, a next
generation regenerative medicine company recently established by
Bayer AG and Versant Ventures (BlueRock), pursuant to which BlueRock received exclusive
rights to utilize certain technologies exclusively licensed by us
from University Health Network (UHN) for the production of cardiac stem cells for the
treatment of heart disease. We retained rights to technology
licensed from UHN related to small molecule, protein and antibody
drug discovery, drug rescue and drug development, including small
molecules with cardiac regenerative potential, as well as small
molecule, protein and antibody testing involving cardiac cells. In
January 2017, we received an upfront cash payment of $1.25 million
under the BlueRock Agreement and we may potentially receive
additional cash milestones and royalty payments in the future upon
BlueRock’s achievement of certain development objectives and
commercial sales.
Between late-March 2017 and June 2017, we entered into self-placed
private placement transactions with individual accredited
investors, pursuant to which we sold units consisting of an
aggregate of 495,001 shares of our unregistered common stock and
warrants which are not exercisable until six months and one day
following issuance and expire on April 30, 2021, to purchase an
aggregate of 247,500 shares of our common stock at a weighted
average fixed exercise price of $3.99 per share, subject to
adjustment only for customary stock dividends, reclassifications,
splits and similar transactions. We received cash proceeds of
approximately $1 million in this self-placed private placement
transaction. In September 2017, we
reduced the exercise price of each of the warrants issued in the
Spring 2017 Private Placement to $2.00 per share and issued
additional warrants, also exercisable six months and one day
following issuance at an exercise price of $2.00 per share, to
purchase an aggregate of 247,501 unregistered shares of our common
stock. In August 2017, in a self-placed private placement
transaction, we sold units consisting of 28,572 shares of our
unregistered common stock and warrants exercisable six months and
one day following the date of issuance through April 30, 2021 to
purchase 28,572 unregistered shares of our common stock at an
exercise price of $4.00 per share. We received cash proceeds of
$50,000 from this private placement
transaction.
In September 2017, we completed a firm commitment
underwritten public offering, pursuant to which we sold 1,371,430
shares of our common stock and Series A1 Warrants to purchase up to
1,388,931 shares of common stock and Series A2 Warrants to purchase
up to 503,641 of common stock (collectively, the
Warrants),
each exercisable for $1.82 per share warrants to two of our
existing institutional investors, resulting in net proceeds of
approximately $2.0 million (the September 2017 Public
Offering). The Series A1
Warrants will be exercisable for a five-year period commencing on
March 7, 2018, and the Series A2 Warrants are exercisable at any
time and expire on September 6, 2022. The common stock and the
shares of common stock underlying the Warrants issued in the
September 2017 Public Offering were sold pursuant to our
effective Registration Statement on Form S-3 (Registration
No. 333-215671) to cover this and potential future sales of our
equity securities in one or more public offerings from time to
time.
In July 2017, we appointed Mark Wallace, M.D.,
Distinguished Professor of Clinical Anesthesiology at the
University of California, San Diego, to our Clinical and Regulatory
Advisory Board to assist us in advancing development of AV-101 as a
potential non-opioid treatment alternative for neuropathic pain.
Dr. Wallace is an internationally recognized leader in the field of
multi-modal pain management, with over 30 years of professional
experience, board certifications, licensures, honors/awards,
grants, articles and abstracts.
We continue to prepare for the launch of our AV-101 MDD Phase 2
Adjunctive Treatment Study with initiatives that have significantly
improved the efficiency of our AV-101 manufacturing processes and
production of sufficient quantities of AV-101 to enable a more
comprehensive initiation of the study. We currently anticipate the
launch of the AV-101 MDD Phase 2 Adjunctive Treatment Study, with
Dr. Maurizio Fava of Harvard Medical School serving as Principal
Investigator, in the first quarter of 2018.
Additionally, we are pursuing
initiatives to secure a broad spectrum of intellectual property
protection for AV-101 covering multiple CNS
indications. We have filed
and are pursuing several patent applications in Europe, the U.S.
and other selected regions. Several of these patent applications
have already been granted or allowed, on both (i) certain novel
therapeutic methods of use of AV-101, including depression, and
(ii) certain novel methods of producing AV-101. In Europe, the
European Patent Office (EPO) recently granted our patent
related to methods of treating depression with AV-101 and certain
other neurological indications. In the U.S. and other selected
regional markets, we are currently pursuing a counterpart AV-101
patent application similar to the patent granted by the EPO.
Although the U.S. Patent and Trademark Office (USPTO) has not yet allowed the
counterpart application filed in the U.S., we believe that our
counterpart patent applications under review by the USPTO and other
countries ultimately will be granted.
In Europe, the U.S.
and other selected regional markets, we are also prosecuting patent
applications related to novel methods of producing AV-101. We
recently received a Notice of Allowance for manufacturing patent
applications regarding our manufacturing process from the USPTO and
Chinese patent office. We have submitted a counterpart application
to the EPO, which has not yet been approved. However, given that
our application at the USPTO was sufficient to obtain an allowed
patent in the U.S., we believe our counterpart patent application
at the EPO ultimately will be granted.
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 nonclinical and
clinical development of AV-101 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.
-48-
Results of Operations
Comparison of Fiscal Years Ended March 31, 2017 and
2016
The following table summarizes the results of our operations for
the fiscal years ended March 31, 2017 and 2016 (amounts in
thousands).
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Sublicense
revenue
|
$1,250
|
$-
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
5,204
|
3,932
|
|
General and
administrative
|
6,295
|
13,919
|
|
Total operating
expenses
|
11,499
|
17,851
|
|
|
|
|
|
Loss from
operations
|
(10,249)
|
(17,851)
|
|
|
|
|
|
Interest expense
(net)
|
(5)
|
(771)
|
|
Change in warrant
liabilities
|
-
|
(1,895)
|
|
Loss on
extinguishment of debt
|
-
|
(26,700)
|
|
Other
expense
|
-
|
(2)
|
|
|
|
|
|
Loss before income
taxes
|
(10,254)
|
(47,219)
|
|
Income
taxes
|
(2)
|
(2)
|
|
|
|
|
|
Net
loss
|
(10,256)
|
(47,221)
|
|
Accrued dividend on
Series B Preferred Stock
|
(1,257)
|
(2,140)
|
|
Deemed dividend on
Series B Preferred Stock
|
(111)
|
(2,058)
|
|
Net loss
attributable to common stockholders
|
$(11,624)
|
$(51,419)
|
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the
BlueRock Agreement in the quarter ended December 31, 2016. While we
may potentially receive additional payments and royalties under the
BlueRock Agreement in the future, in the event certain
performance-based milestones and commercial sales are achieved by
BlueRock, the agreement might not provide recurring revenue to us
in the near term. We reported no other revenue for the fiscal years
ended March 31, 2017 or 2016 and we presently have no
revenue-generating arrangements with respect to AV-101 or other
potential product candidates. However, as indicated previously,
under our CRADA with the NIH, the NIH is fully funding and
conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study at no cost
to us.
Research and Development Expense
Research and development expense totaled $5.2 million for the
fiscal year ended March 31, 2017 (Fiscal 2017), an increase of approximately 33% compared with
the $3.9 million incurred for the fiscal year ended March 31, 2016
(Fiscal
2016), demonstrating our
increased and continuing focus on manufacturing and nonclinical and
clinical development of AV-101 in preparation for our AV-101 MDD
Phase 2 Adjunctive Treatment Study, which we currently anticipate
to begin in the first quarter of 2018. Of the amounts reported,
non-cash expenses, related primarily to grants or modifications of
our equity securities, totaled approximately $534,000 in Fiscal
2017 and $1.7 million in Fiscal 2016. The following table indicates
the primary components of research and development expense for each
of the periods (amounts in thousands):
|
|
Fiscal Years
Ended
March
31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Salaries and
benefits
|
$1,331
|
$818
|
|
Stock-based
compensation
|
375
|
1,093
|
|
Consulting and
other professional services
|
(75)
|
112
|
|
Technology licenses
and royalties, including UHN
|
746
|
1,010
|
|
Project-related
research, development and supplies:
|
|
|
|
AV-101
|
2,292
|
406
|
|
Stem cell and all
other
|
185
|
100
|
|
|
2,477
|
506
|
|
Rent
|
310
|
219
|
|
Depreciation
|
37
|
37
|
|
Warrant
modification expense
|
-
|
135
|
|
All
other
|
3
|
2
|
|
|
|
|
|
Total Research and
Development Expense
|
$5,204
|
$3,932
|
The increase in salaries and benefits reflects the impact of the
hiring of our Chief Medical Officer (CMO) in June 2016, as well as salary increases and
bonus payments granted to our President and Chief Scientific
Officer (CSO) and to the four non-officer members of our
scientific staff.
The decrease in stock based compensation expense is primarily
attributable to the $852,200 fair value, determined using the
Black-Scholes Option Pricing Model and the assumptions indicated in
Note 13, Stock Option Plans and 401(k)
Plan, to the accompanying
Consolidated Financial Statements in Part 8 of this Report, of the
September 2015 grant of immediately vested and expensed warrants to
purchase 150,000 shares of our common stock granted to our CSO.
Stock compensation expense in Fiscal 2017 reflects the ratable
amortization of option grants made to our CSO and CMO, scientific
staff and consultants, in November 2016, June 2016 (CSO and CMO
only) and September 2015. Our stock options are generally amortized
over a two-year to four-year vesting period. A substantial number
of the option grants made in or prior to our fiscal year ended
March 31, 2014 became fully-vested and were fully-expensed by March
31, 2017.
Consulting services reflects fees paid or accrued for scientific,
nonclinical and clinical development and regulatory advisory and
consulting services rendered to us by third-parties, primarily by
members of our scientific and CNS clinical and regulatory advisory
boards. The reduction in expense for Fiscal 2017 primarily reflects
the rationalization of our stem cell-related scientific advisory
board and related accruals, including as a result of the BlueRock
Agreement.
Technology license expense reflects both recurring annual fees as
well as legal counsel and other costs related to patent prosecution
and protection pursuant to certain of our stem cell technology
license agreements or for other potential commercial purposes. We
recognize these costs as they are invoiced to us by the licensors
and they do not occur ratably throughout the year or between years.
Additionally, in both periods, this expense includes legal counsel
and other costs we have incurred to advance in the U.S. and
numerous foreign countries several pending patent applications with
respect to AV-101 and our stem cell technology platform. Technology
license-related legal expense for Fiscal 2017 also includes $55,000
representing the fair value of a warrant granted to intellectual
property counsel as partial compensation for services. Fiscal 2017
expense further includes a net of $158,000 related to the
sublicense consideration paid to University Health Network
(UHN) related to the BlueRock Agreement plus
additional fees and expenses related to two newly acquired licenses
from UHN related to cardiac stem cell technology, net of amounts
previously accrued in connection with our prior sponsored research
collaboration with UHN. Technology license expense for Fiscal 2016
included (i) approximately $153,000 of fees and expenses incurred
for additional stem cell technology related licenses acquired in
connection with our agreement with UHN; (ii) $120,000 of noncash
expense resulting from the grants to two intellectual property
legal service providers in July 2015 of an aggregate of 10,000
shares of our Series B Preferred, and (iii) $254,000 of noncash
expense resulting from the March 2016 grant of immediately-vested
warrants to purchase an aggregate of 50,000 shares of our common
stock to two intellectual property legal service
providers.
AV-101 expenses for Fiscal 2017 include continuing costs incurred
to develop more efficient and cost-effective proprietary production
methods for AV-101 and for certain pre-production and nonclinical
trial analyses and procedures to facilitate Phase 2 clinical
development of AV-101, including our AV-101 MDD Phase 2 Adjunctive
Treatment Study. We expect these expenses to increase significantly
during Fiscal 2018 and Fiscal 2019 as we continue preparations for,
initiate and conduct our AV-101 MDD Phase 2 Adjunctive Treatment
Study. Additionally, AV-101 expense in both periods reflects
nominal costs associated with standard monitoring for and
responding to potential feedback related to our AV-101 Phase 1
clinical safety program and addressing any other matters that may
be required under the terms of our prior NIH grant awards,
primarily facilitated by our CRO for our Phase 1 safety studies,
Cato Research Ltd. The increase in stem cell and other project
related expenses in Fiscal 2017 primarily reflects in-house costs
associated with our participation in the FDA’s CiPA project
focused on using next generation cardiac stem-cell technology-based
bioassay systems for in vitro cardiac predictive toxicology
screening.
The increase in rent expense in Fiscal 2017 reflects both the
impact of the scheduled rent increase for our South San Francisco
headquarters and laboratory facilities effective August 2016, as
well as the impact of accounting for the November 2016 lease
amendment extending our lease of those facilities by five years
from July 31, 2017 to July 31, 2022.
Warrant modification expense in Fiscal 2016 reflects the increase
in fair value resulting from the November 2015 modification of
outstanding warrants to purchase an aggregate of 315,000 shares of
our common stock held by our CSO and a key scientific advisor to
reduce the exercise prices thereof from a range of $9.25 to $12.80
per share to $7.00 per share. No similar modifications occurred in
Fiscal 2017.
General and Administrative Expense
General and administrative expense decreased to $6.3 million in
Fiscal 2017 from $13.9 million in Fiscal 2016 primarily as a result
of the decrease in non-cash stock compensation expense attributable
to option and warrant grants to employees, officers and independent
Board members in Fiscal 2016, partially offset by an increase in
non-cash expense related to grants of equity securities in payment
of certain professional services during Fiscal 2017. Of the amounts
reported, non-cash expenses, related primarily to grants or
modifications of our equity securities, totaled approximately $3.1
million in Fiscal 2017 and $11.9 million in Fiscal 2016. The
following table indicates the primary components of general and
administrative expenses for each of the periods (amounts in
thousands):
|
|
Fiscal Years
Ended
March
31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Salaries and
benefits
|
$1,206
|
$694
|
|
Stock-based
compensation
|
476
|
2,949
|
|
Board
fees
|
140
|
98
|
|
Legal, accounting
and other professional fees
|
2,093
|
3,405
|
|
Investor
relations
|
1,219
|
172
|
|
Insurance
|
165
|
140
|
|
Travel and
entertainment
|
179
|
96
|
|
Rent and
utilities
|
220
|
157
|
|
Warrant
modification expense
|
427
|
6,083
|
|
All other
expenses
|
170
|
125
|
|
|
|
|
|
Total General and
Administrative Expense
|
$6,295
|
$13,919
|
The increase in salaries and benefits reflects the impact of salary
increases and bonus payments granted to our Chief Executive Officer
(CEO), Chief Financial Officer (CFO), and a member of our administrative staff and
the change in that employee’s status from part-time to
full-time, as well as the hiring of our VP, Corporate Development
in September 2016.
The decrease in stock based compensation expense is primarily
attributable to the $2.8 million fair value, determined using the
Black-Scholes Option Pricing Model and the assumptions indicated in
Note 13, Stock Option Plans and 401(k)
Plan, to the accompanying
Consolidated Financial Statements in Item 8 of this Report, of the
September 2015 grant of immediately vested and expensed warrants to
purchase 500,000 shares of our common stock granted to our CEO,
CFO, independent members of our Board of Directors and certain
consultants. Stock compensation expense in Fiscal 2017 reflects the
ratable amortization of option grants made to our CEO, CFO,
independent members of our Board of Directors and administrative
staff and consultants, in November 2016, June 2016 (CEO, CFO and
independent Board members only) and September 2015, as well as to
our VP-Corporate Development upon the commencement of his
employment in September 2016. Our stock options are generally
amortized over a two-year to four-year vesting period. A
substantial number of the option grants made in or prior to our
fiscal year ended March 31, 2014 became fully-vested and were
fully-expensed by March 31, 2017.
Board fees includes fees recognized for the services of independent
members of our Board of Directors. We added an additional
independent director, Dr. Jerry Gin, to our Board in March
2016.
Legal, accounting and other professional fees in Fiscal 2017 and
Fiscal 2016 includes $337,500 and $1.0 million, respectively, of
non-cash expense recognized pursuant to the June 2015 grant of
an aggregate of 90,000 shares of our Series B Preferred
having an aggregate fair value at the time of issuance of $1.4
million as compensation for financial advisory and corporate
development service contracts with two independent service
providers for services performed between July 2015 and June 2016.
During Fiscal 2017, in addition to the expense noted above
attributable to the June 2015 Series B Preferred grant,
we granted an aggregate of 25,000
unregistered shares of our common stock having a fair value at the
date of issuance of $108,500 to a legal services provider as
partial compensation for services and an aggregate of 320,000
unregistered shares of our common stock having a fair value at the
date of issuance of $1.1 million as partial compensation for
financial advisory, investment banking and business development
services. During Fiscal 2016, in addition to the expense noted
above attributable to the June 2015 Series B Preferred grant, we
also granted (i) an aggregate of 50,000 shares of our common stock
having an aggregate fair value of $500,000 pursuant to two
corporate development contracts initiated during the first quarter
of Fiscal 2016; (ii) 25,000 shares of our Series B Preferred having
a fair value of $250,000 to legal counsel as compensation for
services in connection with our debt restructuring and other
corporate finance matters, and (iii) 15,750 shares of our
unregistered common stock and a five-year warrant to purchase 7,500
unregistered shares of our common stock having an aggregate fair
value of $138,000 in connection with investment banking
services. In both years, professional
services expense also includes cash payments for routine legal fees
and expenses and the expense related to the annual audit of the
prior year financial statements, preparation of the prior year
income tax returns, and quarterly reviews of current year financial
statements.
Investor relations expense includes the fees of our external
service providers for a significantly expanded broad spectrum of
institutional investor relations and public market awareness and
support functions and, particularly during Fiscal 2017, initiatives
that included numerous meetings in multiple U.S. markets and other
communication activities focused on expanding public market
awareness of the Company, including among investment professionals
and investment advisors, and individual and institutional
investors. During Fiscal 2017, in addition to cash fees and
expenses we incurred, we granted an aggregate of 160,000
unregistered shares of our common stock to six investor relations
and market awareness service providers as full or partial
compensation for their services and recognized non-cash expense of
$472,800, representing the fair value of the stock at the time of
issuance. We also granted three-year, immediately
exercisable warrants to purchase an aggregate of 75,000 shares of
our unregistered common stock at exercise prices ranging from $4.50
per share to $6.00 per share to three investor relations service
providers and recognized non-cash expense of $172,300 representing
the fair value of the warrants at the time of
issuance.
In both periods, travel expense reflects costs associated with
presentations to and meetings in numerous U.S. markets with
existing and potential investors and investment professionals and
advisors, media and securities analysts, as well as various
investor relations, market awareness and business development
initiatives, in Fiscal 2017 by our CEO, CMO and VP, Corporate
Development.
Between January 2016 and December 2016, we entered into various
warrant exchange agreements with certain warrant holders pursuant
to which those holders exchanged outstanding warrants to purchase
shares of our common stock for a lesser number of unregistered
shares of our common stock. In both periods, we accounted for these
transactions as warrant modifications. Between April 2016 and
December 2016, certain warrant holders agreed to exchange an
aggregate of 224,513 shares of our common stock for an aggregate of
156,246 shares of our unregistered common stock, resulting in our
recognition of an aggregate of $350,700 in noncash expense
attributable to the increase in fair value related to Fiscal 2017
warrant exchanges. Further, in December 2016, we modified an
outstanding warrant to reduce the exercise price from $8.00 per
share to $3.51 per share and increase the number of shares
exercisable under the warrant from 25,000 shares to 50,000 shares,
recognizing $76,900 in expense as the incremental fair value
attributable to the modification. Noncash warrant modification
expense in Fiscal 2016 includes (i) $122,000 representing the
increase in the fair value attributable to the June 2015
modification of outstanding warrants to purchase an aggregate of
54,576 shares of our common stock to reduce the exercise prices
thereof, generally from $30.00 per share to $10.00 per share; (ii)
$358,000 representing the increase in the fair value attributable
to the November 2015 modification of outstanding warrants to
purchase an aggregate of 808,553 shares of our common stock
previously granted to our CEO, CFO, and independent members of our
Board of Directors to reduce the exercise prices thereof from a
range of $9.25 to $12.80 per share to $7.00 per share; and (iii)
$5.6 million representing the aggregate increase in the fair value
of certain warrant exchange transactions conducted during the
fourth quarter of Fiscal 2016. In January 2016, we entered
into an Exchange Agreement with PLTG pursuant to which PLTG
exchanged warrants, including all outstanding PLTG Warrants and the
shares issuable pursuant to the Series A Preferred Exchange
Warrant, to purchase an aggregate of 2,824,016 shares of our common
stock for 2,118,012 unregistered shares of our Series C Convertible
Preferred Stock (Series C
Preferred) at the ratio of 0.75 share of Series C Preferred
for each warrant share cancelled. We recognized related noncash
warrant modification expense of $3.2 million. In February and March
2016, we entered into similar agreements with certain other warrant
holders pursuant to which such warrant holders exchanged
outstanding warrants to purchase an aggregate of 1,086,611 shares
of our common stock for an aggregate of 814,989 shares of our
unregistered common stock. We recognized an additional $2.4 million
in non-cash warrant modification expense. In February 2016, we also
extended the term of certain outstanding warrants to purchase an
aggregate of 91,230 shares of our common stock and recognized
$46,000 of non-cash expense as a result of such
modifications.
Interest and Other Expenses,
Net
Interest expense, net, totaled $4,600 for Fiscal 2017, a
significant decrease compared to the $770,800 reported for Fiscal
2016, resulting from the extinguishment of substantially all of our
promissory notes, as well as other indebtedness, having an
aggregate carrying value at the time of extinguishment of
approximately $15.9 million, between May 2015 and August 2015 by
conversion into our shares of our Series B Preferred at a
conversion price of $7.00 per share or cash repayment and the
related elimination of note interest and discount amortization. The
following table summarizes the primary components of interest
expense for each of the periods (amounts in
thousands):
|
|
Fiscal Years
Ended
March
31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Interest expense on
promissory notes
|
$1
|
$209
|
|
Amortization of
discount on promissory notes
|
-
|
565
|
|
Other interest
expense, including on capital leases and premium
financing
|
4
|
3
|
|
Total
interest expense
|
5
|
777
|
|
Effect of foreign
currency fluctuations on notes payable
|
-
|
(6)
|
|
Interest
income
|
-
|
-
|
|
|
|
|
|
Interest expense,
net
|
$5
|
$771
|
Interest expense on promissory notes in Fiscal 2017 represents only
the interest accrued on our promissory note to Progressive Medical
Research prior to its repayment in June 2016. The substantial
overall decrease in interest expense on promissory notes and the
related amortization of discounts on such notes between the periods
reflects the cessation of interest accrual and discount
amortization upon the extinguishment and conversion of all
outstanding Senior Secured Convertible Notes, certain 10%
convertible notes (2014 Unit
Notes) and other outstanding
promissory notes into shares of our Series B Preferred between May
2015 and August 2015.
Under the terms of our October 2012 Note Exchange and Purchase
Agreement with PLTG, we issued certain Senior Secured Convertible
Promissory Notes and a related Exchange Warrant and Investment
Warrants between October 2012 and July 2013. Upon PLTG’s
exchange of the shares of our Series A Preferred Stock held by PLTG
into shares of our common stock, we were also required to issue a
Series A Exchange Warrant to PLTG. We determined that the various
warrants included certain exercise price resets and other
adjustment features requiring us to treat the warrants as
liabilities. Accordingly, we recorded a noncash warrant liability
at its estimated fair value as of the date of warrant issuance or
contract execution. In May 2015, we entered into an agreement with
PLTG pursuant to which we amended the various warrants and fixed
the exercise price thereof and eliminated the anti-dilution reset
features that had previously required the warrants to be treated as
liabilities and carried at fair value. Accordingly, during the
first quarter of Fiscal 2016, we adjusted these warrants to their
fair value, reflecting an increase in the fair value in the amount
of $1.9 million since March 31, 2015, resulting primarily from the
increase in the market price of our common stock in relation to the
exercise price of the warrants, and then subsequently eliminated
the entire warrant liability with respect to these warrants. In
January 2016, the PLTG warrants were cancelled and exchanged for
shares of our Series C Preferred stock.
Between May 2015 and August 2015 we extinguished outstanding
promissory notes and other indebtedness having a carrying value of
approximately $15.9 million, including our Senior Secured
Convertible Notes, our 2014 Unit Notes and other debt and certain
adjustments thereto that were either already due and payable or
would have otherwise matured prior to March 31, 2016 by converting
such balances into shares of our Series B Preferred at a conversion
price (the stated value of the Series B Preferred issued) of $7.00
per share. We treated the conversion of the indebtedness into
Series B Preferred as extinguishments of debt for accounting
purposes. Since the fair value of the Series B Preferred we
negotiated in settlement of the promissory notes and other
indebtedness exceeded the carrying value of the debts, we incurred
non-recurring noncash losses on each of the extinguishments.
Additionally, under the terms of our May 2015 agreement with PLTG
in which PLTG agreed to, among other things, convert the Senior
Secured Notes and certain other of our convertible promissory notes
into Series B Preferred, we issued to PLTG 400,000 shares of Series
B Preferred having an aggregate fair value of $4.0 million
and Series B Warrants to purchase
1,200,000 shares of our common stock having an aggregate of
fair value of $8,270,900. We
recognized this aggregate fair value as a further non-recurring
noncash component of loss on extinguishment of debt. Many
of the 2014 Unit Notes that were
converted into Series B Preferred contained a beneficial conversion
feature at the time they were originally issued. We accounted for
the repurchase of the beneficial conversion feature at the time the
2014 Unit Notes were extinguished and converted, an aggregate of
$2.2 million, as a reduction to the loss on extinguishment of debt.
We recorded an aggregate net non-recurring non-cash loss of
approximately $26.7 million attributable to the extinguishment of
substantially all of our indebtedness as a result of the conversion
of such indebtedness into shares of our Series B Preferred at a
conversion price (stated value) of $7.00 per
share.
We allocated the proceeds from self-placed private placement sales
of Series B Preferred Units to the Series B Preferred and the
Series B Warrants based on their relative fair values on the dates
of the sales. The difference between the relative fair value per
share of the Series B Preferred, approximately $4.20 per share and
$4.13 per share for Fiscal 2017 and Fiscal 2016, respectively, and
its conversion price (or stated value) of $7.00 per share
represented a deemed dividend to the purchasers of the Series B
Preferred Units. Accordingly, we recognized a deemed dividend in
the aggregate amount of $111,100 and $2,058,000 in arriving at net
loss attributable to common stockholders for Fiscal 2017 and
Fiscal 2016 in the accompanying
Consolidated Statement of Operations and Comprehensive Loss
included in Item 8 of this Annual Report. Further, we recognized
$1.3 million and $2.1 million for
Fiscal 2017 and Fiscal 2016, respectively, representing the 10%
cumulative dividend payable on our Series B Preferred as an
additional deduction in arriving at net loss attributable to common
stockholders in the accompanying Consolidated Statement of
Operations and Comprehensive Loss, included in this Annual Report.
The reduction in the dividend accrual results from the automatic
conversion of an aggregate of
2,403,051 shares of Series B Preferred upon our completion of the
May 2016 Public Offering and a subsequent voluntary conversion of
87,500 shares of our Series B Preferred in August 2016, as
disclosed in Note 9, Capital
Stock, to the accompanying
Consolidated Financial Statements in Item 8 of this Annual
Report.
Comparison
of Three Months Ended September 30, 2017 and 2016
The
following table summarizes the results of our operations, including
both cash and noncash components, for the three months ended
September 30, 2017 and 2016 (amounts in thousands).
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research and development
|
$2,427
|
$1,606
|
|
General and administrative
|
2,567
|
1,494
|
|
Total operating expenses
|
4,994
|
3,100
|
|
|
|
|
|
Loss
from operations
|
(4,994)
|
(3,100)
|
|
|
|
|
|
Interest
expense, net
|
(3)
|
(1)
|
|
|
|
|
|
Loss
before income taxes
|
(4,997)
|
(3,101)
|
|
Income
taxes
|
-
|
-
|
|
|
|
|
|
Net
loss
|
(4,997)
|
(3,101)
|
|
Accrued
dividend on Series B Preferred Stock
|
(256)
|
(241)
|
|
Deemed
dividend on Series B Preferred Stock
|
-
|
-
|
|
Net
loss attributable to common stockholders
|
$(5,253)
|
$(3,342)
|
Revenue
We
reported no revenue for the quarters ended September 30, 2017 or
2016 and we presently have no recurring revenue generating
arrangements with respect to AV-101 or other potential product
candidates. While we may potentially receive future milestone
payments and royalties under the BlueRock Agreement upon
achievement of certain performance-based milestones and commercial
sales. However, there can be no assurance that the BlueRock
Agreement will provide additional revenue to us in the near term or
at all.
-53-
Research and Development Expense
Research
and development expense, including both cash and noncash
components, totaled $2.4 million for the quarter ended September
30, 2017, an increase of approximately 51% compared to the $1.6
million reported for the quarter ended September 30, 2016. Noncash
expenses, 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 September 30, 2017, totaled
approximately $592,000 and $83,000 in the quarters ended September
30, 2017 and 2016, respectively. The increase in research and
development expense in 2017 reflects our continued focus on
nonclinical and clinical development of AV-101, particularly our
preparations for the launch of the AV-101 MDD Phase 2 Adjunctive
Treatment Study, which is currently anticipated in the first
quarter of 2018, subject to securing additional financing. The
following table indicates the primary components of research and
development expense for each of the periods (amounts in
thousands):
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Salaries
and benefits
|
$566
|
$461
|
|
Stock-based
compensation
|
137
|
82
|
|
Consulting
and other professional services
|
6
|
31
|
|
Technology
licenses and royalties
|
97
|
94
|
|
Project-related
research and supplies:
|
|
|
|
AV-101
|
1,476
|
817
|
|
Stem
cell and all other
|
27
|
51
|
|
|
1,503
|
868
|
|
Rent
|
99
|
62
|
|
Depreciation
|
19
|
8
|
|
Total
Research and Development Expense
|
$2,427
|
$1,606
|
The increase in salaries and benefits expense
reflects the impact of salary increases granted to our Chief
Medical Officer (CMO) and Chief Scientific Officer
(CSO)
in July 2017 and to the non-officer members of our scientific staff
in June 2017. Additionally, our then-newly-hired CMO did not
receive a bonus payment in July 2016; however, both our CMO and CSO
were granted a bonus in September 2017. The full amount of each
officer’s 2017 bonus was accrued at the time it was granted,
but only 25% of the total amount was paid by September 30, 2017,
with the remaining balance to be paid ratably through March 31,
2018.
Noncash
stock based compensation expense increased in the current period
primarily from the routine amortization of option grants made to
our CSO, CMO and scientific staff in September 2017, April 2017 and
November 2016, which grants, in the aggregate, account for
approximately $105,000 of 2017 expense. Expense attributable to
these grants is being amortized over two-year to four-year vesting
periods, based on the terms of the respective grants. Substantially
all option grants made prior to September 2015 were fully-vested
and fully-expensed prior to June 30, 2017.
Consulting
services reflects fees paid or accrued for scientific, nonclinical
and clinical development and regulatory advisory services rendered
to us by third-parties, primarily by members of our scientific and
CNS clinical and regulatory advisory boards. The reduction in
expense in the current period primarily reflects the change in
terms of consulting agreements with our stem cell-related
scientific advisory board members.
Technology
license expense reflects both recurring annual 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.
AV-101 project expense for the quarter ended
September 30, 2017 includes continuing costs incurred to develop
more efficient and cost-effective proprietary manufacturing methods
for AV-101, and to produce clinical trial material for the AV-101
MDD Phase 2 Adjunctive Treatment Study, as well as costs incurred
for certain other nonclinical studies to facilitate further
clinical development of AV-101 in MDD and potentially for other
indications, and to comply with applicable FDA regulations. Stem
cell and other project related expenses reflects costs associated
with our in-house stem cell technology-related initiatives, and, in
2016, our participation in the FDA’s Comprehensive In Vitro
Proarrhythmia Assay (CiPA) project.
-54-
The
increase in rent expense for the quarter ended September 30, 2017
reflects higher commercial property rents prevalent in the South
San Francisco real estate market and recognized in 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 extension
amendment.
General and Administrative Expense
General
and administrative expense, including both cash and noncash
components, increased by 72% to approximately $2.6 million from
$1.5 million for the quarters ended September 30, 2017 and 2016,
respectively. Noncash expense aggregated approximately $1,494,000
and $579,000 for the quarters ended September 30, 2017 and 2016,
respectively, including, in both periods, stock compensation
expense, a portion of investor relations and investment banking
expenses, warrant modification expense, and a portion of rent
expense. The overall increase in general and administrative
expenses resulted primarily from increased professional services
expenses, including noncash expense attributable to the grant of
common stock for services, noncash warrant modification expense
and, to a lesser extent, salary and benefits and noncash stock
compensation expenses. The following table indicates the primary
components of general and administrative expenses, including the
cash and noncash components, for each of the periods (amounts in
thousands):
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Salaries
and benefits
|
$650
|
$485
|
|
Stock-based
compensation
|
194
|
117
|
|
Board
fees
|
39
|
36
|
|
Legal,
accounting and other professional fees
|
388
|
207
|
|
Investor
relations
|
831
|
471
|
|
Insurance
|
60
|
38
|
|
Travel
expenses
|
22
|
23
|
|
Rent
and utilities
|
67
|
45
|
|
Warrant
modification expense
|
280
|
17
|
|
All
other expenses
|
36
|
55
|
|
|
$2,567
|
$1,494
|
The increase in salaries and benefits primarily
reflects the impact of the hiring of our Vice President of
Corporate Development (VP-Corporate
Development) in September 2016
and salary increases granted in July 2017 to our Chief Executive
Officer (CEO), Chief Financial Officer (CFO), and VP-Corporate Development and, in June 2017,
to a non-officer member of our administrative staff. Additionally,
each of our officers was granted a bonus in September 2017, but our
VP-Corporate Development had not yet joined the Company in July
2016, when our CEO and CFO received a bonus payment. The full
amount of each officer’s 2017 bonus was accrued at the time
it was granted, but only 25% of the total amount was paid by
September 30, 2017, with the remaining balance to be paid ratably
through March 31, 2018.
Stock
based compensation expense increased in the current period
primarily as a result of the routine amortization of option grants
to independent members of our Board and our CEO, CFO and
administrative staff in September 2017, April 2017 and November
2016, plus the new-hire grant made to our VP-Corporate Development
in September 2016, which grants account for approximately $117,000
of 2017 expense. Expense attributable to these grants is being
amortized over a two-year to four-year vesting period, based on the
terms of the respective grants. Substantially all option grants
made prior to September 2015 were fully-vested and fully-expensed
prior to June 30, 2017.
Board
fees includes fees recognized for the services of independent
members of our Board. The Board modified committee assignments
effective in April 2017, resulting in the slight increase in
expense.
Legal,
accounting and other professional fees for the quarters ended
September 30, 2017 and 2016 includes cash expense related to
routine legal services as well as accounting expense related to the
review of the financial statements for the second quarter of each
fiscal year. In the quarter ended September 30, 2017, additionally,
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. In the quarter ended September 30,
2016, we granted an aggregate of 25,000 unregistered shares of our
common stock having a fair value of $108,500 to a legal services
provider as compensation for services.
-55-
Investor relations expense includes the fees of
our various external service providers for a broad spectrum of
investor relations, market awareness and strategic advisory and
support functions, as well as initiatives that included numerous
meetings in multiple U.S. markets and other communication
activities focused on expanding market awareness of the Company,
including among registered investment professionals and investment
advisors, and individual and institutional investors. In the
quarter ended September 30, 2017, in addition to cash fees and
expenses we incurred, we granted an aggregate of 457,000
unregistered shares of our common stock to various corporate
development, investor relations, market awareness and strategic
business advisory service providers for their services and
recognized noncash expense of $713,300, representing the fair value
of the stock at the time of issuance. In the quarter ended September 30, 2016, we
granted an aggregate of 25,000 unregistered shares of our common
stock having a fair value at the time of issuance of $108,500 to an
investor relations service provider as compensation for
services.
In
both periods, travel expense reflects costs associated with
management presentations to and meetings in multiple U.S. markets
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 initiatives.
The
increase in rent expense for the quarter ended September 30, 2017
reflects higher commercial property rents prevalent in the local
real estate market and recognized in our November 2016 lease
amendment extending the lease of our headquarters facilities by
five years from July 31, 2017 to July 31, 2022 and the related
accounting for the extension amendment.
In
September 2017, we reduced the exercise price of 247,500 warrants
issued in the Spring 2017 Private Placement from a weighted average
exercise price of $3.99 per share to $2.00 per share. We also
issued to each of the Spring 2017 Private Placement investors
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 before and after the modification and
the fair value of the additional warrants granted. In August 2016,
we entered into warrant exchange agreements with certain warrant
holders pursuant to which the warrant holders exchanged outstanding
warrants to purchase an aggregate of 20,000 shares of our common
stock for an aggregate of 15,000 shares of our unregistered common
stock. As we had with similar prior transactions, we
accounted for these transactions as warrant modifications,
resulting in our recognition of $17,100 in noncash expense in the
quarter ended September 30, 2016.
Interest and Other
Expenses
Interest
expense totaled $3,300 for the quarter ended September 30, 2017
compared to $1,400 reported for the quarter ended September 30,
2016. Interest expense in both periods relates to interest paid on
insurance premium financing and on a capital lease of office
equipment.
We recognized
$256,300 and $241,000 for the quarters
ended September 30, 2017 and 2016, respectively, representing the
10% cumulative dividend payable on our 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 our Series B Preferred stock into shares of our common
stock since August 2016.
Comparison
of Six Months Ended September 30, 2017 and 2016
The
following table summarizes the results of our operations, including
both cash and noncash components, for the six months ended
September 30, 2017 and 2016 (amounts in thousands).
|
|
Six Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
$3,523
|
$2,432
|
|
General
and administrative
|
3,731
|
2,631
|
|
Total
operating expenses
|
7,254
|
5,063
|
|
|
|
|
|
Loss
from operations
|
(7,254)
|
(5,063)
|
|
|
|
|
|
Interest
expense (net)
|
(6)
|
(3)
|
|
|
|
|
|
Loss
before income taxes
|
(7,260)
|
(5,066)
|
|
Income
taxes
|
(2)
|
(2)
|
|
|
|
|
|
Net
loss
|
(7,262)
|
(5,068)
|
|
Accrued
dividend on Series B Preferred Stock
|
(504)
|
(781)
|
|
Deemed
dividend on Series B Preferred Stock
|
-
|
(111)
|
|
Net
loss attributable to common stockholders
|
$(7,766)
|
$(5,960)
|
-56-
Revenue
We
reported no revenue for the six-month periods ended September 30,
2017 or 2016 and we presently have no recurring revenue generating
arrangements with respect to AV-101 or other potential product
candidates. While we may potentially receive future milestone
payments and royalties under the BlueRock Agreement upon the
achievement of certain performance-based milestones and commercial
sales, 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, including both cash and noncash
components, totaled $3.5 million for the six months ended September
30, 2017, an increase of approximately 45% compared to the $2.4
million reported for the six months ended September 30, 2016.
Noncash expenses totaled approximately $843,000 and $131,000 in the
six months ended September 30, 2017 and 2016, respectively,
including stock compensation, depreciation and a portion of rent
expense in both periods, and a portion of AV-101 project expenses
in the six months ended September 30, 2017. The increase in
research and development expense in 2017 reflects our continued
focus on nonclinical and clinical development of AV-101,
particularly our preparations for the launch of the AV-101 MDD
Phase 2 Adjunctive Treatment Study, which is currently anticipated
in the first quarter of 2018, subject to securing additional
financing. The following table indicates the primary cash and
noncash components of research and development expense for each of
the periods (amounts in thousands):
|
|
Six Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Salaries
and benefits
|
$884
|
$711
|
|
Stock-based
compensation
|
328
|
126
|
|
Consulting
and other professional services
|
16
|
58
|
|
Technology
licenses and royalties
|
157
|
254
|
|
Project-related
research and supplies:
|
|
|
|
AV-101
|
1,800
|
1,069
|
|
Stem
cell and all other
|
93
|
79
|
|
|
1,893
|
1,148
|
|
Rent
|
204
|
118
|
|
Depreciation
|
38
|
17
|
|
All
other
|
3
|
-
|
|
Total
Research and Development Expense
|
$3,523
|
$2,432
|
The increase in salaries and benefits reflects the
hiring of our Chief Medical Officer (CMO) in June 2016, and salary increases granted to
our CMO in July 2017, to our Chief Scientific Officer
(CSO) and to the non-officer members of our scientific
staff in June 2016 and June 2017. Additionally, our
then-newly-hired CMO did not receive a bonus payment in July 2016;
however, both our CMO and CSO were granted a bonus in September
2017. The full amount of each officer’s September 2017 bonus
was accrued at the time it was granted, but only 25% of the total
amount was paid by September 30, 2017, with the remaining balance
to be paid ratably through March 31, 2018.
Stock
based compensation expense increased in the current period
primarily as a result of the routine amortization of option grants
made to our CSO, CMO and scientific staff in September 2017, April
2017 and November 2016, plus the new-hire grant made to our CMO in
June 2016, which grants account for approximately $193,000 of 2017
expense. The expense attributable to these grants is being
amortized over a two-year to four-year vesting period, based on the
terms of the respective grants. Substantially all option grants
made prior to September 2015 were fully-vested and fully-expensed
prior to June 30, 2017.
Consulting
services reflects fees paid or accrued for scientific, nonclinical
and clinical development and regulatory advisory services rendered
to us by third-parties, primarily by members of our scientific and
CNS clinical and regulatory advisory boards. The reduction in
expense in 2017 primarily reflects the change in terms of
consulting agreements with our stem cell-related scientific
advisory board members.
Technology
license expense reflects both recurring annual 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, but to a greater extent in 2016,
this expense includes legal counsel and other costs we have
incurred to advance numerous pending patent applications in the
U.S. and various foreign countries with respect to AV-101 and our
stem cell technology platform.
-57-
AV-101 project expense for both periods includes
continuing costs incurred to develop more efficient and
cost-effective proprietary manufacturing methods for AV-101, and to
produce clinical trial material enabling the AV-101 MDD Phase 2
Adjunctive Treatment Study, and, primarily in 2017, costs incurred
for certain other nonclinical studies to facilitate further
clinical development of AV-101 in MDD and potentially for other
indications and to comply with applicable FDA regulations. Stem
cell and other project related expenses reflects costs associated
with our in-house stem cell technology-related initiatives, and, in
2016, our participation in the FDA’s Comprehensive In Vitro
Proarrhythmia Assay (CiPA) project.
The
increase in rent expense for 2017 reflects higher commercial
property rents prevalent in the South San Francisco real estate
market and recognized in 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 extension amendment.
General and Administrative Expense.
General
and administrative expense, including both cash and noncash
components, increased approximately 42% to $3.7 million for the six
months ended September 30, 2017 from $2.6 million for the six
months ended September 30, 2016. Noncash expense aggregated
approximately $1.7 million and $1.0 million for the six months
ended September 30, 2017 and 2016, respectively, including, in both
periods, stock compensation expense, a portion of investor
relations and investment banking expenses, warrant modification
expense, and a portion of rent expense. The overall increase in
general and administrative expenses was primarily attributable to
increased salary and benefits expense and noncash stock
compensation, professional services and warrant modification
expenses. The following table indicates the primary components of
general and administrative expenses, including noncash components,
for each of the periods (amounts in thousands):
|
|
Six Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Salaries
and benefits
|
$921
|
$675
|
|
Stock-based
compensation
|
370
|
181
|
|
Board
fees
|
78
|
69
|
|
Legal,
accounting and other professional fees
|
695
|
749
|
|
Investor
relations
|
997
|
579
|
|
Insurance
|
121
|
78
|
|
Travel
expenses
|
62
|
72
|
|
Rent
and utilities
|
140
|
85
|
|
Warrant
modification expense
|
280
|
57
|
|
All
other expenses
|
67
|
86
|
|
|
$3,731
|
$2,631
|
The increase in salaries and benefits reflects the
impact of the hiring of our Vice President of Corporate
Development (VP-Corporate
Development) in September 2016
and salary increases granted in June 2016 and July 2017 to our
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), and in June 2016 and June 2017 to a non-officer
member of our administrative staff. Additionally, each of our
officers was granted a bonus in September 2017, but our
VP-Corporate Development had not yet joined the Company in July
2016, when our CEO and CFO received a bonus payment. The full
amount of each officer’s 2017 bonus was accrued at the time
it was granted, but only 25% of the total amount was paid by
September 30, 2017, with the remaining balance to be paid ratably
through March 31, 2018.
Stock
based compensation expense increased in the current period
primarily as a result of the routine amortization of option grants
to independent members of our Board of Directors and our CEO, CFO
and administrative staff in September 2017, April 2017 and November
2016, plus the new-hire grant made to our VP-Corporate Development
in September 2016 in September 2016, which grants account for
approximately $232,000 of 2017 expense. The expense attributable to
these grants is being amortized over a two-year to four-year
vesting period based on the terms of the respective grants.
Substantially all option grants made prior to September 2015 were
fully-vested and fully-expensed prior to June 30,
2017.
Board
fees includes fees recognized for the services of independent
members of our Board. The Board modified committee assignments
effective in April 2017, resulting in the slight increase in
expense.
-58-
Legal, accounting and other professional fees for
the six months ended September 30, 2017 and 2016 includes expense
related to routine legal services 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
and second quarters of the current fiscal year. In addition to cash
fees incurred, during the six months ended September 30, 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. Noncash expense for the six months
ended September 30, 2016 included approximately $338,000 recognized
in the quarter ended June 30, 2016 pursuant to the June 30, 2015
grant of an aggregate of 90,000 shares of our Series B 10%
convertible preferred stock having an aggregate fair value of
$1,350,000 as compensation for financial advisory and corporate
development service contracts with two independent providers for
services to be performed through June 30, 2016 and $108,500
recognized in the quarter ended September 30, 2016 representing the
fair value of 25,000 unregistered
shares of our common stock granted to a legal services provider as
compensation for services.
Investor relations expense includes the fees of
our various external service providers for a broad spectrum of
investor relations, market awareness and strategic advisory and
support functions, as well as initiatives that included numerous
meetings in multiple U.S. markets and other communication
activities focused on expanding market awareness of the Company,
including among registered investment professionals and investment
advisors, and individual and institutional investors. In the six
months ended September 30, 2017, in addition to cash fees and
expenses we incurred, in the quarter ended June 30, 2017,we granted
25,000 unregistered shares of our common stock to an investor
relations and awareness service provider as partial compensation
for its services and recognized noncash expense of approximately
$50,000 representing the fair value of the stock at the time of
issuance; additionally, in the quarter ended September 30, 2017, we
granted an aggregate of 457,000 unregistered shares of our common
stock to various corporate development, investor relations, market
awareness and business advisory service providers as compensation
for their services and recognized noncash expense of $713,300,
representing the fair value of the stock at the time of
issuance. In the six months
ended September 30, 2016, we granted an aggregate of 25,000
unregistered shares of our common stock having a fair value at the
time of issuance of $108,500 to an investor relations service
provider as compensation for its services.
In
both periods, travel expense reflects costs associated with
management presentations to and meetings in multiple U.S. markets
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 initiatives.
The
increase in rent expense for 2017 reflects higher commercial
property rents prevalent in the South San Francisco real estate
market and recognized in 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 extension amendment.
In
September 2017, we reduced the exercise price of 247,500 warrants
issued in the Spring 2017 Private Placement from a weighted average
exercise price of $3.99 per share to $2.00 per share. We also
issued to each of the Spring 2017 Private Placement investors
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 six months ended
September 30, 2017, representing the increase in fair value of the
warrants granted initially before and after the modification and
the fair value of the additional warrants granted. Between April
2016 and August 2016, we entered into warrant exchange agreements
with certain warrant holders pursuant to which the warrant holders
exchanged outstanding warrants to purchase an aggregate of 61,649
shares of our common stock for an aggregate of 46,238 shares of our
unregistered common stock. As with similar prior
transactions, we accounted for these transactions as warrant
modifications, resulting in our recognition of an aggregate of
$57,400 in noncash expense during the six-month period ended
September 30, 2016.
Interest and Other
Expenses.
Interest
expense totaled $5,700 for the six months ended September 30, 2017
compared to $2,800 reported for the six months ended September 30,
2016. Interest expense in both periods relates to interest paid on
insurance premium financing and on a capital lease of office
equipment.
We recognized
$503,600 and $780,800 for the six
months ended September 30, 2017 and 2016, respectively,
representing the 10% cumulative noncash dividend payable on our
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. The reduction in the
dividend accrual results from the automatic conversion of
an aggregate of 2,403,051 shares of
Series B Preferred into an equal number of shares of our common
stock upon our completion of our May 2016 public offering of shares
of our common stock and warrants, and a subsequent voluntary
conversion of 87,500 shares of our Series B Preferred in August
2016. There have been no conversions of outstanding shares of
Series B Preferred into common shares since August
2016.
During the quarter ended June 30, 2016, we
allocated the proceeds from our self-placed private placement sales
of Series B Preferred Units to the Series B Preferred stock and the
Series B Warrants based on their relative fair values on the dates
of the sales. The difference between the relative fair value per
share of the Series B Preferred, approximately $4.20 per share, and
its Conversion Price (or stated value) of $7.00 per share
represented a deemed dividend to the purchasers of the Series B
Preferred Units. Accordingly, we recognized a deemed dividend in
the aggregate amount of $111,100 in arriving at net loss
attributable to common stockholders for the six months ended September 30, 2016 in
the accompanying Condensed Consolidated Statement of
Operations and Comprehensive Loss included in Part I of this
Report.
Critical Accounting Policies and Estimates
We consider certain accounting policies related to revenue
recognition, impairment of long-lived assets, research and
development, stock-based compensation, warrant liability and income
taxes to be critical accounting policies that require the use of
significant judgments and estimates relating to matters that are
inherently uncertain and may result in materially different results
under different assumptions and conditions. The preparation of
financial statements in conformity with United States generally
accepted accounting principles (GAAP) requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes to the consolidated financial statements. These
estimates include useful lives for property and equipment and
related depreciation calculations, and assumptions for valuing
options, warrants and other stock-based compensation. Our actual
results could differ from these estimates.
-59-
Table of Contents
Revenue Recognition.
We have historically generated revenue principally from
collaborative research and development arrangements, licensing and
technology access fees and government grants. We
recognize revenue under the provisions of the SEC issued Staff
Accounting Bulletin 104, Topic 13, Revenue Recognition Revised
and Updated (SAB
104) and Accounting Standards
Codification (ASC) 605-25, Revenue Arrangements-Multiple
Element Arrangements (ASC 605-25). Revenue for arrangements not having multiple
deliverables, as outlined in ASC 605-25, is recognized once costs
are incurred and collectability is reasonably
assured.
Revenue arrangements with multiple components are divided into
separate units of accounting if certain criteria are met, including
whether the delivered component has stand-alone value to the
customer. Consideration received is allocated among the separate
units of accounting based on their respective selling
prices. The selling price for each unit is based on
vendor-specific objective evidence, or VSOE, if available, third party evidence if VSOE is
not available, or estimated selling price if neither VSOE nor third
party evidence is available. The applicable revenue
recognition criteria are then applied to each of the
units.
We recognize revenue when the four basic criteria of revenue
recognition are met: (i) a contractual agreement exists;
(ii) the transfer of technology has been completed or services
have been rendered; (iii) the fee is fixed or determinable;
and (iv) collectability is reasonably assured. For each source
of revenue, we comply with the above revenue recognition criteria
in the following manner:
●
Collaborative arrangements typically consist of non-refundable
and/or exclusive technology access fees, cost reimbursements for
specific research and development spending, and various future
product development milestone and royalty payments. If the
delivered technology does not have stand-alone value, the amount of
revenue allocable to the delivered technology is
deferred. Non-refundable upfront fees with stand-alone
value that are not dependent on future performance under these
agreements are recognized as revenue when received, and are
deferred if we have continuing performance obligations and have no
objective and reliable evidence of the fair value of those
obligations. We recognize non-refundable upfront
technology access fees under agreements in which we have a
continuing performance obligation ratably, on a straight-line
basis, over the period in which we are obligated to provide
services. Cost reimbursements for research and
development spending are recognized when the related costs are
incurred and when collectability is reasonably
assured. Payments received related to substantive,
performance-based “at-risk” milestones are recognized
as revenue upon achievement of the milestone event specified in the
underlying contracts, which represent the culmination of the
earnings process. Amounts received in advance are
recorded as deferred revenue until the technology is transferred,
costs are incurred, or a milestone is reached.
●
Technology license agreements typically consist of non-refundable
upfront license fees, annual minimum access fees and/or royalty
payments. Non-refundable upfront license fees and annual minimum
payments received with separable stand-alone values are recognized
when the technology is transferred or accessed, provided that the
technology transferred or accessed is not dependent on the outcome
of the continuing research and development efforts. Otherwise,
revenue is recognized over the period of our continuing
involvement.
●
Government grant awards, which support our research efforts on
specific projects, generally provide for reimbursement of approved
costs as defined in the terms of grant awards. We recognize grant
revenue when associated project costs are incurred.
The
Financial Accounting Standards Board (the FASB) has recently issued new guidance
regarding revenue recognition. This new guidance will be effective
for our fiscal year beginning April 1, 2018, with earlier adoption
permitted. We have completed our initial assessment of the new
guidance and will be developing an implementation plan to evaluate
the accounting and disclosure requirements under the new guidance.
Based on our assessment to date, we do not believe that adoption of
the new guidance will have a material impact on our consolidated
financial statements. We have not yet finalized our transition
method for adoption of the new guidance.
Impairment of Long-Lived Assets.
In accordance with ASC 360-10, Property, Plant &
Equipment—Overall, we
review for impairment whenever events or changes in circumstances
indicate that the carrying amount of property and equipment may not
be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use
of the asset and its eventual disposition. In the event that such
cash flows are not expected to be sufficient to recover the
carrying amount of the assets, we write down the assets to their
estimated fair values and recognize the loss in the Consolidated
Statements of Operations and Comprehensive
Loss.
Research and Development Expenses.
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses of scientific personnel and direct
project costs. External research and development
expenses consist primarily of costs associated with manufacturing
and nonclinical and clinical development of AV-101, our oral CNS
prodrug candidate in Phase 2 clinical development for MDD, and,
from-time-to-time, sponsored stem cell research and development, as
well as costs related to the application and prosecution of patents
related to AV-101 and our stem cell technology platform. All such
costs are charged to expense as incurred.
Stock-Based Compensation.
We recognize non-cash compensation expense for all stock-based
awards to employees based on the grant date fair value of the
award. We record this 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 granted no restricted stock awards nor
do we have any awards with market or performance
conditions. For equity awards 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.
We use the Black-Scholes option pricing model to estimate the fair
value of stock-based awards as of the grant date. The Black-Scholes
model is complex and dependent upon key data input estimates. The
primary data inputs with the greatest degree of judgment are the
expected term of the stock options and the estimated volatility of
our stock price. The Black-Scholes model is highly sensitive to
changes in these two inputs. The expected term of the options
represents the period of time that options granted are expected to
be outstanding. We use the simplified method to estimate the
expected term as an input into the Black-Scholes option pricing
model. We determine expected volatility using the historical
method, which, because of the limited period during which our stock
has been publicly traded and its historically limited trading
volume, is based on the historical daily trading data of the common
stock of a peer group of public companies over the expected term of
the option.
Warrant Liability.
Although we did not have a warrant liability at March 31, 2017 or
2016, in conjunction with certain Senior Secured Convertible
Promissory Notes that we issued to Platinum Long Term Growth VII,
LLC (PLTG) between October 2012 and July 2013 and the
related warrants, and the contingently issuable Series A Exchange
Warrant (collectively, the PLTG
Warrants), we determined that
the PLTG Warrants included certain exercise price and other
adjustment features requiring them to be treated as non-cash
liabilities. Accordingly, the PLTG Warrants were recorded at their
issuance-date estimated fair values and marked to market at each
subsequent reporting period, recording the change in the fair value
as non-cash expense or non-cash income. The key component in
determining the fair value of the PLTG Warrants and the related
liability was the market price of our common stock, which is
subject to significant fluctuation and is not under our control.
The resulting change in the fair value of the warrant liability on
our net income or loss was therefore also subject to significant
fluctuation and would have continued to be so until all of the PLTG
Warrants were issued and exercised, amended, cancelled or expired.
Assuming all other fair value inputs remained generally constant,
we recorded an increase in the warrant liability and non-cash
losses when our stock price increased and a decrease in the warrant
liability and non-cash income when our stock price
decreased.
Notwithstanding the foregoing, on May 12, 2015, we entered into an
agreement with PLTG pursuant to which we (i) fixed the exercise
price of the PLTG Warrants at $7.00 per share, (ii) eliminated the
exercise price reset features and (iii) fixed the number of shares
of our common stock issuable thereunder. This agreement
and the related amendments to the PLTG Warrants resulted in
the elimination of the warrant liability with respect to the PLTG
Warrants during the quarter ending June 30, 2015. As further
described in Note 9, Capital
Stock, to the
Consolidated Financial Statements for the years ended March 31,
2017 and 2016 elsewhere in this Prospectus, the PLTG
Warrants, including the right to receive the Series A Exchange
Warrant, were cancelled in exchange for our issuance of shares of
our Series C Preferred stock to PLTG in January
2016.
Income Taxes.
We account for income taxes using the asset and liability approach
for financial reporting purposes. We recognize deferred tax assets
and liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Valuation allowances are established, when necessary, to
reduce the deferred tax assets to an amount expected to be
realized.
Recent Accounting Pronouncements.
We
believe the following recent accounting pronouncements or changes
in accounting pronouncements are of significance or potential
significance to the Company.
In May
2014, the Financial Accounting Standards Board (the FASB) issued ASU No. 2014-09,
Revenue from Contracts with
Customers (Topic 606), which supersedes all existing revenue
recognition requirements, including most industry-specific
guidance. The new standard requires a company to recognize revenue
when it transfers goods or services to customers in an amount that
reflects the consideration that the company expects to receive for
those goods or services. The standard creates a five-step model
that requires entities to exercise judgment when considering the
recognition of revenue, including (1) identifying the contract(s)
with the customer, (2) identifying the separate performance
obligations in the contract, (3) determining the transaction price,
(4) allocating the transaction price to the separate performance
obligations, and (5) recognizing revenue as each performance
obligation is satisfied. The standard also requires additional
disclosure about the nature, amount, timing and uncertainty of
revenue and cash flows arising from customer contracts, including
qualitative and quantitative information about contracts with
customers, significant judgments and changes in judgments and
assets recognized with respect to costs incurred to obtain or
fulfill a contract. The FASB has continued
to issue accounting standards updates to clarify and provide
implementation guidance related to Revenue from Contracts with
Customers, including ASU 2016-08,
Revenue from Contract with Customers: Principal versus Agent
Considerations, ASU 2016-10,
Revenue
from Contracts with Customers: Identifying Performance Obligations
and Licensing, and ASU
2016-12, Revenue
from Contracts with Customers: Narrow-Scope Improvements and
Practical Expedients. These amendments
address a number of areas, including a company’s
identification of its performance obligations in a contract,
collectability, non-cash consideration, presentation of sales tax
and a company’s evaluation of the nature of its promise to
grant a license of intellectual property and whether or not that
revenue is recognized over time or at a point in time. These new
standards will be effective for our fiscal year beginning April 1,
2018, with earlier adoption permitted. We have completed our
initial assessment of the new guidance and will be developing an
implementation plan to evaluate the accounting and disclosure
requirements under the new standards. Based on our assessment to
date, we do not believe that adoption of Topic 606 and the related
standards will have a material impact on our consolidated financial
statements. We have not yet finalized our transition method for
adoption of the new standards.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of
Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern (ASU 2014-15). The ASU sets forth a
requirement for management to evaluate whether there are conditions
or events that raise substantial doubt about an entity’s
ability to continue as a going concern by incorporating and
expanding upon certain principles that are currently in U.S.
auditing standards. Specifically, the amendments (1) provide a
definition of the term substantial doubt; (2) require an evaluation
every reporting period, including interim periods; (3) provide
principles for considering the mitigating effect of
management’s plans; (4) require certain disclosures when
substantial doubt is alleviated as a result of consideration of
management’s plans; (5) require an express statement or other
disclosures when substantial doubt is not alleviated; and (6)
require an assessment for a period of one year after the date the
financial statements are issued or available to be issued.
Substantial doubt about an
entity’s ability to continue as a going concern exists when
relevant conditions and events, considered in the aggregate,
indicate that it is probable (as defined under ASC 450,
Contingencies)
that the entity will be unable to meet its obligations as they
become due within one year after the date that the financial
statements are issued or are available to be issued. If substantial
doubt exists, the extent of the required disclosures depends on an
evaluation of management’s plans (if any) to mitigate the
going concern uncertainty. This evaluation should include
consideration of conditions and events that are either known or are
reasonably knowable at the date the financial statements are issued
or are available to be issued, as well as whether it is probable
that management's plans to address the substantial doubt will be
implemented and, if so, whether it is probable that the plans will
alleviate the substantial doubt. We adopted ASU 2014-15 for our
fiscal year ended March 31, 2017 and Note 2, Basis of Presentation
and Going
Concern, includes our
disclosures regarding substantial doubt about our ability to
continue as a going concern and the steps we have planned to
alleviate such doubt for the twelve months following the date of
the issuance of these Consolidated Financial
Statements.
In
April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance
Costs. The amendments in this ASU require that debt issuance
costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of
that debt liability, consistent with debt discounts. The amendments
in this update are effective for financial statements issued for
fiscal years ending after December 31, 2015, and interim periods
within those fiscal years. We have adopted this ASU effective with
our fiscal year beginning April 1, 2016, but have incurred no debt
issuance costs since that date.
In
November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred
Taxes, which amends existing guidance on income taxes to
require the classification of all deferred tax assets and
liabilities as non-current on the balance sheet. We have adopted
this ASU effective with our fiscal year beginning April 1, 2017 on
a prospective basis. We do not expect this ASU to have a material
impact on our consolidated financial statements.
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition
and Measurement of Financial Assets and Financial
Liabilities. The updated guidance enhances the reporting
model for financial instruments, which includes amendments to
address aspects of recognition, measurement, presentation and
disclosure. The amendment to the standard is effective for
financial statements issued for our fiscal year beginning April 1,
2018. We do not believe that this ASU will have a material impact
on our consolidated financial statements.
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. The standard is effective
for financial statements issued for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years,
with early adoption permitted. We are in the process of evaluating
the impact that this new guidance will have on our consolidated
financial statements.
In
March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment
Accounting which includes multiple provisions intended to
simplify several aspects of accounting for share-based payment
transactions, including income tax consequences, classification of
awards as either equity or liabilities, an option to recognize
gross stock compensation expense with actual forfeitures recognized
as they occur, as well as certain classifications on the statement
of cash flows. The standard is effective for our fiscal year
beginning April 1, 2017. We are evaluating the impact of this ASU
on our consolidated financial statements.
Liquidity and Capital Resources
From
our inception in May 1998 through September 30, 2017, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of our equity and debt securities,
including convertible promissory notes and short-term promissory
notes, for cash proceeds of approximately $47.6 million, as well as
from an aggregate of approximately $17.6 million of government
research grant awards, strategic collaboration payments,
intellectual property sublicensing and other revenues. We have also
issued equity securities with an approximate aggregate value at
issuance of $32.3 million in non-cash settlements of certain
liabilities, including liabilities for professional services
rendered to us or as compensation for such services. Additionally,
pursuant to our CRADA with the NIH, the NIMH continues to conduct
Phase 2 clinical development activities relating to AV-101 as a
potential new generation antidepressant. The NIMH AV-101 MDD Phase
2 Monotherapy Study is being sponsored in full, at no cost to us
other than supplying clinical trial material, by the NIMH under the
direction of Dr. Carlos Zarate Jr. as Principal
Investigator.
Between late-March 2017 and June 30,
2017, we sold to accredited investors, in a self-placed private
placement, units consisting of an aggregate of 495,001 unregistered
shares of our common stock and warrants to purchase an aggregate of
247,500 unregistered shares of our common stock pursuant to which
we received proceeds of approximately $1.0 million (the
Spring 2017
Private Placement), resulting
in our cash and cash equivalents balance of $1.6 million at June
30, 2017. In August 2017, in a self-placed private placement
transaction, we sold to an accredited investor units consisting of
28,572 shares of our unregistered common stock and warrants to
purchase 28,572 unregistered shares of our common stock at an
exercise price of $4.00 per share. We received cash proceeds of
$50,000 from this sale of our securities. In September, we
completed an underwritten, public offering of shares of our common
stock and warrants, pursuant to which we received net proceeds of
approximately $2.0 million. Our cash balance at June 30, 2017 plus
the proceeds from subsequent sales of our securities was not sufficient to enable us to fund our
planned operations, including expected cash expenditures of
approximately $12 million for the next twelve months, including
expenditures required to further prepare for, launch and satisfy a
significant portion of the projected expenses associated with our
proposed AV-101 MDD Phase 2 Adjunctive Treatment
Study.
In September 2017, we completed a firm commitment underwritten
public offering, pursuant to which we offered and sold an aggregate
of 1,371,430 shares of our common stock and warrants to purchase an
aggregate of 1,892,572 shares of our common stock to two of our
existing institutional investors, resulting in gross proceeds of
approximately $2.4 million under our Registration Statement on Form
S-3 (Registration No. 333-215671) (the S-3 Registration
Statement) that had been
previously declared effective by the Securities and Exchange
Commission to cover potential 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.
Additionally, in September 2017, to facilitate potential future
issuances and sales of our equity securities for ordinary corporate
finance and general corporate purposes and as recommended by our
Board, our stockholders approved an amendment to our Restated and
Amended Articles of Incorporation to increase the number of shares
of common stock available for issuance from 30 million shares to
100 million shares, an amount our Board determined is customary and
appropriate for a NASDAQ-listed, clinical-stage
biopharmaceutical company. Following that approval, in October
2017, we filed a Registration Statement on Form S-1 (Registration
No. 333-221009) (the S-1 Registration
Statement) pursuant to which we
anticipate completing an offering of our equity securities with
proceeds sufficient to enable the launch and completion of the
AV-101 MDD Phase 2 Adjunctive Treatment Study and fund our internal
operations for at least the next twelve months. There can be no
assurance, however, that we will achieve effectiveness of the S-1
Registration Statement or successfully complete an offering
thereunder.
Although
our current financial resources are not yet sufficient to fully
fund completion of the AV-101 MDD Phase 2 Adjunctive Treatment
Study, we anticipate, as we have numerous times in the past,
raising sufficient additional capital as and when necessary and
advisable to sustain our operations and achieve our key corporate
objectives through at least the next twelve months, including
initiating and conducting the AV-101 MDD Phase 2 Adjunctive
Treatment Study in an ordinary course manner. We expect to secure
additional capital primarily through the sale of our equity
securities in one or more private placements to accredited
investors or public offerings. We have filed a Registration
Statement on Form S-3 (Registration No. 333-215671) (the
S-3 Registration Statement)
that has been declared effective by the Securities and Exchange
Commission (the Commission)
to cover our potential future sale of our equity securities in one
or more public offerings from time to time. As of the date of this
prospectus, we have sold approximately $6.28 million of securities
under the S-3 Registration Statement.
We may
also seek research and development collaborations that could
generate revenue, funding for development of AV-101 and additional
product candidates, as well as additional government grant awards
and agreements similar to our current CRADA with the NIMH, which
provides for the NIMH to fully fund the NIMH’s ongoing NIMH
AV-101 MDD Phase 2 Monotherapy 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. In a manner similar to the BlueRock
Agreement, we may also pursue similar arrangements with
third-parties covering other of our intellectual property. Although
we may seek additional collaborations that could generate revenue
and/or non-dilutive funding for development of AV-101 and 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 AV-101 as an adjunctive treatment for MDD and
other potential CNS conditions, 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 and 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 the timing of and projected costs relating to key research
and development projects, including our expenses associated with
our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study,
regulatory consulting, CRO services, investor relations and
corporate development, legal, acquisition and protection of
intellectual property, public company compliance and other
professional services and working capital costs.
Notwithstanding
the foregoing, substantial additional financing may not be
available to us on a timely basis, on acceptable terms, or at all.
If we are unable to obtain substantial additional financing on a
timely basis when needed in 2017 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):
|
|
Six
Months Ended
September 30,
|
Fiscal
Years Ended March 31,
|
||
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
|
Net cash used in
operating activities
|
$(4,010)
|
$(3,873)
|
$(7,263)
|
$(4,808)
|
|
Net cash used in
investing activities
|
(2)
|
(8)
|
(239)
|
(26)
|
|
Net cash provided
by financing activities
|
2,855
|
9,709
|
9,994
|
5,193
|
|
|
|
|
|
|
|
Net increase
in cash and cash equivalents
|
(1,157)
|
5,828
|
2,492
|
359
|
|
Cash and cash
equivalents at beginning of period
|
2,921
|
429
|
429
|
70
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
$1,764
|
$6,257
|
$2,921
|
$429
|
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements.
BUSINESS
Business Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
central nervous system (CNS) disorders. Unless the context otherwise
requires, the words “VistaGen Therapeutics,
Inc.”
“VistaGen,” “we,” “the Company,” “us” and “our” refer to VistaGen Therapeutics, Inc., a
Nevada corporation. All references to future quarters and years in
this prospectus supplement refer to calendar quarters and calendar
years, unless reference is made otherwise.
AV-101 is our oral CNS product candidate in Phase 2 clinical
development in the United States, initially as a new generation
adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). During the years ending March 31,
2017 and 2016, we spent approximately $5.2 million and $3.9
million, respectively, on research and development, including
development of AV-101. AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally differentiated from all FDA-approved antidepressants,
as well as all atypical antipsychotics such as aripiprazole often
used adjunctively to augment them. We believe AV-101 also has
potential as a non-opioid treatment alternative for neuropathic
pain, as well as several additional CNS indications
where
modulation of the NMDA receptors, activation of AMPA pathways
and/or key active metabolites of AV-101 may achieve therapeutic
benefit, including
Parkinson’s disease levodopa -induced dyskinesia
(PD
LID), epilepsy and
Huntington’s disease.
Clinical studies conducted at the U.S. National Institute of Mental
Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by 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, have focused on the antidepressant effects of an
FDA-approved anesthetic, ketamine hydrochloride injection
(ketamine), an ion-channel blocking NMDA receptor
antagonist, in MDD patients with inadequate responses to multiple
standard antidepressants. These NIMH studies, as well as clinical
research at Yale University and other academic institutions, have
demonstrated robust antidepressant effects in treatment-resistant
MDD patients within twenty-four hours of a single sub-anesthetic
dose of ketamine administered by intravenous (IV) injection.
We believe AV-101 may have potential to deliver
ketamine-like antidepressant effects, without the need for IV
administration and ketamine’s psychological and other
negative side effects. As published in the October 2015 issue of
the peer-reviewed Journal of Pharmacology and
Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
both inhibiting the GlyB site of the NMDA receptor and activating
the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and
Development Agreement (CRADA) with the NIMH, the NIMH is currently funding,
and Dr. Zarate, as Principal Investigator, and his team are
currently conducting, a small Phase 2 clinical study of AV-101
monotherapy in subjects with treatment-resistant MDD
(the NIMH AV-101 MDD Phase 2
Monotherapy Study). In October
2017, we received FDA authorization to launch our 180-patient Phase
2 multi-center, multi-dose, double blind, placebo-controlled
efficacy and safety study of AV-101 as a new generation adjunctive
treatment of MDD in adult patients with an inadequate therapeutic
response to standard, FDA-approved antidepressants
(the AV-101 MDD Phase 2 Adjunctive
Treatment Study). Subject
to completion of this offering, we intend to launch the AV-101 MDD
Phase 2 Adjunctive Treatment Study in the first quarter of 2018
with Dr. Maurizio Fava, Professor of Psychiatry at Harvard
Medical School and Director, Division of Clinical Research,
Massachusetts General Hospital (MGH) Research Institute, as the Principal
Investigator. Dr. Fava was the co-Principal Investigator with
Dr. A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). If started in the first quarter of 2018, we
expect to complete this study by the end of 2018, with top line
results available in the first quarter of
2019.
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology, internally and with collaborators,
to discover, rescue, develop and commercialize (i) proprietary new
chemical entities (NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-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
pipeline. To advance potential RM applications of its cardiac
stem cell technology, in December 2016, we exclusively sublicensed
to BlueRock Therapeutics LP, a next generation RM company
established by Bayer AG 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 our exclusive sublicense agreement with BlueRock
Therapeutics, we may pursue additional RM collaborations or
licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue
engineering.
AV-101 and Major Depressive Disorder
Background
The World Health Organization (WHO) estimates that 300 million people worldwide are
affected by depression. According to the NIH, major depression is
one of the most common mental disorders in the U.S. The NIMH
reports that, in 2014, approximately 16 million adults in the U.S.
had at least one major depressive episode in the past year.
According to the U.S. Centers for Disease Control and Prevention
(CDC) one in 10 Americans over the age of 12 takes a
standard, FDA-approved antidepressant.
Most standard antidepressants target neurotransmitter reuptake
inhibition – either serotonin (antidepressants known
as SSRIs) or serotonin/norepinephrine (antidepressants
known as SNRIs). Even when effective, these standard
antidepressants take many weeks to achieve adequate therapeutic
effects. Nearly two out of every three drug-treated depression
patients do not obtain adequate therapeutic benefit from initial
treatment with a standard antidepressant. Even after treatment with
many different standard antidepressants, nearly one out of every
three drug-treated depression patients still do not achieve
adequate therapeutic benefits from their antidepressant
medication. Such patients with an inadequate response to
standard antidepressants often seek to augment their treatment
regimen by adding an atypical antipsychotic (drugs such as
aripiprazole), despite only modest potential therapeutic benefit
and the significant risk of additional side
effects.
All standard antidepressants have risks of side effects, including,
among others, anxiety, metabolic syndrome, sleep disturbance and
sexual dysfunction. Adjunctive use of atypical antipsychotics to
augment inadequately performing standard antidepressants may
increase the risk of significant side effects, including, tardive
dyskinesia, substantial weight gain, diabetes and heart disease,
while offering only a modest potential increase in therapeutic
benefit.
AV-101
AV-101 is our oral CNS product candidate in Phase 2 development in
the United States, initially focused as a new generation
antidepressant for the adjunctive treatment of MDD patients with an
inadequate response to standard, FDA-approved antidepressants. As
published in the October 2015 issue of the
peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant ketamine-like
antidepressant effects following a single treatment, responses
equivalent to those seen with a single sub-anesthetic control dose
of ketamine, but without the negative side effects
seen with ketamine. In addition, these studies confirmed that the
antidepressant effects of AV-101 were mediated through both
inhibition of the GlyB site of NMDA receptors and activation of the
AMPA receptor pathway in the brain, a key final common pathway
feature of certain new generation antidepressants such as ketamine
and AV-101, each with a MOA that is fundamentally different from
all standard antidepressants and atypical antipsychotics used
adjunctively to augment them.
We have completed two NIH-funded, randomized, double blind,
placebo-controlled AV-101 Phase 1 safety studies.
Pursuant to our CRADA with the NIMH and Dr. Carlos
Zarate, Jr., the NIMH is funding, and Dr. Zarate, as Principal
Investigator, and his team are conducting, a small NIMH AV-101 MDD
Phase 2 Monotherapy Study. Although we are not involved in
conducting this study, we currently anticipate that the NIMH will
complete the NIMH AV-101 MDD Phase 2 Monotherapy Study during the
first half of 2018.
We are preparing to begin the AV-101
MDD Phase 2 Adjunctive Treatment Study, which will test the safety,
efficacy and tolerability of AV-101 as an adjunctive treatment of
MDD in adult patients with an inadequate response to standard,
FDA-approved antidepressants. Subject to receiving sufficient
financing, , we intend to launch the AV-101 MDD Phase 2 Adjunctive
Treatment Study in the first quarter of 2018. In connection with
our preparation for this study, as well as potential Phase 3
development and commercialization of AV-101, we, together with our
contract manufacturing organization (CMO), developed a novel process for the production of
AV-101 drug substance. We believe our new proprietary production
process will significantly improve AV-101 manufacturing efficiency,
thereby reducing the current and future cost of manufacturing
AV-101 drug substance and improving the yield of AV-101 drug
substance manufactured. While developing our new manufacturing
process, our CMO produced a batch of AV-101 drug substance that
contained certain impurities not within the limits set out by the
International Conference on Harmonisation of Technical
Requirements for Registration of Pharmaceuticals for Human
Use (the ICH Guidelines). The FDA routinely utilizes the ICH Guidelines
as an industry standard for development stage programs such as our
AV-101 Phase 2 program. Consequently, the FDA placed a clinical
hold on the launch of the AV-101 MDD Phase 2 Adjunctive Treatment
Study until we either (a) further improved our AV-101 manufacturing
process to remove the impurities or reduce the impurities below
applicable limits in the ICH Guidelines, or (b) conducted a
bridging toxicology study to qualify the impurities as safe for
clinical use. In response to the FDA’s requests, we did both.
We further improved our AV-101 manufacturing process, produced a
new batch of AV-101 drug substance using the improved process, and
now have analytical results from that batch showing that the
impurities were reduced to a level below the limits of the ICH
Guidelines. In addition, we conducted a bridging toxicology study,
the results of which confirmed that the impurities found in the
AV-101 drug substance tested were safe for clinical
use.
The FDA also requested additional contraceptive protection in the
upcoming clinical study until we complete preclinical reproductive
toxicology studies that are routinely conducted later in stages of
clinical development. Although previous toxicology studies for
AV-101 do not suggest any reproductive organ involvement, and we
have confirmed with the FDA that our proposed study is a Phase 2
study, we have implemented additional contraceptive measures in the
revised protocol for the AV-101 MDD Phase 2 Adjunctive Treatment
Study that will remain in effect until standard reproductive
toxicology studies are completed in the ordinary course prior to
commencement of Phase 3 development. We have confirmed with
the FDA that our recently implemented contraceptive
measures are appropriate for the current stage of development of
AV-101.
In September 2017, we requested, and
were granted, a pre-IND Type A meeting with the FDA’s
Division of Psychiatry to discuss certain matters pertaining to our
AV-101 development program and the AV-101 MDD Phase 2 Adjunctive
Treatment Study. Subsequent to our Type A Meeting with the FDA, we
submitted the supplemental data from our new manufacturing process,
the bridging toxicology report and our study protocol, revised to
address the FDA’s comments. These documents addressed all
concerns raised by the FDA to date. Consequently, on October 26,
2017, the FDA authorized us to proceed, under our Investigational
New Drug (IND) application, with the AV-101 MDD Phase 2
Adjunctive Treatment Study. We believe preclinical studies
and Phase 1 safety studies support our hypothesis that AV-101 also
has potential as a non-opioid treatment alternative for neuropathic
pain, as well as several additional CNS indications where modulation of the NMDA receptors,
activation of AMPA pathways and/or key active metabolites of AV-101
may achieve therapeutic benefit, including Parkinson’s
disease levodopa induced dyskinesia (PD LID), epilepsy and
Huntington’s disease. We are beginning to plan additional
Phase 2 clinical studies to further evaluate the therapeutic
potential of AV-101 beyond MDD.
CardioSafe 3D™; NCE Drug Rescue and Regenerative
Medicine
VistaStem Therapeutics is our wholly owned subsidiary focused on
applying hPSC technology to discover, rescue, develop and
commercialize proprietary small molecule NCEs for CNS and other
diseases, as well as potential cellular therapies involving stem
cell-derived blood, cartilage, heart and liver cells.
CardioSafe 3D™ is our
customized in vitro cardiac bioassay system capable of
predicting potential human heart toxicity of small molecule
NCEs in vitro, long before they are ever tested in animal and
human studies. Potential commercial applications of our stem cell
technology platform involve using CardioSafe 3D internally for NCE drug discovery and
drug rescue to expand our proprietary drug candidate pipeline. Drug
rescue involves leveraging substantial prior research and
development investments by pharmaceutical companies and others
related to public domain NCE programs terminated before FDA
approval due to heart toxicity risks and RM and cellular therapies.
To advance potential RM applications of our cardiac stem cell
technology, in December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, a next generation regenerative medicine
company established by Bayer AG and Versant Ventures, rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease. In a manner
similar to the BlueRock Agreement, we may also pursue additional
potential RM applications using blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy (injection of
stem cell-derived mature organ-specific cells obtained through
directed differentiation), (B) cell repair therapy (induction of
regeneration by biologically active molecules administered alone or
produced by infused genetically engineered cells), or (C) tissue
engineering (transplantation of in vitro grown complex tissues) using hPSC-derived
blood, bone, cartilage, and/or liver cells.
Our Strategy
Our
core strategy is to develop and commercialize innovative small
molecule drugs that address significant unmet medical needs related
to CNS diseases and disorders. We have assembled a management team
and a team of scientific, clinical, and regulatory advisors,
including recognized experts in the fields of depression and other
CNS disorders, with significant pharmaceutical industry and
regulatory experience to lead and execute the development and
commercialization of our CNS product candidate opportunities. Key
elements of our strategy are to:
●
Develop
and commercialize our lead CNS product candidate, AV-101, initially
as a new generation adjunctive treatment for MDD patients with an
inadequate response to standard, FDA-approved
antidepressants. We are currently
pursuing adjunctive treatment of MDD as our lead CNS indication for
AV-101. We are preparing to launch our 180-patient Phase 2 study of
AV-101 for the adjunctive treatment of MDD in patients with an
inadequate response to standard antidepressants. We intend to
develop AV-101 internally, through a pivotal Phase 3 clinical
program focused on adjunctive treatment of MDD, accompanied by
submission of our New Drug Application (NDA)
for AV-101 to the FDA. If our NDA is approved by the FDA, we plan
to commercialize AV-101 for this indication in the U.S. either by
(A) collaborating with a large pharmaceutical company with a strong
commercial presence in global depression and other CNS markets
and/or (B) contracting for and/or establishing a specialty sales
force support focused primarily on psychiatrists and long-term care
physicians who prescribe standard antidepressants and atypical
antipsychotics for treatment of their MDD patients under the
current and evolving MDD drug treatment
paradigm.
●
Leverage the commercial potential of AV-101 by
expanding Phase 2 development to include additional CNS-related
disorders and diseases. We intend to pursue clinical
development and commercialization of AV-101 across multiple
CNS-related indications that are underserved by currently available
medicines and represent significant unmet medical needs. Based on
AV-101 preclinical studies, our successful NIH-funded AV-101 Phase
1a and 1b clinical safety studies, and regulatory submissions
related to the AV-101 MDD Phase 2
Adjunctive Treatment Study, we
believe AV-101 also has potential as a non-opioid treatment
alternative for neuropathic pain, as well as several additional CNS
indications where modulation of the
NMDA receptors, activation of AMPA pathways and/or key active
metabolites of AV-101 may achieve therapeutic
benefit, including PD LID,
epilepsy and Huntington’s disease.
●
Pursue in-licensing and acquisition of
additional CNS product candidates. While our resources are
currently focused primarily on development of AV-101 for MDD and
additional CNS indications, we anticipate pursuing acquisition of
additional CNS-related product candidates in the future. We believe
that a diversified CNS product candidate portfolio, combined with
our internal and collaborative network of CNS drug development
expertise and ecosystem, will mitigate risks inherent in drug
development and increase the likelihood of our
success.
●
Capitalize on our drug rescue and RM
opportunities using our stem cell technology platform. We
are focused on using our cardiac stem cell technology to screen and
develop proprietary NCEs through drug rescue programs intended to
produce proprietary NCEs for our internal drug development
pipeline, without incurring many of the substantial costs and risks
typically inherent in new drug discovery and nonclinical drug
development. In order to capitalize on our existing stem cell
technology, we may establish additional strategic collaborations
similar to the BlueRock Agreement, as well as investigating
potential spin-off opportunities. As most of our resources are
currently focused on the nonclinical and clinical development
activities we believe are necessary to advance AV-101 through Phase
2, into pivotal Phase 3 development and ultimately to market
approval, a strategic collaboration or spin-off involving our stem
cell technology could allow us to capitalize on our existing stem
cell technology and shift our focus exclusively to developing our
CNS pipeline.
AV-101 (L-4-cholorkyurenine or 4-Cl-KYN)
Overview and Mechanism of Action
AV-101
is an orally available, clinical-stage prodrug candidate that
readily gains access to the CNS after systemic administration and
is rapidly converted in
vivo into its active metabolite, 7-chlorokynurenic acid
(7-Cl-KYNA), a
well-characterized, potent and highly selective antagonist of
the NMDA receptor at its GlyB co-agonist
site.
Current
evidence suggests that AV-101’s antagonism of NMDA receptor
signaling may provide faster-acting antidepressant effects in the
treatment of MDD than standard antidepressants. In addition, as
confirmed in our AV-101 Phase 1 clinical studies, targeting the
GlyB site of the NMDA receptor does not have the negative side
effects typically associated with standard antidepressants,
atypical antipsychotics often used adjunctively in the current MDD
drug treatment paradigm to augment them, or classic ion
channel-blocking NMDA receptor antagonists, such as
ketamine.
Major Depressive Disorder
Depression
is a serious medical illness and a global public health concern.
The WHO estimates that depression is the leading cause of
disability worldwide, and is a major contributor to the global
burden of disease, affecting 300 million people globally. According
to the CDC, approximately one in every 10 Americans aged 12 and
over takes antidepressant medication.
While
most people will experience depressed mood at some point during
their lifetime, MDD is different. MDD is the chronic, pervasive
feeling of utter unhappiness and suffering, which impairs daily
functioning. Symptoms of MDD include diminished pleasure in
activities, changes in appetite that result in weight changes,
insomnia or oversleeping, psychomotor agitation, loss of energy or
increased fatigue, feelings of worthlessness or
inappropriate guilt, difficulty thinking, concentrating or
making decisions, and thoughts of death or suicide and attempts at
suicide. Suicide is estimated to be the cause of death in up to 15%
individuals with MDD.
Standard Antidepressants
For
many people, depression cannot be controlled for any length of time
without treatment. Standard antidepressant medications
available in the multi-billion dollar global depression market,
including commonly-prescribed SSRIs and SNRIs, have limited
effectiveness, and, because of their mechanism of action, must be
taken for several weeks before patients experience any significant
therapeutic benefit. About two out of every three depression
sufferers, including over an estimated 6.0 million drug-treated MDD
patients in the U.S., do not receive adequate therapeutic benefits
from their initial treatment with a standard antidepressant,
and the likelihood of achieving remission of depressive symptoms
declines with each successive treatment attempt. Even after
multiple treatment attempts, approximately one out of every three
depression sufferers still fails to find an adequately effective
standard antidepressant. In addition, this trial and error process
and the systemic effects of the various antidepressants involved
may increase the risk of patient tolerability issues and serious
side effects, including suicidal thoughts and behaviors in certain
groups.
Ketamine and NIH Clinical Studies in Major Depressive
Disorder
Ketamine
hydrochloride is an FDA-approved, rapid-acting general anesthetic
currently administered only by intravenous or intramuscular
injection. The use of ketamine (an NMDA receptor antagonist which
acts as an NMDA ion channel blocker) to treat MDD has been studied
in several clinical trials conducted by depression experts at Yale
University and other academic institutions and at the NIMH, part of
the NIH, 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
standard antidepressants. These results were in sharp
contrast to the very slow onset of standard antidepressants
(SSRIs and SNRIs) that usually require many weeks of chronic usage
to achieve similar antidepressant effects. The potential
for widespread therapeutic use of current FDA-approved ketamine, a
Schedule III drug, for MDD is limited by its potential for abuse,
dissociative and psychosis-like side effects and by current
practical challenges associated with the necessity of I.V.
administration in a medical center. Notwithstanding these
limitations, however, the discovery of ketamine’s
fast-acting antidepressant effects revolutionized thinking about
the current MDD drug treatment paradigm and catalyzed development
of a new generation of antidepressants with a faster-acting
mechanisms of action (MOA)
similar to ketamine’s. Our oral CNS drug
candidate, AV-101 is among a new generation of antidepressants with
potential to deliver faster-acting antidepressant effects than
standard antidepressants, without the side effects typically
associated with standard antidepressants, atypical antipsychotics
and ketamine.
AV-101, Mechanism of Action, and Major Depressive
Disorder
AV-101
(4-Cl-KYN) is an orally available prodrug candidate that
produces, in the brain, 7-Cl-KYNA, one of the most potent and
selective antagonists of the GlyB site of the NMDA receptor,
resulting in the down-regulation of NMDA receptor signaling.
Growing evidence suggests that glutamatergic activation involving
AMPA receptors is central to the neurobiology and treatment of MDD
and other mood disorders.
AV-101’s
mechanism of action (MOA)
is fundamentally differentiated from the MOA of all standard,
FDA-approved antidepressants and all atypical antipsychotics often
used adjunctively to augment inadequate response to standard
antidepressants, placing AV-101 among a new generation of
antidepressants with potential to treat millions of MDD sufferers
worldwide who are poorly served by SSRIs, SNRIs and other current
depression therapies. AV-101 is functionally similar to ketamine in
that both induce final common pathway antidepressant activity via
glutamatergic activation involving AMPA receptors. However, AV-101
inhibits NMDA receptor channel activity, whereas ketamine blocks
the ion channel of the NMDA receptor. AV-101, as a prodrug,
produces in the brain an antagonist that inhibits the NMDA receptor
by selectively binding to its functionally required GlyB site.
Experimental evidence confirms that inhibiting the NMDA receptor by
targeting the GlyB site can produce potent antidepressive effects
and bypass adverse effects that result when ketamine blocks the
NMDA receptor ion channel. Experimental evidence also supports the
conclusion that this NMDA receptor inhibition by AV-101 may then
result in a glutamatergic activation that depends on the AMPA
receptor pathway, resulting in an increase in neuronal connections
that has been associated with the faster-acting antidepressant
effects than those achieved by standard antidepressants, similar to
those seen with ketamine.
In
peer-reviewed published preclinical studies, AV-101 caused
fast-acting, ketamine-like antidepressant effects, including rapid
onset and long duration of effect following a single treatment,
without causing ketamine’s negative side effects. In two
NIH-funded randomized, double blind, placebo-controlled Phase 1
safety studies, AV-101 was safe, well-tolerated and not associated
with any severe adverse events. There were no signs of sedation,
hallucinations or psychological side effects often associated with
ketamine and other channel-blocking NMDA receptor
antagonists.
Building
on over $8.8 million of prior grant award funding from the NIH for
preclinical and Phase 1 clinical development of AV-101, under our
CRADA, we are collaborating with Dr. Carlos Zarate, Jr. and his
team at the NIMH on the small NIMH AV-101 MDD Phase 2 Monotherapy
Study. Pursuant to the CRADA, this ongoing study is being conducted
at the NIMH by Dr. Zarate as Principal Investigator, and is being
fully-funded by the NIMH. The primary objective of the
NIMH AV-101 MDD Phase 2 Monotherapy Study will be to evaluate the
ability of AV-101 to improve overall depressive symptomatology in
subjects with MDD, specifically whether subjects with MDD have a
greater and more rapid decrease in depressive symptoms when treated
with AV-101 than with placebo. We currently anticipate that the
NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study
during the first half of 2018.
We are preparing to begin the AV-101 MDD Phase 2 Adjunctive
Treatment Study, which will test the safety, efficacy and
tolerability of AV-101 as an adjunctive treatment of MDD in adult
patients with an inadequate response to standard, FDA-approved
antidepressants. Subject to
receiving sufficient financing, we intend to launch the AV-101 MDD
Phase 2 Adjunctive Treatment Study in the first quarter of 2018
and currently anticipate completing the study by the end of
2018, with top line results available in the first quarter of
2019. The Principal Investigator of our AV-101 MDD Phase 2
Adjunctive Treatment Study will be Dr. Maurizio Fava of Harvard
Medical School. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the largest clinical trial ever conducted in
depression, STAR*D, whose findings were published in journals such
the New England Journal of
Medicine and the Journal of
the American Medical Association.
AV-101 and Parkinson’s Disease Levodopa-Induced Dyskinesia
(PD LID)
Parkinson's disease is a chronic, progressive motor disorder that
causes tremors, rigidity, slowed movements and postural
instability. The Parkinson's Disease Foundation estimates that
there were approximately one million people living with Parkinson's
disease in the United States in 2011. The most commonly-prescribed
treatments for Parkinson's disease are levodopa-based therapies. In
the body, levodopa is converted to dopamine to replace the dopamine
loss caused by the disease. The therapeutic efficacy of levodopa is
gradually lost over time, and abnormal involuntary movements,
dyskinesias, gradually emerge as a prominent side-effect in
response to previously beneficial doses of the drug.
Parkinson’s disease
levodopa-induced dyskinesia can be
severely disabling, rendering patients unable to perform routine
daily tasks. Studies published in the New England Journal of
Medicine and
Movement
Disorders have shown PD LID
develops in approximately 45% of levodopa-treated Parkinson’s
disease patients after five years and 80% after 10 years of
levodopa treatment.
In a monkey model of Parkinson’s disease, AV-101 (250 mg/kg
and 450 mg/kg) reduced by 30% the mean dyskinesia score associated
with PD LID. Maximum dyskinesia scores were also reduced by 17%.
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 these monkey data warrant
exploratory Phase 2 clinical testing of AV-101 in Parkinson’s
disease patients diagnosed with PD LID.
AV-101 and Neuropathic Pain
Neuropathic
pain is a complex, chronic pain state that results from
problems with signals from nerves. There are various causes of
neuropathic pain, 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 neuropathic pain, 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. Many neuropathic pain
treatments on the market today, including gabapentin, have side
effects such as anxiety, depression, mild cognitive impairment
and/or sedation.
●
The effects of
AV-101 were assessed in published peer-reviewed studies involving
four well-established non-clinical models of pain, both
hyperalgesia and allodynia, to examine its analgesic and behavioral
profile. 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)). In these studies,
systemic delivery of AV-101 yielded brain concentrations of
AV-101's active metabolite, 7-Cl-KYNA. The high CNS levels of
7-Cl-KYNA that were calculated to exceed its IC50 at the NMDA
receptor GlyB site and resulted in robust, dose-dependent
anti-nociceptive effects, similar to gabapentin, but with no
discernable negative side effects. Gabapentin, a commonly used drug
for neuropathic pain, causes sedation and mild cognitive
impairment. Other commonly prescribed medications for pain include
drugs targeting opioid receptors in the brain. Unfortunately,
misuse of such drugs can lead to a significantly increased risk of
addiction despite their potential therapeutic benefits.
Therefore, we believe a drug candidate that does not target
opioid receptors and is equally effective on pain, but is better
tolerated than gabapentin or potentially addictive drugs targeting
opioid receptors, could be an important treatment alternative for
the millions of patients battling chronic neuropathic pain. Taken
together with our successful AV-101 Phase 1a and 1b clinical safety
studies, we believe the published results of these nonclinical
studies support further clinical development of AV-101 in an
exploratory Phase 2 clinical study to assess its potential as a
non-opioid treatment to reduce debilitating neuropathic pain
effectively, without causing gabapentin-like side effects or risk
of addiction associated with pain medications targeting opioid
receptors.
AV-101 and Epilepsy
AV-101
has been shown to protect against seizures and neuronal damage in
animal models of epilepsy, providing preclinical support for its
potential as a novel treatment alternative for epilepsy. Epilepsy
is one of the most prevalent neurological disorders, affecting
almost 1% of the worldwide population. According to the Epilepsy
Foundation, as many as three million Americans have epilepsy, and
one-third of those suffering from epilepsy are not effectively
treated with currently available medications. In addition, standard
anticonvulsants can cause significant side effects, which
frequently interfere with compliance.
Glutamate
is a neurotransmitter that is critically involved in the
pathophysiology of epilepsy. Through its stimulation of the NMDA
receptor subtype, glutamate has been implicated in the
neuropathology and clinical symptoms of the disease. In support of
this, NMDA receptor antagonists are potent anticonvulsants.
However, classic NMDA receptor antagonists are limited by adverse
effects, such as neurotoxicity, declining mental status, and the
onset of psychotic symptoms following administration of the drug.
The endogenous amino acid glycine modulates glutamatergic
neurotransmission by stimulating the GlyB co-agonist site of the
NMDA receptor. GlyB site antagonists inhibit NMDA receptor function
and are therefore anticonvulsant and neuroprotective. Importantly,
GlyB site antagonists have fewer and less severe side effects than
classic channel-blocking NMDA receptor antagonists and other
antiepileptic agents, making them a safer potential alternative to,
and one expected to be associated with greater patient compliance
than, available anticonvulsant medications.
AV-101
has two additional therapeutically important properties as a drug
candidate for treatment of epilepsy:
|
1.
|
AV-101
is preferentially converted to 7-Cl-KYNA in brain areas related to
neuronal injury. This is because astrocytes, which are responsible
for the enzymatic transamination of 4-Cl-KYN prodrug to active
7-Cl-KYNA, are focally activated at sites of neuronal injury. Due
to AV-101’s highly focused site of conversion, local
concentrations of newly formed 7-Cl-KYNA are greatest at the site
of therapeutic need. In addition to delivering the drug where it is
needed, this reduces the chance of systemic and dangerous side
effects with long-term use of the drug; and
|
|
2.
|
An
active metabolite of AV-101, 4-Cl-3-hydroxyanthranilic acid,
inhibits the synthesis of quinolinic acid, an endogenous NMDAR
agonist that causes convulsions and excitotoxic neuronal
damage.
|
AV-101’s
ability to activate astrocytes for focal delivery of an
anti-epileptic principle, and its dual action as a NMDAR GlyB
antagonist and quinolinic acid synthesis inhibitor, make AV-101 a
potential Phase 2 development candidate for treatment of
epilepsy.
AV-101 and Huntington’s Disease
Working
together with metabotropic glutamate receptors, the NMDA receptor
ensures the establishment of long-term potentiation (LTP), a process believed to be
responsible for the acquisition of information. These functions are
mediated by calcium entry through the NMDA receptor-associated
channel, which in turn influences a wide variety of cellular
components, like cytoskeletal proteins or second-messenger
synthases. However, over activation at the NMDA receptor triggers
an excessive entry of calcium ions, initiating a series of
cytoplasmic and nuclear processes that promote neuronal cell death
through necrosis as well as apoptosis, and these mechanisms have
been implicated in several neurodegenerative diseases.
Huntington's
disease (HD) is an
inherited disorder that causes degeneration of brain cells, called
neurons, in motor control regions of the brain, as well as other
areas. Symptoms of the disease, which gets progressively worse,
include uncontrolled movements (called chorea), abnormal body
postures, and changes in behavior, emotion, judgment, and
cognition. HD is caused by an expansion in the number of
glutamine repeats beyond 35 at the amino terminal end of a protein
termed “huntingtin.” Such a mutation in huntingtin
leads to a sequence of progressive cellular changes in the brain
that result in neuronal loss and other characteristic
neuropathological features of HD. These are most prominent in the
neostriatum and in the cerebral cortex, but also observed in other
brain areas.
The
tissue levels of two neurotoxic metabolites of the kynurenine
pathway of tryptophan degradation, quinolinic acid (QUIN) and 3-hydroxykynurenine
(3-HK) are increased in the
striatum and neocortex, but not in the cerebellum, in early stage
HD. QUIN and 3-HK and especially the joint action of these two
metabolites, have long been associated with the neurodegenerative
and other features of the pathophysiology of HD. The neuronal death
caused by QUIN and 3-HK is due to both free radical formation and
NMDA receptor overstimulation (excitotoxicity).
Based
on the hypothesis that 3-HK and QUIN are involved in the
progression of HD, early intervention aimed at affecting the
kynurenine pathway in the brain may present a promising treatment
strategy. We believe the ability of AV-101 to reduce the brain
levels of neurotoxic QUIN and to potentially produce significant
local concentrations of 7-Cl-KYNA on chronic administration,
presents an exciting opportunity for exploratory Phase 2 clinical
investigation of AV-101 as a potential chronic treatment
alternative for certain symptoms of HD.
AV-101 Phase 1 Clinical Safety Studies
The
safety data from two NIH-funded AV-101 Phase 1 clinical safety
studies indicate that AV-101 was safe and well tolerated in
healthy subjects at all doses tested. There were no Adverse Effects
(AEs) reported by subjects
that received AV-101 that were graded as probably related to study
drug. The type and distribution of AEs reported by subjects in the
studies were considered to be typical for studies in healthy
volunteers. All AEs were completely resolved. Further, no Serious
Adverse Events (SAEs) were
reported.
The
Pharmacokinetics (PK) of
AV-101 were fully characterized across the range of doses in these
Phase 1a and 1b studies. Plasma concentration-time profiles
obtained for 4-Cl-KYN (AV-101) and 7-Cl-KYNA after administration
of a single escalating dose (Phase 1a) and multiple, once daily
oral doses of 360, 1,080, or 1,440 mg for 14 days (Phase 1b) were
consistent with rapid absorption of the oral dose and first-order
elimination of both analytes, with evidence of multi-compartment
kinetics, particularly for the AV-101’s active metabolite,
7-Cl-KYNA.
Although
the Phase 1 safety and PK studies were not designed to measure or
evaluate the potential antidepressant effects of AV-101,
approximately 9% (5/54) of the subjects receiving AV-101 and 0% of
the 30 subjects receiving placebo reported “feelings of
well-being” (coded as euphoric mood), similar to the
fast-acting antidepressant effects reported in the literature with
ketamine.
Phase 1a Study
A phase
1a, randomized, double blind, placebo-controlled study to evaluate
the safety and PK of single doses of AV-101 in healthy volunteers
was conducted. Seven cohorts (30, 120, 360, 720, 1,080, 1,440, and
1,800 mg) with six subjects per cohort (1:1, AV-101: placebo) were
to be enrolled in the study. Nine subjects experienced 10 AEs, with
four of the AEs occurring in subjects in the placebo group and two
of the AEs occurring for one subject receiving 30 mg AV-101. For
the AEs occurring in the AV-101–treated subjects, there were
no meaningful differences in the number of AEs observed at the
30-mg dose (two AEs) when compared with that at the 120-mg dose
(one AE), 360-mg dose (one AE), 720-mg dose (zero AEs), 1,080-mg
dose (zero AEs), or 1,440-mg dose (two AEs). Eight of 10 AEs (80%)
were considered mild, and two (20%, headache and gastroenteritis)
were considered moderate. Four subjects on AV-101, one each in
Cohorts 1 through 4 and two subjects on placebo in Cohort 5
reported AEs of headaches. Five headaches were mild with no
concomitant treatment, and one was moderate with concomitant drug
therapy administered. Most completely resolved the same day as
onset and were considered not serious. One headache started the day
after dosing and resolved approximately one week later on the same
day as the concomitant drug therapy was administered. One case of
contact dermatitis bilateral lower extremities was reported in
Cohort 2 on placebo that was ongoing. One of the subjects with the
headache also reported an AE of gastroenteritis that was unrelated
to AV-101. This AE was considered moderate but did not require any
drug therapy and was completely resolved within two days of onset.
This AE was also considered not serious.
The PK
of AV-101 was fully characterized across the range of doses in this
Phase 1a study following a single oral administration. Plasma
concentration-time profiles obtained for 4-Cl-KYN (AV-101) and
7-Cl-KYNA were consistent with rapid absorption of the oral dose
and first-order elimination of both analytes, with evidence of
multi-compartment kinetics, particularly for the metabolite
7-Cl-KYNA.
Even
though this Phase 1a safety study was not designed to
quantitatively assess effects on mood, during the interviews, two
out of three subjects who received the highest dose (1440 mg) of
AV-101 voluntarily acknowledged positive effects on their mood.
Similar comments were not made by any of the 18 placebo group
subjects.
Phase 1b Study
A Phase
1b clinical study was conducted as a single-site, dose-escalating
study to evaluate the safety, tolerability, and PK of multiple
doses of AV-101 administered daily in healthy volunteers. The
antihyperalgesic effect of AV-101 on capsaicin-induced hyperalgesia
was also assessed. Subjects were sequentially enrolled into one of
three cohorts (360 mg, 1,080 mg, and 1,440 mg) and were randomized
to AV-101 or placebo at a 12:4 (AV-101 to placebo) ratio. Subjects
were dosed for 14 consecutive days. Each subject was given a paper
diary and instructed to record daily dose administration,
concomitant medications, and AEs during the 14-day treatment
period.
For
this study, the minimum toxic dose was to be (i) the dose at which
a drug-related SAE occurred in an AV-101–treated subject, or
(ii) the dose at which a severe AE that warranted stopping the
study, as determined by the investigator and medical monitor,
occurred in an AV-101–treated subject within a cohort. The
minimum toxic dose was not reached in this study.
A total
of 40 AEs were reported by 24 of 37 (64.9%) subjects receiving
AV-101, and 17 AEs were reported by 10 of 13 (76.9%) subject
receiving placebo. The frequency of AEs was similar
among the treatment groups. Thirty-four subjects
experienced a total of 57 AEs, with 16 (28.1% of the total AEs) in
the 360-mg group, 14 (24.6% of the total AEs) in the 1,040-mg
group, 10 (17.5% of the total AEs) in the 1,440-mg group, and 17
(29.8% of the total AEs) in the placebo group. All of
the AEs were completely resolved, and no SAEs were
reported.
The
majority of the reported AEs were nervous system disorders (23
subjects, 46% of subjects) and gastrointestinal disorders (seven
subjects, 14.0%). The remaining AEs were classified as eye
disorders (three subjects, 6.0%); psychiatric disorders (three
subjects, 6.0%); respiratory, thoracic, and mediastinal disorders
(three subjects, 6.0%); skin and subcutaneous tissue disorders
(three subjects, 6.0%); general disorders and administration site
conditions (two subjects, 4.0%); cardiac disorders one subject,
2.0%); infections and infestations (one subject, 2.0%);
musculoskeletal and connective tissue disorders (one subject,
2.0%); and renal disorders (one subject, 2.0%).
The
distribution of AEs by System Organ Class was similar among the
cohorts with the exception of headaches and gastrointestinal
disorders. Eight of the 18 (44.4%) reported headaches were in the
placebo group, 6 (33.3%) were in the 1,080-mg group, three (16.7%)
were in the 1,440-mg group, and one (5.6%) was in the 360-mg group.
Three (42.9%) of the seven reported gastrointestinal disorders were
in the 360-mg group, two (28.6%) were in the placebo group, one
(14.3%) was in the 1,080-mg group, and one (14.3%) was in the
1,440-mg group.
The
determination of the relationship of the AE to the study drug was
made when the data were unblinded. Ten of the 15 AEs (66.7%) that
occurred in the 360-mg AV-101 group, 10 of the 14 AEs (71.4%) that
occurred in the 1,040-mg AV-101 group, seven of the 10 AEs (70.0%)
that occurred in the 1,440-mg AV-101 group, and 13 of the 17 AEs
(76.5%) that occurred in the placebo group were determined to be
possibly related to study drug. One (5.9%) AE in the placebo group
was probably related to study drug (rash around neck). Of the 57
reported AEs, 49 (85.9%) were of mild intensity and eight (14.0%)
were of moderate intensity. There were two moderate intensity AEs
in the 360-mg AV-101 group; one was unrelated pain in the right
foot, and one was a possibly related headache. All other moderate
AEs occurred in the placebo group and included nausea or vomiting
(two AEs), headache (two AEs), and rash around the neck (one AE).
No SAEs were reported.
Even
though this Phase 1b safety study was not designed to
quantitatively assess effects on mood, during the interviews
certain subjects who received 360, 1080, and 1440 mg of AV-101,
voluntarily acknowledged positive effects on mood. Similar comments
were not made by any of the placebo-group subjects.
The PK
of AV-101 was fully characterized across the range of doses in this
Phase 1b study. Plasma concentration-time profiles obtained for
4-Cl-KYN (AV-101) and 7-Cl-KYNA following 14 daily oral
administrations of 360, 1,080, or 1,440 mg were consistent with
rapid absorption of the oral dose and first-order elimination of
both analytes, with evidence of multi-compartment kinetics,
particularly for the metabolite 7-Cl-KYNA.
VistaStem Therapeutics
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology, internally and with collaborators,
to discover, rescue, develop and commercialize (i) proprietary new
chemical entities (NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-derived blood, cartilage, heart
and liver cells. We used our hPSC-derived cardiomyocytes
(human heart cells) to develop CardioSafe 3D™, our customized
in vitro bioassay system
for predicting heart toxicity of drug rescue NCEs. We
believe CardioSafe 3D is
more comprehensive and clinically predictive than the hERG assay,
which currently is the only in
vitro cardiac safety assay required by FDA guidelines, and
provides us with new generation human cell-based technology to
identify and evaluate drug rescue candidates and develop drug
rescue NCEs.
Scientific Background
Stem
cells are the building blocks of all cells of the human
body. They have the potential to develop into many
different mature cell types. Stem cells are defined by a
minimum of two key characteristics: (i) their capacity to
self-renew, or divide in a way that results in more stem cells; and
(ii) their capacity to differentiate, or turn into mature,
specialized cells that make up tissues and organs. There
are many different types of stem cells that come from different
places in the body or are formed at different times throughout our
lives, including pluripotent stem cells and adult or
tissue-specific stem cells, which are limited to differentiating
into the specific cell types of the tissues in which they reside.
We focus exclusively on human pluripotent stem cells.
Human
pluripotent stem cells can be differentiated into all of the more
than 200 types of cells in the human body, can be expanded readily,
and have diverse medical research, drug discovery, drug rescue,
drug development and therapeutic applications. We believe hPSCs can
be used to develop numerous cell types, tissues and customized
assays that can mimic complex human biology, including heart and
liver biology for drug rescue.
Human
pluripotent stem cells are either embryonic stem cells
(hESCs) or induced
pluripotent stem cells (iPSCs). Both hESCs and iPSCs
have the capacity to be maintained and expanded in an
undifferentiated state indefinitely. We believe these features make
them highly useful research and development tools and as a source
of normal, functionally mature cell populations. We use multiple
types of these mature cells as the foundation to design and develop
novel, customized bioassay systems to test the safety and efficacy
of NCEs in vitro.
These cells also have potential for diverse regenerative medicine
applications.
Human Embryonic Stem Cells
According
to the NIH, hESCs are derived from excess embryos that develop from
eggs that have been fertilized in an in vitro fertilization (IVF) clinic and then donated for
research purposes with the informed consent of the parental donors
after a successful IVF procedure. Human embryonic stem cells are
not derived from eggs fertilized in a woman’s body. Human
ESCs are isolated when the embryo is approximately 100 cells, well
before organs, tissues or nerves have developed.
Human
ESCs have the potential to both self-renew and differentiate. They
undergo increasingly tissue-restrictive developmental decisions
during their differentiation. These “fate decisions”
commit the hESCs to becoming only a certain type of mature,
functional cells and ultimately tissues. At one of the first fate
decision points, hESCs differentiate into epiblasts. Although
epiblasts cannot self-renew, they can differentiate into the major
tissues of the body. This epiblast stage can be used, for example,
as the starting population of cells that develop into millions of
blood, heart, muscle, liver and insulin-producing pancreatic
beta-islet cells, as well as neurons. In the next step, the
presence or absence of certain growth factors, together with the
differentiation signals resulting from the physical attributes of
the cell culture techniques, induce the epiblasts to differentiate
into neuroectoderm or mesendoderm cells. Neuroectoderm cells are
committed to developing into cells of the skin and nervous systems.
Mesendoderm cells are precursor cells that differentiate into
mesoderm and endoderm. Mesoderm cells develop into muscle, bone and
blood, among other cell types. Endoderm cells develop into the
internal organs such as the heart, liver, pancreas and intestines,
among other cell types.
Induced Pluripotent Stem Cells
It is
also possible to obtain hPSC lines from individuals without the use
of embryos. Induced PSCs are adult cells, typically human skin or
fat cells that have been genetically reprogrammed to behave like
hESCs by being forced to express genes necessary for maintaining
the pluripotential properties of hESCs. Although researchers are
exploring non-viral methods, most early iPSCs were produced by
using various viruses to express three or four genes required for
the immature pluripotential property similar to hESCs. It is not
yet precisely known, however, how each gene actually functions to
induce cellular pluripotency, nor whether each of the three or four
genes is essential for this reprogramming. Although hESCs and iPSCs
are believed to be similar in many respects, including their
pluripotential ability to form all cells in the body and to
self-renew, scientists do not yet know whether they differ in
clinically significant ways or have the same ability to
self-renew.
We
believe the biology and differentiation capabilities of hESCs and
iPSCs are likely to be comparable for most if not all purposes.
There are, however, specific situations in which we may prefer to
use one or the other type of hPSC. For example, we may
prefer to use iPSCs for potential drug discovery applications based
on the relative ease of generating iPSCs from:
●
individuals with
specific inheritable diseases and conditions that predispose the
individual to respond differently to drugs; or
●
individuals with
specific variations in genes that directly affect drug levels in
the body or alter the manner or efficiency of their metabolism,
breakdown and/or elimination of drugs.
Because
they can significantly affect the therapeutic and/or toxic effects
of drugs, these genetic variations have an impact on drug discovery
and development. We believe iPSC technologies may allow the rapid
and efficient generation of hPSCs from individuals with specific
genetic variations. These hPSCs might then be used to produce cells
to model specific diseases and genetic conditions for drug
discovery and drug rescue purposes.
CardioSafe 3D
The
limitations of current preclinical drug testing systems used by
pharmaceutical companies and others contribute to the high failure
rate of NCEs. Incorporating novel in vitro assays using hPSC-derived
cardiomyocytes (hPSC-CMs)
early in preclinical development offers the potential to improve
clinical predictability, decrease development costs, and avoid
adverse patient effects, late-stage clinical termination, and
product recall from the market.
We
produce fully functional, non-transformed hPSC-CMs at a high level
of purity and with normal ratios of all important cardiac cell
types. Importantly, our hPSC-CM differentiation
protocols do not involve either genetic modification or antibiotic
selection. This is important because genetic modification and
antibiotic selection can distort the ratio of cardiac cell types
and have a direct impact on the ultimate results and clinical
predictivity of assays that incorporate hPSC-CMs produced in such a
manner. In addition to normal expression all of the key ion
channels of the human heart (calcium, potassium and sodium) and
various cardiomyocytic markers of the human heart, our CardioSafe 3D cardiac toxicity assays
screening for both direct cardiomyocyte cytotoxicity and
arrhythmogenesis (or development of irregular beating patterns). We
believe CardioSafe 3D is
sensitive, stable, reproducible and capable of generating data
enabling a more accurate prediction of the in vivo cardiac effects of NCEs than is
possible with existing preclinical testing systems, particularly
the hERG assay.
Limited Clinical Predictivity of the FDA-Required hERG Assay vs.
Broad Clinical Predictivity of CardioSafe 3D
The
hERG assay, which uses either transformed hamster ovary cells or
human kidney cells, is currently the only in vitro cardiac safety assay required
by FDA Guidelines (ICH57B).
We believe the clinical predictivity of the hERG assay is limited
because it assesses only a single cardiac ion channel - the hERG
potassium ion channel. It does not assess any other clinically
relevant cardiac ion channels, including calcium, non-hERG
potassium and sodium ion channels. Also, importantly, the hERG
assay does not assess the normal interaction between these ion
channels and their regulators. In addition, the hERG assay does not
assess clinically relevant cardiac biological effects associated
with cardiomyocyte viability, including apoptosis and other forms
of cytotoxicity, as well as energy, mitochondria and oxidative
stress. As a result of its limitations, results of the hERG assay
can lead to false negative and false positive predictions regarding
the cardiac safety of new drug candidates.
We have
developed and validated two clinically relevant functional
components of our CardioSafe 3D screening system to
assess multiple categories of cardiac toxicities, including both
direct cardiomyocyte cytotoxicity and arrhythmogenesis (or
development of irregular beating patterns). The first functional
component of CardioSafe 3D
consists of a suite of five fluorescence or luminescence based
high-throughput hPSC-CM assays. These five CardioSafe 3D assays measure the
following important drug-induced cardiac biological
effects:
|
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1. cell
viability;
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2. apoptosis;
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3. mitochondrial
membrane depolarization;
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4. oxidative
stress; and
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5. energy
metabolism disruption.
|
These
five CardioSafe 3D
biological assays were correlated to reported clinical results
using reference compounds known to be cardiotoxic in humans versus
compounds known to be safe in humans. These reference compounds
were representative of eight different drug classes,
including:
|
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1. ion
channel blockers: amiodarone, nifedipine;
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2. hERG
trafficking blockers: pentamidine, amoxapine;
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3.
a-1 adrenoreceptors: doxazosin;
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4. protein
and DNA synthesis inhibitors: emetine;
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5. DNA
intercalating agents: doxorubicin;
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6. antibiotics:
ampicillin, cefazolin;
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7. NSAID:
aspirin; and
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8. kinase
inhibitors: staurosporine.
|
This
suite of five CardioSafe 3D
cytotoxicity assays provided measurement of cardiac drug effects
with high sensitivity that are consistent with the expected cardiac
responses to each of these compounds. Based on our results, we
believe CardioSafe 3D
provides valuable and more comprehensive bioanalytical tools for
both assessing the effects of pharmaceutical compounds on cardiac
cytotoxicity than the hERG assay and can elucidate for us and our
strategic partners specific mechanisms of cardiac toxicity, thereby
laying what we believe is a novel and advantageous foundation for
our CardioSafe 3D drug
rescue NCE programs.
The
other component of our CardioSafe 3D assay system is a
sensitive and reliable medium throughput multi-electrode array
(MEA) assay developed to
predict drug-induced alterations of electrophysiological function
of the human heart, representing an integrated assessment of not
only hERG potassium ion channel activity analogous to the
FDA-mandated hERG assay but, in addition, non-hERG potassium
channels, and calcium channels and sodium channels, which are well
beyond the scope of the hERG assay. Functional
electrophysiological assessment is a key component of CardioSafe 3D, and has been validated
with reported clinical results involving drugs with known toxic or
non-toxic cardiac effects in humans.
We have
validated that CardioSafe
3D is capable of assessing important electrophysiological activity
of drug rescue NCEs, including spike amplitude, beat period and
field potential duration. Our CardioSafe 3D MEA assay, which we refer
to as ECG in a test
tube™, was reproducible and consistent with the known
human cardiac effects of all compounds studied, based on the
mechanisms of action and dosage of the compounds. For instance, by
using CardioSafe 3D,
we were able to distinguish between the arrhythmogenic cardiac
effects of terfenadine (Seldane™), withdrawn by the FDA due
to cardiotoxicity, and the cardiac effects of the closely
structurally-related compound, fexofenadine (Allegra™), a
safe variant of terfenadine, which remains on the market. We
believe our correlation data demonstrate that CardioSafe 3D provides valuable and
more comprehensive bioanalytical tools for in vitro cardiac safety screening than
the hERG assay. We believe CardioSafe 3D will contribute to
our efficient and rapid identification of novel, potentially safer
proprietary NCEs in our drug rescue
programs.
Using CardioSafe 3D to Develop Drug Rescue NCEs
Our
drug rescue activities are focused on producing for our internal
pipeline proprietary, safer variants of still-promising NCEs
previously discovered, optimized and tested for efficacy by
pharmaceutical companies and others but terminated before FDA
approval due to unexpected heart toxicity or liver toxicity. Our
current drug rescue strategy involves using CardioSafe 3D to assess the toxicity
that caused certain NCEs available in the public to be terminated,
and use that biological insight to produce and develop a new,
potentially safer, and proprietary NCEs for our pipeline. We
believe the pre-existing public domain knowledge base supporting
the therapeutic and commercial potential of NCEs we target for our
drug rescue programs will provide us with a valuable head start as
we launch each of our drug rescue programs. Leveraging the
substantial prior investments by global pharmaceutical companies
and others in discovery, optimization and efficacy validation of
the NCEs we identify in the public domain is an essential component
of our drug rescue strategy.
By
using CardioSafe 3D to
enhance our understanding of the cardiac liability profile
of NCEs, biological insight not previously available
when the NCEs were originally discovered, optimized for efficacy
and developed, we believe we can demonstrate preclinical
proof-of-concept (POC) as
to the efficacy and safety of new, safer drug rescue NCEs in
standard in vitro and
in vivo models, as well as
in CardioSafe 3D, earlier
in development and with substantially less investment in discovery
and preclinical development than was required of pharmaceutical
companies and others prior to their decision to terminate the
original NCE.
Our
goal in each drug rescue program will be to produce a proprietary
drug rescue NCE and establish its preclinical POC, using standard
preclinical in vitro and
in vivo efficacy and safety
models, as well as CardioSafe 3D. In this context, POC means that
the lead drug rescue NCE, as compared to the original,
previously-terminated NCE,
demonstrates both (i) equal or superior efficacy in the same, or a
similar, in vitro and
in vivo preclinical
efficacy models used by the initial developer of the
previously-terminated NCE before it was terminated for
safety reasons, and (ii) significant reduction of concentration
dependent cardiotoxicity in CardioSafe 3D.
Regenerative Medicine (RM)
Although
we believe the best and most valuable near term commercial
application of our stem cell technology platform is for small
molecule drug rescue, we also believe stem cell technology-based RM
has the potential to transform healthcare in the U.S. over the next
decade by providing new approaches for treating the fundamental
mechanisms of disease. We currently intend to establish strategic
collaborations to leverage our stem cell technology platform, our
expertise in human biology, differentiation of human pluripotent
stem cells to develop functional adult human cells and tissues
involved in human disease, including blood, bone, cartilage, heart
and liver cells, and our expertise in designing and developing
novel, customized biological assay systems with the cells we
produce, for RM purposes. In December
2016, we exclusively sublicensed to BlueRock Therapeutics LP, a
next generation RM company established by Bayer AG and Versant
Ventures, rights to certain proprietary technologies relating to
the production of cardiac stem cells for the treatment of heart
disease. In a manner similar to our exclusive sublicense
agreement with BlueRock Therapeutics, we may pursue additional RM
collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for (A) cell-based
therapy, (B) cell repair therapy, and/or (C) tissue
engineering.
Strategic Transactions and Relationships
Strategic
collaborations are an important cornerstone of our corporate
development strategy. We believe that our highly selective
outsourcing of certain research and development activities gives us
flexible access to chemistry broad range of research and
development capabilities, manufacturing, clinical development and
regulatory expertise at a lower overall cost than developing and
maintaining such expertise internally on a full-time basis. In
particular, we contract with third parties for certain
manufacturing, non-clinical development, clinical development and
regulatory affairs support. The following are among our current
third-party collaborators:
Cato Research Ltd.
Cato
Research Ltd. is a CRO with international resources dedicated to
helping biotechnology and pharmaceutical companies navigate the
regulatory approval process in order to bring new biologics, drugs
and medical devices to markets throughout the world. Cato Research
is one of our CROs for development of AV-101, currently focused on
all chemistry, manufacturing and controls (CMC) aspects of our Phase 2 development
program in MDD. Cato Research’s senior management
team, including co-founders Allen Cato, M.D., Ph.D. and Lynda
Sutton, have over 30 years of experience interacting with the FDA
and international regulatory agencies and a successful track record
of product approvals.
Cardiac Safety Research Consortium
We have
joined the Cardiac Safety Research Consortium (CSRC) as an Associate
Member. The CSRC, which is sponsored in part by the FDA,
was launched in 2006 through an FDA Critical Path Initiative
Memorandum of Understanding with Duke University to support
research into the evaluation of cardiac safety of medical products.
CSRC supports research by engaging stakeholders from industry,
academia, and government to share data and expertise regarding
several areas of cardiac safety evaluation, including novel stem
cell-based approaches, from preclinical through post-market
periods.
Cardiac Safety Technical Committee of the Health and Environmental
Sciences Institute – FDA’s CIPA Initiative
We have
also joined the Cardiac Safety Technical Committee, Cardiac Stem
Cell Working Group, and Proarrhythmia Working Group of the Health
and Environmental Sciences Institute (HESI) to help advance, among other
goals, the FDA’s Comprehensive In Vitro Proarrhythmia Assay
(CIPA) initiative, which is
focused on developing innovative preclinical systems for cardiac
safety assessment during drug development. HESI is a
global branch of the International Life Sciences Institute
(ILSI), whose members
include most of the world’s largest pharmaceutical and
biotechnology companies.
The
goal of the FDA’s CIPA initiative is to develop a new
paradigm for cardiac safety evaluation of new drugs that provides a
more comprehensive assessment of proarrhythmic potential by (i)
evaluating effects of multiple cardiac ionic currents beyond hERG
and ICH S7B Guidelines (inward and outward currents), (ii)
providing more complete, accurate assessment of proarrhythmic
effects on human cardiac electrophysiology, and (iii) focusing on
Torsades de Pointes proarrhythmia rather than surrogate QT
prolongation alone.
Centre for Commercialization of Regenerative Medicine
The
Toronto-based Centre for Commercialization of Regenerative Medicine
(CCRM) is a not-for-profit,
public-private consortium funded by the Government of Canada, six
Ontario-based institutional partners and more than 20 companies
representing the key sectors of the regenerative medicine
industry. CCRM supports the development of foundational
technologies that accelerate the commercialization of stem cell-
and biomaterials-based products and therapies.
We are
a member of the CCRM’s Industry Consortium. Other members of
CCRM’s Industry Consortium include Pfizer and GE Healthcare.
The industry leaders that comprise the CCRM consortium benefit from
proprietary access to certain licensing opportunities, academic
rates on fee-for-service contracts at CCRM and opportunities to
participate in large collaborative projects, among other
advantages. Our CCRM membership reflects our strong association
with CCRM and its core programs and objectives, both directly and
through our strategic relationships with Dr. Gordon Keller and UHN.
We believe our long-term sponsored research agreement with Dr.
Keller, UHN and UHN’s McEwen Centre offers unique
opportunities for expanding the commercial applications of our stem
cell technology platform by building multi-party collaborations
with CCRM and members of its Industry Consortium. We
believe these collaborations have the potential to transform
medicine and accelerate significant advances in human health and
wellness that stem cell technologies and regenerative medicine
promise.
Massachusetts General Hospital Clinical Trials Network and
Institute
Massachusetts
General Hospital Clinical Trials Network and Institute
(CTNI) is an academic CRO,
part of the Department of Psychiatry of the Massachusetts General
Hospital (MGH), a leader in
academic scientific and clinical research in psychiatry. By
exploring the brain science, genetics, and neurobiology of
psychiatric disorders, the MGH CTNI has been instrumental in the
development of novel treatments and surrogate markers of illness
and therapeutic response. Its scientific and clinical research has
been instrumental in defining the standards for the
state-of-the-art practice of psychiatry. We are working with MGH
CTNI, including its principals, Dr. Maurizio Fava and Dr. Thomas
Laughren, in connection with the planning and execution of our
AV-101 MDD Adjunctive Treatment Study. Dr. Fava is acknowledged as
a world-renowned expert in depressive disorders and
psychopharmacology. He is Director of the Division of Clinical
Research of the MGH Research Institute, Executive Vice Chair,
Department of Psychiatry, at MGH, and Executive Director of MGH
CTNI. He will serve as Principal Investigator of the AV-101 MDD
Phase 2 Adjunctive Treatment Study. Dr. Laughren is the
former FDA Division Director, Division of Psychiatry Products,
Center for Drug Evaluation and Research (CDER).
United States National Institutes of Health
Since
our inception in 1998, the NIH has awarded us $11.3 million in
non-dilutive research and development grants, including $2.3
million to support research and development of our stem cell
technology and $8.8 million for non-clinical and Phase 1a and 1b
clinical development of AV-101.
United States National Institute of Mental Health
The
NIMH, part of the NIH, is the largest scientific organization in
the world dedicated to mental health research. NIMH is one of 27
Institutes and Centers of the NIH, the world’s leading
biomedical research organization. The mission of NIMH is to
transform the understanding and treatment of mental illnesses
through basic and clinical research, paving the way for prevention,
recovery and cure. Our CRADA with the NIH provides for NIMH
sponsorship of the ongoing NIMH AV-101 MDD Phase 2 Monotherapy
Study, a study being fully funded by the NIH and is being conducted
at the NIMH by Dr. Carlos Zarate, the NIMH’s Chief of
Experimental Therapeutics & Pathophysiology Branch and Section
on Neurobiology and Treatment of Mood and Anxiety
Disorders.
Intellectual Property
We rely
upon patents as a major component of our intellectual property
portfolio, as is typical for development-stage, biopharmaceutical
companies. In addition, from time to time, we enter into patent
license agreements to acquire rights to intellectual property. We
also rely, in part, on trade secrets for protection of some of our
discoveries. We seek to protect our trade secrets by entering into
confidentiality agreements with employees, consultants,
collaborators and third parties. We also own several registered and
common-law trademarks.
To help
protect our intellectual property rights, our employees,
contractors and consultants also sign agreements in which they
assign to us, for example, their interests in patents, trade
secrets and copyrights arising from their work for us.
From
time to time, we sponsor research with key scientists in academic
institutions to advance or supplement our internal research and
development activities and objectives. These sponsored research
agreements generally provide us with an opportunity to negotiate a
new license, or acquire a substantially prescribed license, to
acquire intellectual property rights in the results of the
sponsored research.
AV-101
AV-101
(4-Cl-KYN) is our oral CNS
product candidate presently being investigated in the NIMH AV-101
MDD Phase 2 Monotherapy Study. Further, we are preparing to launch
our AV-101 MDD Phase 2 Adjunctive Treatment Study to assess the
safety and efficacy of AV-101 as a new generation adjunctive
treatment of MDD in adult patients with an inadequate response to
standard, FDA-approved antidepressants. We have developed a
portfolio of intellectual property assets around AV-101, which
involves patents, patent applications and trade secrets, primarily
focused on depression. In addition, we plan to seek regulatory
exclusivity to the use of AV-101, with emphasis on depression, as a
central approach to protect the marketing of our product. This
approach will complement certain of our AV-101 intellectual
property rights.
Although
the compound 4-Cl-KYN, per se, is no longer patented, and certain
of its formulations are in the public domain and thus are no longer
protectable, as part of our strategy to seek and secure broad
commercial exclusivity for AV-101, we have filed and are pursuing
several patent applications in Europe, the U.S. and selected major
markets. Several of these patent applications have already been
granted or allowed, on both (i) certain novel therapeutic methods
of use of AV-101, including depression, and (ii) certain novel
methods of producing AV-101. In Europe, the European Patent Office
(EPO) has granted our
patent related to methods of treating depression with AV-101 and
certain other neurological indications. In the U.S. and selected
major markets, we are currently pursuing a counterpart AV-101
patent application similar to the patent granted by the EPO. The
U.S. Patent and Trademark Office (USPTO) has not yet allowed the
counterpart application filed in the U.S. However, we believe that
our counterpart patent applications in the USPTO and other
countries ultimately will be granted.
In Europe, the U.S.
and selected major markets, we are also prosecuting patent
applications related to novel methods of producing AV-101. Both the
USPTO and Chinese patent office, have granted patents regarding our
manufacturing process for AV-101. The EPO has not yet allowed the
counterpart application filed in Europe. However, just as our
application at the USPTO was sufficient to obtain an allowed patent
in the U.S., we believe our counterpart patent application at the
EPO ultimately will be granted.
As noted elsewhere
in this prospectus, we are currently involved with the NIMH AV-101
MDD Phase 2 Monotherapy Study being conducted by the NIMH. As part
of our analysis of the study results, we will be evaluating the
possibility of seeking additional patent protection in Europe, the
U.S. and selected major markets based on the clinical data and on
clinical observations.
As
mentioned above, a major component of our plans to obtain market
exclusivity for approved therapeutic indications for AV-101
includes the use of New Drug Product Exclusivity provided by the
FDA under section 505(c)(3)(E) and 505(j)(5)(F) of the Federal
Food, Drug, and Cosmetic Act (FDCA). The FDA’s New Drug
Product Exclusivity is available for NCEs such as AV-101, which are
innovative and have not been previously approved by the FDA, either
alone or in combination with other drugs. The FDA’s New
Drug Product Exclusivity protection provides the holder of an
FDA-approved NDA with up to five years of protection from
competition in the U.S. marketplace for the innovation represented
by its approved new drug product. This protection precludes
FDA approval of certain generic drug applications under section
505(b)(2) of the FDCA, as well as certain abbreviated new drug
applications (ANDAs),
during the up to five-year exclusivity period, except that such
applications may be submitted after four years if they contain a
certification of patent invalidity or non-infringement. As and if
applicable, we will pursue similar types of regulatory exclusivity
in other regions, such as Europe, and in certain other
countries.
There
is no guarantee that we will be successful in obtaining any
additional patents related to AV-101 in Europe, the U.S., or any
other country, or that if we are successful in obtaining any such
patents that we would also be successful in protecting those
patents against challengers or in enforcing them to stop
infringement. Outside the U.S. and Europe, we are pursuing patent
rights in a limited number of countries that we believe are the
major markets for pharmaceuticals where having patent rights will
substantially facilitate commercialization of AV-101.
Stem Cell Technology
We have
obtained and are pursuing intellectual property rights to several
stem cell technologies through a combination of our own patent
properties, exclusive and non-exclusive patent and technology
licenses, and participation in sponsored research relationships.
Generally, our stem cell intellectual property portfolio relates to
drug development and drug discovery. It also relates to novel
production systems of enriched populations of certain cell types,
such as cardiomyocytes and the use of various cell types that have
been differentiated from pluripotent stem cells for those and other
purposes including cell-based therapy. Additionally, we maintain
certain trade secrets regarding stem cell technology, several of
which are discussed below.
Overall,
our stem cell patent portfolio includes several issued U.S. patents
as well as several foreign counterpart patents in countries of
commercial interest to us. The portfolio also includes several
patent applications pending in the U.S. and in various foreign
countries.
The
patent properties in these families are based on discoveries from
our internal research and development activities, research that has
sponsored at various academic institutions, as well as from patent
license agreements signed with the University Health Network
(Toronto) and the Mount Sinai School of Medicine.
These
license agreements generally require us to pay nominal annual
license fees, and, in certain cases, patent prosecution and
maintenance fees, and royalty payments that vary based on product
sales and services that are covered by the licensed patent rights,
as well fees for sublicensing. As noted above in the context of
AV-101 intellectual property, there is no guarantee that we will
successfully obtain patents in the countries in which we are
pursuing patent rights or that we would be successful in enforcing
granted patent rights against infringers.
In
December 2016, we exclusively sublicensed to BlueRock Therapeutics,
a stem cell research company recently established by Bayer AG and
Versant Ventures, rights to certain proprietary technologies
relating to the production of cardiac stem cells for the treatment
of heart disease.
Trademarks
We have
a federal trademark registration for the trademark
“VISTAGEN”. Corresponding trademarks have been
registered in the European Union and in Switzerland. We also use
certain other trademarks in connection with our customized in vitro
bioassay systems, such as CardioSafe 3D™.
U.S. Government Rights
We have
received federal funding from both the NIH and the NIMH to support
research and development of inventions disclosed in our patent
applications relating to AV-101 and certain of our stem cell
technology. Under the Bayh-Dole Act of 1980, if we do
not take adequate steps to commercialize certain intellectual
property rights, or certain other exigent circumstances relating to
public health and safety prescribed under federal law become
applicable, the U.S. government may acquire certain rights with
respect to inventions made during programs funded by NIH or other
federal grants.
Competition
The
biopharmaceutical industry is highly competitive. There are many
public and private biopharmaceutical companies, universities,
governmental agencies, including the NIH and NIMH, and other
research organizations actively engaged in the research and
development of products that may be similar to our product
candidates or address similar markets. It is probable that the
number of companies seeking to develop products and therapies
similar to our products will increase.
Currently,
there are no FDA-approved therapies for MDD with the mechanism of
action of AV-101. However, products approved for other indications,
for example, the anesthetic ketamine, are being or may be used
off-label for treatment of MDD, as well as other CNS indications
for which AV-101 may have therapeutic potential. Additionally,
other treatment options, such psychotherapy and electroconvulsive
therapy, are sometimes used instead of and before standard
antidepressant medications to treat patients with MDD.
In the field of new generation, orally available, adjunctive
treatments of adult MDD patients with an inadequate response to
standard antidepressants, we believe our principal competitor is
Alkermes’ orally available drug candidate in Phase 3
development, ALKS-5461, an opioid modulator.
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. We believe that a range of
pharmaceutical and biotechnology companies have programs to develop
small molecule drug candidates for the treatment of depression,
including MDD, epilepsy, neuropathic pain, Parkinson’s
disease and other neurological conditions and diseases, including,
but not limited to, Abbott Laboratories, Acadia, Alkermes,
Allergan, AstraZeneca, Eli Lilly, GlaxoSmithKline,
Johnson & Johnson, Lundbeck, Merck, Novartis, Minerva,
Otsuka, Pfizer, Roche, Sage, Sanofi, Shire, Sumitomo Dainippon, and
Takeda. 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 expect that AV-101 will have to compete with a
variety of therapeutic products and
procedures.
We
believe that VistaStem’s human pluripotent stem cell
(hPSC) technology platform,
the hPSC-derived human cells we produce, and the customized human
cell-based assay systems we have formulated and developed are
capable of being competitive in the diverse and growing global stem
cell and regenerative medicine markets, including markets involving
the sale of hPSC-derived cells to third-parties for their
in vitro drug discovery and
safety testing, contract predictive toxicology drug screening
services for third parties, internal drug discovery, drug
development and drug rescue of new NCEs, and regenerative medicine,
including in vivo cell
therapy research and development. A representative list of such
biopharmaceutical companies pursuing one or more of these potential
applications of adult and/or hPSC technology includes the
following: Acea Biosciences, Astellas, Athersys, BioCardia,
BioTime, Caladrius Biosciences, Cellectis Bioresearch, Cellerant
Therapeutics, Cytori Therapeutics, Fujifilm Holdings, HemoGenix,
International Stem Cell, Neuralstem, Organovo Holdings, PluriStem
Therapeutics, and Stemina BioMarker Discovery. Pharmaceutical
companies and other established corporations such as Bristol-Myers
Squibb, Charles River, GE Healthcare Life Sciences,
GlaxoSmithKline, Novartis, Pfizer, Roche Holdings, Thermo Fisher
Scientific and others have been and are expected to continue
pursuing internally various stem cell-related research and
development programs. Many of the foregoing companies have greater
resources and capital availability and as a result, may be more
successful in their research and development programs than
us. We anticipate that acceptance and use of hPSC
technology for drug development and regenerative medicine will
continue to occur and increase at pharmaceutical and biotechnology
companies in the future.
Government Regulation
Our
business activities, including the manufacturing, research,
development and marketing of our product candidates, are subject to
extensive regulation by numerous governmental authorities in the
United States and other countries. Before marketing in the United
States, any new drug developed by us or our collaborators must
undergo rigorous preclinical testing, clinical trials and an
extensive regulatory clearance process implemented by the United
States Food and Drug Administration (FDA) under the Federal Food, Drug, and
Cosmetic Act, as amended. The FDA regulates, among other things,
the development, testing, manufacture, safety, efficacy, record
keeping, labeling, storage, approval, advertising, promotion,
import, export, sale and distribution of biopharmaceutical
products. The regulatory review and approval process, which
includes preclinical testing and clinical trials of each product
candidate, is lengthy, expensive and uncertain. Moreover,
government coverage and reimbursement policies will both directly
and indirectly impact our ability to successfully commercialize any
future approved products, and such coverage and reimbursement
policies will be impacted by enacted and any applicable future
healthcare reform and drug pricing measures. In addition, we are
subject to state and federal laws, including, among others,
anti-kickback laws, false claims laws, data privacy and security
laws, and transparency laws that restrict certain business
practices in the pharmaceutical industry.
In the
United States, drug product candidates intended for human use
undergo laboratory and animal testing until adequate proof of
safety is established. Clinical trials for new product candidates
are then typically conducted in humans in three sequential phases
that may overlap. Phase 1 trials involve the initial introduction
of the product candidate into healthy human volunteers. The
emphasis of Phase 1 trials is on testing for safety or adverse
effects, dosage, tolerance, metabolism, distribution, excretion and
clinical pharmacology. Phase 2 involves studies in a limited
patient population to determine the initial efficacy of the
compound for specific targeted indications, to determine dosage
tolerance and optimal dosage, and to identify possible adverse side
effects and safety risks. Once a compound shows evidence of
effectiveness and is found to have an acceptable safety profile in
Phase 2 evaluations, Phase 3 trials are undertaken to more fully
evaluate clinical outcomes. Before commencing clinical
investigations in humans, we or our collaborators must submit an
Investigational New Drug Application (IND) to the FDA.
Regulatory
authorities, Institutional Review Boards and Data Monitoring
Committees may require additional data before allowing clinical
studies to commence, continue or proceed from one phase to another,
and could demand that studies be discontinued or suspended at any
time if there are significant safety issues. We have in the past
and may in the future rely on assistance from our third-party
collaborators and contract service providers to file our INDs and
generally support our development and regulatory activities
approval process for our potential products. Clinical testing must
also meet requirements for clinical trial registration,
institutional review board oversight, informed consent, health
information privacy, and good clinical practices, or GCPs.
Additionally, the manufacture of our drug product, must be done in
accordance with current good manufacturing practices (GMPs).
To
establish a new product candidate’s safety and efficacy, the
FDA requires companies seeking approval to market a drug product to
submit extensive preclinical and clinical data, along with other
information, for each indication for which the product will be
labeled. The data and information are submitted to the FDA in the
form of a New Drug Application (NDA), which must be accompanied by
payment of a significant user fee unless a waiver or exemption
applies. Generating the required data and information for an NDA
takes many years and requires the expenditure of substantial
resources. Information generated in this process is susceptible to
varying interpretations that could delay, limit or prevent
regulatory approval at any stage of the process. The failure to
demonstrate adequately the quality, safety and efficacy of a
product candidate under development would delay or prevent
regulatory approval of the product candidate. Under applicable laws
and FDA regulations, each NDA submitted for FDA approval is given
an internal administrative review within 60 days following
submission of the NDA. If deemed sufficiently complete to permit a
substantive review, the FDA will “file” the NDA. The
FDA can refuse to file any NDA that it deems incomplete or not
properly reviewable. The FDA has established internal goals of
eight months from submission for priority review of NDAs that cover
product candidates that offer major advances in treatment or
provide a treatment where no adequate therapy exists, and 12 months
from submission for the standard review of NDAs. However, the FDA
is not legally required to complete its review within these
periods, these performance goals may change over time and the
review is often extended by FDA requests for additional information
or clarification. Moreover, the outcome of the review, even if
generally favorable, may not be an actual approval but a
“complete response letter” that describes additional
work that must be done before the NDA can be approved. Before
approving an NDA, the FDA can choose to inspect the facilities at
which the product is manufactured and will not approve the product
unless the manufacturing facility complies with GMPs. The FDA may
also audit sites at which clinical trials have been conducted to
determine compliance with GCPs and data integrity. The FDA’s
review of an NDA may also involve review and recommendations by an
independent FDA advisory committee, particularly for novel
indications. The FDA is not bound by the recommendation of an
advisory committee.
In
addition, delays or rejections may be encountered based upon
changes in regulatory policy, regulations or statutes governing
product approval during the period of product development and
regulatory agency review.
Before
receiving FDA approval to market a potential product, we or our
collaborators must demonstrate through adequate and well-controlled
clinical studies that the potential product is safe and effective
in the patient population that will be treated. In addition, under
the Pediatric Research Equity Act, or PREA, an NDA or supplement to
an NDA must contain data to assess the safety and effectiveness of
the drug for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and
effective, unless a waiver applies. If regulatory approval of a
potential product is granted, this approval will be limited to
those disease states and conditions for which the product is
approved. Marketing or promoting a drug for an unapproved
indication is generally prohibited. Furthermore, FDA approval may
entail ongoing requirements for risk management, including
post-marketing, or Phase 4, studies. Even if approval is obtained,
a marketed product, its manufacturer and its manufacturing
facilities are subject to payment of significant annual fees and
continuing review and periodic inspections by the FDA. Discovery of
previously unknown problems with a product, manufacturer or
facility may result in restrictions on the product or manufacturer,
including labeling changes, warning letters, costly recalls or
withdrawal of the product from the market.
Any
drug is likely to produce some toxicities or undesirable side
effects in animals and in humans when administered at sufficiently
high doses and/or for sufficiently long periods of time.
Unacceptable toxicities or side effects may occur at any dose level
at any time in the course of studies in animals designed to
identify unacceptable effects of a product candidate, known as
toxicological studies, or during clinical trials of our potential
products. The appearance of any unacceptable toxicity or side
effect could cause us or regulatory authorities to interrupt,
limit, delay or abort the development of any of our product
candidates. Further, such unacceptable toxicity or side effects
could ultimately prevent a potential product’s approval by
the FDA or foreign regulatory authorities for any or all targeted
indications or limit any labeling claims and market acceptance,
even if the product is approved.
In
addition, as a condition of approval, the FDA may require an
applicant to develop a Risk Evaluation and Mitigation Strategy, or
REMS. A REMS uses risk
minimization strategies beyond the professional labeling to ensure
that the benefits of the product outweigh the potential risks. To
determine whether a REMS is needed, the FDA will consider the size
of the population likely to use the product, seriousness of the
disease, expected benefit of the product, expected duration of
treatment, seriousness of known or potential adverse events, and
whether the product is a new molecular entity. REMS can include
medication guides, physician communication plans for healthcare
professionals, and elements to assure safe use (ETASU). ETASU may include, but are not
limited to, special training or certification for prescribing or
dispensing, dispensing only under certain circumstances, special
monitoring, and the use of patient registries. The FDA may require
a REMS before approval or post-approval if it becomes aware of a
serious risk associated with use of the product. The requirement
for a REMS can materially affect the potential market and
profitability of a product.
Any
trade name that we intend to use for a potential product must be
approved by the FDA irrespective of whether we have secured a
formal trademark registration from the U.S. Patent and Trademark
Office. The FDA conducts a rigorous review of proposed product
names, and may reject a product name if it believes that the name
inappropriately implies medical claims or if it poses the potential
for confusion with other product names. The FDA will not approve a
trade name until the NDA for a product is approved. If the FDA
determines that the trade names of other products that are approved
prior to the approval of our potential products may present a risk
of confusion with our proposed trade name, the FDA may elect to not
approve our proposed trade name. If our trade name is rejected, we
will lose the benefit of any brand equity that may already have
been developed for this trade name, as well as the benefit of our
existing trademark applications for this trade name.
We and
our collaborators and contract manufacturers also are required to
comply with the applicable FDA GMP regulations. GMP regulations
include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection
by the FDA. These facilities must be approved before we can use
them in commercial manufacturing of our potential products and must
maintain ongoing compliance for commercial product manufacture. The
FDA may conclude that we or our collaborators or contract
manufacturers are not in compliance with applicable GMP
requirements and other FDA regulatory requirements, which may
result in delay or failure to approve applications, warning
letters, product recalls and/or imposition of fines or
penalties.
If a
product is approved, we must also comply with post-marketing
requirements, including, but not limited to, compliance with
advertising and promotion laws enforced by various government
agencies, including the FDA’s Office of Prescription Drug
Promotion, through such laws as the Prescription Drug Marketing
Act, federal and state anti-fraud and abuse laws, including
anti-kickback and false claims laws, healthcare information privacy
and security laws, post-marketing safety surveillance, and
disclosure of payments or other transfers of value to healthcare
professionals and entities. In addition, we are subject to other
federal and state regulation including, for example, the
implementation of corporate compliance programs.
If we
elect to distribute our products commercially, we must comply with
state laws that require the registration of manufacturers and
wholesale distributors of pharmaceutical products in a state,
including, in certain states, manufacturers and distributors who
ship products into the state even if such manufacturers or
distributors have no place of business within the state. Some
states also impose requirements on manufacturers and distributors
to establish the pedigree of product in the chain of distribution,
including some states that require manufacturers and others to
adopt new technology capable of tracking and tracing product as it
moves through the distribution chain.
Outside
of the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of
clinical trials, marketing authorization, pricing and reimbursement
vary widely from country to country. At present, foreign marketing
authorizations are applied for at a national level, although within
the European Community (EC), centralized registration
procedures are available to companies wishing to market a product
in more than one EC member state. If the regulatory authority is
satisfied that adequate evidence of safety, quality and efficacy
has been presented, marketing authorization will be granted. This
foreign regulatory development and approval process involves all of
the risks associated with achieving FDA marketing approval in the
U.S. as discussed above. In addition, foreign regulations may
include applicable post-marketing requirements, including safety
surveillance, anti-fraud and abuse laws, and implementation of
corporate compliance programs and reporting of payments or other
transfers of value to healthcare professionals and
entities.
Reimbursement
Potential
sales of AV-101 or any other future product candidate, if approved,
will depend, at least in part, on the extent to which such products
will be covered by third-party payors, such as government health
care programs, commercial insurance and managed healthcare
organizations. These third-party payors are increasingly limiting
coverage and/or reducing reimbursements for medical products and
services. A third-party payor’s decision to provide coverage
for a drug product does not imply that an adequate reimbursement
rate will be approved. Further, one payor’s determination to
provide coverage for a drug product does not assure that other
payors will also provide coverage for the drug product. In
addition, the U.S. government, state legislatures and foreign
governments have continued implementing cost-containment programs,
including price controls, restrictions on reimbursement and
requirements for substitution of generic products. Adoption of
price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and
measures, could further limit our future revenues and results of
operations. Decreases in third-party reimbursement or a decision by
a third-party payor to not cover AV-101, if approved, or any future
approved products could reduce physician usage of our products, and
have a material adverse effect on our sales, results of operations
and financial condition.
In the
United States, the Medicare Part D program provides a voluntary
outpatient drug benefit to Medicare beneficiaries for certain
products. We do not know whether AV-101, if approved, or any other
future product candidate will be eligible for coverage under
Medicare Part D, but individual Medicare Part D plans offer
coverage subject to various factors such as those described above.
In addition, while Medicare Part D plans have historically included
“all or substantially all” drugs in the following
designated classes of “clinical concern” on their
formularies: anticonvulsants, antidepressants, antineoplastics,
antipsychotics, antiretrovirals, and immunosuppressants, the
Centers for Medicare and Medicaid Services (CMS) has in the past proposed, but not
adopted, changes to this policy. If this policy is changed in the
future and if CMS no longer considers the antidepressant class to
be of “clinical concern”, Medicare Part D plans would
have significantly more discretion to reduce the number of products
covered in that class. Furthermore, private payors often follow
Medicare coverage policies and payment limitations in setting their
own coverage policies.
Healthcare Laws and Regulations
Sales
of AV-101, if approved, or any other future product candidate will
be subject to healthcare regulation and enforcement by the federal
government and the states and foreign governments in which we might
conduct our business. The healthcare laws and regulations that may
affect our ability to operate include the following:
●
The federal
Anti-Kickback Statute makes it illegal for any person or entity to
knowingly and willfully, directly or indirectly, solicit, receive,
offer, or pay any remuneration that is in exchange for or to induce
the referral of business, including the purchase, order, lease of
any good, facility, item or service for which payment may be made
under a federal healthcare program, such as Medicare or Medicaid.
The term “remuneration” has been broadly interpreted to
include anything of value.
●
Federal false
claims and false statement laws, including the federal civil False
Claims Act, prohibits, among other things, any person or entity
from knowingly presenting, or causing to be presented, for payment
to, or approval by, federal programs, including Medicare and
Medicaid, claims for items or services, including drugs, that are
false or fraudulent.
●
The U.S. federal
Health Insurance Portability and Accountability Act of 1996
(HIPAA) created additional
federal criminal statutes that prohibit among other actions,
knowingly and willfully executing, or attempting to execute, a
scheme to defraud any healthcare benefit program, including private
third-party payors or making any false, fictitious or fraudulent
statement in connection with the delivery of or payment for
healthcare benefits, items or services.
●
HIPAA, as amended
by the Health Information Technology for Economic and Clinical
Health Act of 2009 (HITECH)
and their implementing regulations, impose obligations on certain
types of individuals and entities regarding the electronic exchange
of information in common healthcare transactions, as well as
standards relating to the privacy and security of individually
identifiable health information.
●
The federal
Physician Payments Sunshine Act requires certain manufacturers of
drugs, devices, biologics and medical supplies for which payment is
available under Medicare, Medicaid or the Children’s Health
Insurance Program, with specific exceptions, to report annually to
CMS information related to payments or other transfers of value
made to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family
members.
Also,
many states have similar laws and regulations, such as
anti-kickback and false claims laws that may be broader in scope
and may apply regardless of payor, in addition to items and
services reimbursed under Medicaid and other state programs.
Additionally, we may be subject to state laws that require
pharmaceutical companies to comply with the federal
government’s and/or pharmaceutical industry’s voluntary
compliance guidelines, state laws that require drug manufacturers
to report information related to payments and other transfers of
value to physicians and other healthcare providers or marketing
expenditures, as well as state and foreign laws governing the
privacy and security of health information, many of which differ
from each other in significant ways and often are not preempted by
HIPAA.
Additionally,
to the extent that our product is sold in a foreign country, we may
be subject to similar foreign laws.
Stem Cell Technology - United States
With
respect to our stem cell research and development in the U.S., the
U.S. government has established requirements and procedures
relating to the isolation and derivation of certain stem cell lines
and the availability of federal funds for research and development
programs involving those lines. All of the stem cell lines that we
are using were either isolated under procedures that meet U.S.
government requirements and are approved for funding from the U.S.
government, or were isolated under procedures that meet U.S.
government requirements.
All
procedures we use to obtain clinical samples, and the procedures we
use to isolate hESCs, are consistent with the informed consent and
ethical guidelines promulgated by the U.S. National Academy of
Science, the International Society of Stem Cell Research
(ISSCR), or the NIH. These
procedures and documentation have been reviewed by an external Stem
Cell Research Oversight Committee, and all cell lines we use have
been approved under one or more of these guidelines.
The
U.S. government and its agencies on July 7, 2009 published
guidelines for the ethical derivation of hESCs required for
receiving federal funding for hESC research. Should we seek further
NIH funding for our stem cell research and development, our request
would involve the use of hESC lines that meet the NIH guidelines
for NIH funding. In the U.S., the President’s Council on
Bioethics monitors stem cell research, and may make recommendations
from time to time that could place restrictions on the scope of
research using human embryonic or fetal tissue. Although numerous
states in the U.S. are considering, or have in place, legislation
relating to stem cell research, including California whose voters
approved Proposition 71 to provide up to $3 billion of state
funding for stem cell research in California, it is not yet clear
what affect, if any, state actions may have on our ability to
commercialize stem cell technologies.
Subsidiaries and Inter-Corporate Relationships
VistaGen Therapeutics. Inc., a California corporation, dba
VistaStem (VistaStem), is our wholly-owned subsidiary and has two
wholly-owned subsidiaries: VistaStem Canada Inc., a corporation
incorporated pursuant to the laws of the Province of Ontario, and
Artemis Neuroscience, Inc., a corporation incorporated pursuant to
the laws of the State of Maryland. The operations of VistaStem, and
each of its wholly owned subsidiaries are managed by our senior
management team based in South San Francisco,
California.
Employees
As of December 7, 2017, we employed nine full-time
employees, four of whom have doctorate degrees. Five full-time
employees work in research and development and laboratory support
services and four full-time employees work in general and
administrative roles. Staffing for all other functional areas is
achieved through our network of strategic relationships with
service providers and consultants, each of whom provides services
on a real-time, as-needed basis, including human resources and
payroll, information technology, facilities, legal, investor
relations and website maintenance, regulatory affairs, and FDA
program management.
We have never had a work stoppage, and none of our employees is
represented by a labor organization or under any collective
bargaining agreement. We consider our employee relations to be
good.
Facilities
We lease our office and laboratory space, which consists of
approximately 10,900 square feet located in South San Francisco,
California, under a lease expiring on July 31,
2022.
Legal Proceedings
None.
Environmental Regulation
Our business does not require us to comply with any extraordinary
environmental regulations.
DIRECTORS AND EXECUTIVE
OFFICERS
Our senior management is composed of individuals with significant
management experience. Our directors and executive
officers as of December 6, 2017 are as
follows:
|
Name
|
|
Age
|
|
Position
|
|
Shawn K. Singh
|
|
54
|
|
Chief Executive Officer and Director
|
|
H. Ralph Snodgrass, Ph.D.
|
|
67
|
|
Founder, President, Chief Scientific Officer and
Director
|
|
Mark A. Smith, M.D., Ph.D.
|
|
62
|
|
Chief Medical Officer
|
|
Jerrold D. Dotson
|
|
64
|
|
Vice President, Chief Financial Officer and Secretary
|
|
Mark McPartland
|
|
51
|
|
Vice-President, Corporate Development
|
|
Jon S. Saxe (1)
|
|
81
|
|
Director
|
|
Brian J. Underdown, Ph.D. (2)
|
|
76
|
|
Director
|
|
Jerry B. Gin, Ph.D., MBA (3)
|
|
74
|
|
Director
|
_______________
|
(1)
|
Chairman of the audit committee and member of the compensation
committee and corporate governance and nominating
committee.
|
|
(2)
|
Chairman of the compensation committee and member of the audit
committee and corporate governance and nominating
committee.
|
|
(3)
|
Chairman of the corporate governance and nominating committee and
member of the audit committee and compensation
committee.
|
Executive Officers
Shawn K. Singh has served as
our Chief Executive Officer since August 2009, first as the Chief
Executive Officer of VistaGen Therapeutics, Inc., a California
corporation (VistaGen
California), then as Chief
Executive Officer of the Company after the merger by and between
VistaGen California and the Company on May 11, 2011 (the
Merger), at which time VistaGen California became a
wholly-owned subsidiary of the Company. Mr. Singh first joined the
Board of Directors of VistaGen California in 2000 and served on the
VistaGen California management team (part-time) from late-2003,
following VistaGen California’s acquisition of Artemis
Neuroscience, of which he was President, to August 2009. In
connection with the Merger, Mr. Singh was appointed as a member of
our Board in 2011. Mr. Singh has over 25 years of
experience working with biotechnology, medical device and
pharmaceutical companies, both private and public. From February
2001 to August 2009, Mr. Singh served as Managing Principal of
Cato BioVentures, a life science venture capital firm, and as Chief
Business Officer and General Counsel of Cato Research Ltd, a
profitable global contract research organization
(CRO) affiliated with Cato BioVentures. Mr. Singh
served as President (part-time) of Echo Therapeutics (NASDAQ:
ECTE), a medical device company developing a non-invasive, wireless
continuous glucose monitoring (CGM) system, from September 2007 to June 2009, and as
a member of its Board of Directors from September 2007 through
December 2011. He also served as Chief Executive Officer
(part-time) of Hemodynamic Therapeutics, a private
biopharmaceutical company affiliated with Cato BioVentures, from
November 2004 to August 2009. From late-2000 to February 2001,
Mr. Singh served as Managing Director of Start-Up Law, a
management consulting firm serving biotechnology companies.
Mr. Singh also served as Chief Business Officer of SciClone
Pharmaceuticals (NASDAQ: SCLN), a revenue-generating, specialty
pharmaceutical company with a substantial commercial business in
China and a product portfolio spanning major therapeutics markets,
including oncology, infectious diseases and cardiovascular
disorders, from late-1993 to late-2000, and as a corporate finance
associate of Morrison & Foerster LLP, an international law
firm, from 1991 to late-1993. Mr. Singh currently serves as a
member of the Board of Directors of Armour Therapeutics, a private
biotechnology company focused on prostate cancer. Mr. Singh earned
a B.A. degree, with honors, from the University of California,
Berkeley, and a Juris Doctor degree from the University of Maryland
School of Law. Mr. Singh is a member of the State Bar of
California.
We selected Mr. Singh to serve on our Board of Directors due to his
substantial practical experience and expertise in senior leadership
roles with multiple private and public biotechnology,
pharmaceutical and medical device companies, and his extensive
experience in corporate finance, venture capital, corporate
governance, drug development, intellectual property, regulatory
affairs and strategic collaborations.
H. Ralph Snodgrass, Ph.D. co-founded VistaGen California
with Dr. Gordon Keller in 1998 and served as the Chief Executive
Officer of VistaGen California until August 2009. Dr. Snodgrass has
served as the President and Chief Scientific Officer of VistaGen
California from inception to the present, and in the same positions
with the Company following the completion of the Merger. He served
as a member of the Board of Directors of VistaGen California from
1998 to 2011, and was appointed to serve on our Board after the
completion of the Merger. Prior to founding VistaGen California,
Dr. Snodgrass served as a key member of the executive management
team that led Progenitor, Inc., a biotechnology company focused on
developmental biology, through its initial public offering, and was
its Chief Scientific Officer from June 1994 to May 1998, and its
Executive Director from July 1993 to May 1994. He received his
Ph.D. in immunology from the University of Pennsylvania, and has 24
years of experience in senior biotechnology management and over 10
year’s research experience as an assistant professor at the
Lineberger Comprehensive Cancer Center, University of North
Carolina Chapel Hill School of Medicine, and as a member of the
Institute for Immunology, Basel, Switzerland. Dr. Snodgrass is a
past Board Member of the Emerging Company Section of the
Biotechnology Industry Organization (BIO), and past member of the
International Society Stem Cell Research (ISSCR) Industry Committee. Dr.
Snodgrass has published more than 50 scientific papers, is the
inventor on more than 17 patents and a number of patent
applications, is, or has been, the Principal Investigator on U.S.
federal and private foundation sponsored research grants with
budgets totaling more than $14.5 million and is recognized as an
expert in stem cell biology with more than 31 years’
experience in the uses of stem cells as biological tools for
research, drug discovery and development.
We
selected Dr. Snodgrass to serve on our Board of Directors due to
his expertise in biotechnology focused on developmental biology,
including stem cell biology, his extensive senior management
experience leading biotechnology companies at all stages of
development, as well as his reputation and standing in the fields
of biotechnology and stem cell research, allow him to bring to us
and the Board of Directors a unique understanding of the challenges
and opportunities associated with pluripotent stem cell biology, as
well as credibility in the markets in which we
operate.
Mark A. Smith, M.D., Ph.D. joined VistaGen as our Chief Medical Officer
effective June 18, 2016. Dr. Smith served as the
Clinical Lead for Neuropsychiatry at Teva Pharmaceuticals from
November 2013 through June 2016. He served as Senior
Director of Experimental Medicine, Global Clinical Development and
Innovation at Shire Pharmaceuticals from September 2012 to
October 2013 and at AstraZeneca Pharmaceutical Company as
Executive Director of Clinical Development and in other senior
positions from June 2000 through September 2012. He served as
a Senior Investigator and Principal Research Scientist in CNS
Diseases Research at DuPont Pharmaceutical Company from 1996 to
2000 and in the Biological Psychiatry and Clinical
Neuroendocrinology Branches of the National Institute of Mental
Health from 1987 through 1996. Dr. Smith has significant
expertise in drug discovery and development and clinical trial
design and execution, having directed approximately fifty clinical
trials from Phase 0 through Phase II B and served as
project leader in both the discovery and development of
approximately twenty investigational new drugs aimed at depression,
anxiety, schizophrenia and other disorders. Dr. Smith
received his Bachelor of Science and Master of Science degrees in
Molecular Biophysics and Biochemistry from Yale University; his M.D
and Ph.D. in Physiology and Pharmacology from the University of
California, San Diego and completed his residency at Duke
University Medical Center.
Jerrold D. Dotson, CPA has served as our Chief Financial
Officer since September 2011, as our Corporate Secretary since
October 2013 and as a Vice President since February 2014. Mr.
Dotson served as Corporate Controller for Discovery Foods Company,
a privately held Asian frozen foods company from January 2009 to
September 2011. From February 2007 through September
2008, Mr. Dotson served as Vice President, Finance and
Administration (principal financial and accounting officer) for
Calypte Biomedical Corporation (OTCBB: CBMC), a publicly held
biotechnology company. Mr. Dotson served as
Calypte’s Corporate Secretary from 2001 through September
2008. He also served as Calypte’s Director of
Finance from January 2000 through July 2005 and was a financial
consultant to Calypte from August 2005 through January
2007. Prior to joining Calypte, from 1988 through 1999,
Mr. Dotson worked in various financial management positions,
including Chief Financial Officer, for California & Hawaiian
Sugar Company, a privately held company. Mr. Dotson is
licensed as a CPA in California and received his B.S. degree in
Business Administration with a concentration in accounting from
Abilene Christian College.
Mark A. McPartland has served as our Vice-President, Corporate Development since
October 2016. Mr. McPartland previously served as the Vice
President of Corporate Development and Communications at Stellar
Biotechnologies, Inc. (NASDAQ: SBOT), a leader in sustainable
manufacture of KLH, an immune-stimulating protein widely used in
the field of active immunotherapy, from November 2013 to September
2016. While at Stellar, Mr. McPartland was responsible for
transforming and expanding its capital markets and corporate
communications strategy, while also supporting its global business
development activities. From September 2011 to November 2013, Mr.
McPartland served as Senior Vice President at MZ Group, a
subsidiary of @titude Global, the world's largest independent
global investor relations consulting firm, and from January 2005 to
January 2011, he served as Vice President and Partner at Alliance
Advisors, LLC where he specialized in the implementation of capital
markets strategy, market positioning and financial communications,
and Regional Vice President of Hayden Communications, Inc. where he
led investor relations and corporate communications programs for
micro and small cap companies. Mr. McPartland received his
Bachelors in Business Administration and Marketing from Coastal
Carolina University.
Directors
Jon S. Saxe, J.D., LL.M. has served as Chairman of our Board
since 2000, first as Chairman of the Board of Directors of VistaGen
California, then as Chairman of our Board after completion of the
Merger. He also serves as the Chairman of our Audit
Committee. Mr. Saxe is the retired President and was a
director of PDL BioPharma from 1989 to 2008. From 1989 to 1993, he
was President, Chief Executive Officer and a director of Synergen,
Inc. (acquired by Amgen). Mr. Saxe served as Vice President,
Licensing & Corporate Development for Hoffmann-Roche from
1984 through 1989, and Head of Patent Law for Hoffmann-Roche from
1978 through 1989. Mr. Saxe currently is a director of Durect
Corporation (NASDAQ: DRRX), and six private life science companies,
Arbor Vita Corporation, Arcuo Medical, LLC, Cancer Prevention
Pharmaceuticals, Inc., Lumos Pharma, Inc., Trellis Bioscience, Inc.
and Epalex Corporaiton. Mr. Saxe also has served as a director
of other biotechnology and pharmaceutical companies, including ID
Biomedical (acquired by GlaxoSmithKline), Sciele Pharmaceuticals,
Inc. (acquired by Shionogi), Amalyte (acquired by Kemin
Industries), Cell Pathways (acquired by OSI Pharmaceuticals), and
other companies, both public and private. Mr. Saxe has a
B.S.Ch.E. from Carnegie-Mellon University, a J.D. degree from
George Washington University and an LL.M. degree from New York
University.
We
selected Mr. Saxe to serve as Chairman of our Board of Directors
due to his numerous years of experience as a senior executive with
major pharmaceutical and biotechnology companies, including Protein
Design Labs, Inc., Synergen, Inc. and Hoffmann-Roche, Inc., as well
as his extensive experience serving as a director of numerous
private and public biotechnology and pharmaceutical companies,
serving as Chairman, and Chair and member of audit, compensation
and governance committees of both private and public
companies. Mr. Saxe provides us and our Board of
Directors with highly valuable insight and perspective into the
biotechnology and pharmaceutical industries, as well as the
strategic opportunities and challenges that we face.
Brian J. Underdown, Ph.D. has served as a member of our
Board of Directors since November 2009, first as a director of
VistaGen California, then as a member of our Board after the
completion of the Merger. Dr. Underdown is currently a Venture
Partner with Lumira Capital Corp. having served as a Managing
Director with Lumira from September 1997 through December 2015. His
investment focus has been on therapeutics in both new and
established companies in both Canada and the United States. Prior
to joining Lumira and its antecedent company MDS Capital Corp.,
Dr. Underdown held a number of senior management positions in
the biopharmaceutical industry and at universities.
Dr. Underdown’s current board positions include the
following private companies: Kisoji Biotechnology Inc., Naegis
Pharmaceuticals, Inc. and Osteo QC. Some of Dr. Underdown’s
previous board roles include: Argos Therapeutics (NASDAQ: ARGS), ID
Biomedical (acquired by GlaxoSmithKline), enGene
Inc. and Ception Therapeutics (acquired by
Cephalon). He has served on a number of Boards and
advisory bodies of government-sponsored research organizations
including CANVAC, the Canadian National Centre of Excellence in
Vaccines, Ontario Genomics Institute (Chair), Allergen Plc., the
Canadian National Centre of Excellence in Allergy and Asthma.
Dr. Underdown obtained his Ph.D. in immunology from McGill
University and undertook post-doctoral studies at Washington
University School of Medicine.
We
selected Dr. Underdown to serve on our Board of Directors due to
his extensive background working in the biotechnology and
pharmaceutical industries, as a director of numerous private and
public companies, as well as his substantial corporate finance and
venture capital experience funding and advising startup and
established biopharmaceutical companies focused on development and
commercialization of novel therapeutics.
Jerry B. Gin, Ph.D., M.B.A was appointed to serve on our
Board of Directors on March 29, 2016. Dr. Gin is currently the
co-founder and CEO of Nuvora, Inc., a private company founded in
2006 with a drug delivery platform for the sustained release
of ingredients through the mouth for such indications as dry mouth,
biofilm reduction and sore throat/cough relief. Dr. Gin is also
co-founder and Chairman of Livionex, a private platform technology
company founded in 2009 and focused on oral care, ophthalmology and
wound care. Previously, Dr. Gin co-founded Oculex Pharmaceuticals
in 1993, which developed technology for controlled release delivery
of drugs to the interior of the eye, specifically to treat macular
edema, and served as President and CEO until it was acquired by
Allergan in 2003. Prior to forming Oculex, Dr. Gin co-founded and
took public ChemTrak, which developed a home cholesterol test
commonly available in drug stores today. Prior to ChemTrak, Dr. Gin
was Director of New Business Development and Strategic Planning for
Syva, the diagnostic arm of Syntex Pharmaceuticals, Director for
Pharmaceutical and Diagnostic businesses for Dow Chemical, and
Director of BioScience Labs (now Quest Laboratories), the clinical
laboratories of Dow Chemical. Dr. Gin received his
Bachelor’s degree in Chemistry from the University of
Arizona, his Ph.D. in Biochemistry from the University of
California, Berkeley, his M.B.A. from Loyola College, and conducted
his post-doctoral research at the National Institutes of
Health.
We
selected Dr. Gin to serve on our Board of Directors due to his
extensive experience in the healthcare industry, focusing his
substantial business and scientific expertise on founding and
developing numerous biopharmaceutical, diagnostic and biotechnology
companies and propelling them to their next platforms of growth and
value.
Election of Executive Officers
Our
executive officers are elected by, and serve at the discretion of,
our Board of Directors. Each of our executive officers
devotes his full time to our affairs. There are no
family relationships among any of our directors or executive
officers.
Board Composition
Our
amended and restated bylaws provide that the authorized number of
directors of the Company shall be not less than one nor more than
seven, with the exact number of directors currently fixed at seven.
The exact number may be amended only by the vote or written consent
of a majority of the outstanding shares of our voting
stock. Our Board of Directors currently consists of five
members. Accordingly, there are currently two vacancies
on our Board of Directors. Our Board of Directors
anticipates filling each of such vacancies as soon as
practicable. All actions of the Board of Directors
require the approval of a majority of the directors in attendance
at a meeting at which a quorum is present.
Board Committees
Our Board of Directors has established an Audit Committee, a
Compensation Committee and a Corporate Governance and Nominating
Committee. The composition and responsibilities of each committee
are described below. Members serve on these committees
until their resignation or until otherwise determined by our Board
of Directors. Effective on April 1, 2017, our independent
directors, Mr. Saxe, Dr. Underdown and Dr. Gin, serve as members of
each of these committees.
Audit Committee
Our Audit Committee is comprised of Mr. Saxe, who serves as the
committee chairman, Dr. Underdown and Dr. Gin. Mr. Saxe is also our
Audit Committee financial expert, as that term is defined under SEC
rules implementing Section 407 of the Sarbanes Oxley Act of 2002,
and possesses the requisite financial sophistication, as defined
under applicable rules. The Audit Committee operates under a
written charter. Our Audit Committee charter is available on our
website. Under its charter, our Audit Committee is primarily
responsible for, among other things:
●
overseeing our accounting and financial reporting
process;
●
selecting, retaining and replacing our independent auditors and
evaluating their qualifications, independence and
performance;
●
reviewing and approving scope of the annual audit and audit
fees;
●
monitoring rotation of partners of independent auditors on engagement
team as required by law;
●
discussing with management and independent auditors the results of
annual audit and review of quarterly financial
statements;
●
reviewing adequacy and effectiveness of internal control policies and
procedures;
●
approving retention of independent auditors to perform any proposed
permissible non-audit services;
●
overseeing internal audit functions and annually reviewing audit
committee charter and committee performance;
and
●
preparing the audit committee report that the SEC requires in
our annual proxy statement.
Compensation Committee
Our Compensation Committee is comprised of Dr. Underdown, who
serves as the committee chairman, Mr. Saxe, and Dr. Gin. Our
Compensation Committee charter is available on our website. Under
its charter, the Compensation Committee is primarily responsible
for, among other things:
●
reviewing
and approving our compensation programs and arrangements applicable
to our executive officers (as defined in Rule I 6a-I (f) of the
Exchange Act), including all employment-related agreements or
arrangements under which compensatory benefits are awarded or paid
to, or earned or received by, our executive officers, including,
without limitation, employment, severance, change of control and
similar agreements or arrangements;
●
determining
the objectives of our executive officer compensation
programs;
●
ensuring
corporate performance measures and goals regarding executive
officer compensation are set and determining the extent to which
they are achieved and any related compensation earned;
●
establishing
goals and objectives relevant to CEO compensation, evaluating CEO
performance in light of such goals and objectives, and determining
CEO compensation based on the evaluation;
●
endeavoring
to ensure that our executive compensation programs are effective in
attracting and retaining key employees and reinforcing business
strategies and objectives for enhancing stockholder value,
monitoring the administration of incentive-compensation plans and
equity-based incentive plans as in effect and as adopted from time
to time by the board;
●
reviewing
and approving any new equity compensation plan or any material
change to an existing plan; and
●
reviewing
and approving any stock option award or any other type of award as
may be required for complying with any tax, securities, or other
regulatory requirement, or otherwise determined to be appropriate
or desirable by the committee or board.
Corporate Governance and Nominating Committee
Our Corporate Governance and Nominating Committee is comprised of
Dr. Gin, who serves as the committee chairman, Mr. Saxe and Dr.
Underdown. Our Corporate Governance and Nominating
Committee charter is available on our website. Under its charter,
the Corporate Governance and Nominating Committee is primarily
responsible for, among other things:
●
monitoring
the size and composition of the board;
●
making
recommendations to the board with respect to the nominations or
elections of our directors;
●
reviewing
the adequacy of our corporate governance policies and procedures
and our Code of Business Conduct and Ethics, and recommending any
proposed changes to the board for approval; and
●
considering
any requests for waivers from our Code of Business Conduct and
Ethics and ensure that we disclose such waivers as may be required
by the exchange on which we are listed, if any, and rules and
regulations of the SEC.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics applicable to
our employees, officers and directors. Our Code of
Business Conduct and Ethics is available on our website at
www.vistagen.com. We
intend to disclose any future amendments to certain provisions of
our Code of Business Conduct and Ethics, or waivers of these
provisions, on our website or in filings with the SEC under the
Exchange Act.
Board Attendance at Board of Directors, Committee and Stockholder
Meetings
Our Board of Directors met four times and acted by unanimous
written consent six times during our fiscal year ended March 31,
2017. Our Audit Committee met four times. Our
Compensation Committee requested action by the entire Board of
Directors for grants of various equity securities and for
amendments of employment agreements. Our Nominating and
Corporate Governance Committee requested action by the entire Board
of Directors with respect to resolutions to be presented to our
stockholders at the annual meeting of stockholders and Board
committee assignments. With the exception of Dr. Underdown, who was
unable to attend one Board meeting due to international travel,
each director serving during Fiscal 2017 attended all of the
meetings of the Board and the committees of the Board upon which
such director served that were held during the term of his
service.
We do not have a formal policy regarding attendance by members of
the Board at our annual meeting of stockholders, but directors are
encouraged to attend. Mr. Saxe and Dr. Gin attended our annual
meeting of stockholders held on September 26, 2016. Dr. Underdown
was unavailable to participate due to international
travel.
Compensation Committee Interlocks and Insider
Participation
Our Compensation Committee consists of Dr. Underdown, Mr. Saxe and
Dr. Gin, each of whom is a non-employee director. None of the
members of the Compensation Committee has a relationship that would
constitute an interlocking relationship with executive officers or
directors of another entity.
Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors
and persons who beneficially own more than ten percent of our
common stock (collectively, Reporting
Persons) to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5
with the SEC. The Reporting Persons are also required by
SEC rules to furnish us with copies of all reports that they file
pursuant to Section 16(a). We believe that during our fiscal
year ended March 31, 2017, all Reporting Persons, other than PLTG
and/or its affiliate, Montsant Partners LLC, and Cato Holding
Company complied with all applicable reporting
requirements.
Executive Compensation
Our Compensation Objectives
Our compensation practices are designed to attract key employees
and to retain, motivate and reward our executive officers for their
performance and contribution to our long-term success. Our Board of
Directors, through the compensation committee, seeks to compensate
our executive officers by combining short and long-term cash and
equity incentives. It also seeks to reward the achievement of
corporate and individual performance objectives, and to align
executive officers’ incentives with stockholder value
creation. When possible, the compensation committee seeks to tie
individual goals to the area of the executive officer’s
primary responsibility. These goals may include the achievement of
specific financial or business development goals. Also, when
possible and appropriate taking into account the Company’s
financial condition and other related facts and circumstances, the
compensation committee seeks to set performance goals that reach
across all business areas and include achievements in
finance/business development and corporate
development.
The Compensation Committee makes decisions regarding salaries,
annual bonuses, if any, and equity incentive compensation for our
executive officers, approves corporate goals and objectives
relevant to the compensation of the Chief Executive Officer and our
other executive officers. The Compensation Committee solicits input
from our Chief Executive Officer regarding the performance of our
other executive officers. Finally, the Compensation Committee also
administers our incentive compensation and benefit
plans.
Although we have no formal policy for a specific allocation between
current and long-term compensation, or cash and non-cash
compensation, when possible and appropriate taking into account the
Company’s financial condition and other related facts and
circumstances, we seek to implement a pay mix for our officers with
a relatively equal balance of both, providing a competitive salary
with a significant portion of compensation awarded on both
corporate and personal performance.
Compensation
Components
As a general rule, and when possible and appropriate taking into
account the Company’s financial condition and other related
facts and circumstances, our compensation consists primarily of
three elements: base salary, annual bonus and long-term equity
incentives. We describe each element of compensation in more detail
below.
Base
Salary
Base salaries for our executive officers are established based on
the scope of their responsibilities and their prior relevant
experience, taking into account competitive market compensation
paid by other companies in our industry for similar positions and
the overall market demand for such executives, both initially at
the time of hire and thereafter, to ensure that we retain our
executive management team. An executive officer’s base salary
is also determined by reviewing the executive officer’s other
compensation to ensure that the executive officer’s total
compensation is in line with our overall compensation
philosophy.
Base salaries are reviewed periodically as deemed necessary by the
Compensation Committee and increased for merit reasons, based on
the executive officers’ success in meeting or exceeding
individual objectives. Additionally, we may adjust base salaries as
warranted throughout the year for promotions or other changes in
the scope or breadth of an executive officer’s role or
responsibilities.
Annual
Bonus
The Compensation Committee assesses the level of the executive
officer’s achievement of meeting individual goals, as well as
that executive officer’s contribution towards our
corporate-wide goals. The amount of the cash bonus depends on the
level of achievement of the individual performance goals, with a
target bonus generally set as a percentage of base salary and based
on the achievement of pre-determined milestones. To
conserve our cash resources, our management team voluntarily
decided to not seek and, in accordance with our management
team’s election, our Compensation Committee did not award,
cash bonuses in any fiscal year from Fiscal 2012 through Fiscal
2015. The Compensation Committee authorized cash bonuses to
officers who served during Fiscal 2016, which bonuses were paid in
July 2016.
Long-Term
Equity Incentives
The Compensation Committee believes that to attract and retain
management, key employees and non-management directors the
compensation paid to these persons should include, in addition to
base salary and potential annual cash incentives, equity based
compensation that is competitive with peer
companies. The Compensation Committee determines the
amount and terms of equity-based compensation granted under our
stock option plans or pursuant to other awards made to our
executives and key employees.
Summary Compensation
Table
The following table shows information regarding the compensation of
our Named Executive Officers (NEO’s) for services performed in the fiscal years ended
March 31, 2017 and 2016:
|
Name and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Option and Warrant
Awards (5)
($)
|
|
All Other Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
Shawn K. Singh (1)
|
2017
|
385,107
|
173,750
|
752,210
|
(6)
|
-
|
1,316,067
|
|
Chief Executive Officer
|
2016
|
347,500
|
-
|
1,629,574
|
(7)
|
-
|
1,977,074
|
|
|
|
|
|
|
|
|
|
|
H. Ralph Snodgrass, Ph.D. (2)
|
2017
|
340,625
|
152,500
|
520,946
|
(6)
|
-
|
1,014,071
|
|
President, Chief Scientific Officer
|
2016
|
305,000
|
-
|
985,025
|
(7)
|
-
|
1,290,025
|
|
|
|
|
|
|
|
|
|
|
Mark A. Smith, M.D., Ph.D. (3)
|
2017
|
275,737
|
-
|
654,238
|
(6)
|
-
|
929,975
|
|
Chief Medical Officer
|
2016
|
-
|
-
|
-
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Jerrold D. Dotson (4)
|
2017
|
289,583
|
100,000
|
318,018
|
(6)
|
-
|
707,601
|
|
Vice President, Chief Financial Officer, Secretary
|
2016
|
250,000
|
-
|
635,297
|
(7)
|
-
|
885,297
|
_______________
(1)
Mr. Singh became Chief Executive Officer of
VistaGen Therapeutics, Inc. (a California corporation) (
VistaGen
California) on August 20,
2009 and our Chief Executive Officer in May 2011, in connection
with the Merger. In our fiscal years ended March 31, 2017 and 2016,
Mr. Singh’s annual base cash salary, pursuant to his January
2010 employment agreement, as amended in June 2016, was
contractually set at $395,000 and $347,500, respectively. Pursuant
to his employment agreement, Mr. Singh is eligible to receive an
annual cash incentive bonus of up to fifty percent (50%) of his
base cash salary. To conserve cash for our operations during our
fiscal year ended March 31, 2016, Mr. Singh voluntarily refrained
from receiving any cash bonus.
(2)
Through August 20, 2009, Dr. Snodgrass served as VistaGen
California’s President and Chief Executive Officer, at which
time he became its President and Chief Scientific Officer. He
became our President and Chief Scientific Officer in May 2011, in
connection with the Merger. In our fiscal years ended March 31,
2017 and 2016, Dr. Snodgrass’ annual base cash salary,
pursuant to his January 2010 employment agreement, as amended in
June 2016, was contractually set at $350,000 and $305,000,
respectively. Pursuant to his employment agreement, Dr.
Snodgrass is eligible to receive an annual cash incentive bonus of
up to fifty percent (50%) of his base cash salary. To
conserve cash for our operations during our fiscal years ended
March 31, 2016 and 2015, Dr. Snodgrass voluntarily refrained from
receiving any cash bonus.
(3)
Dr. Smith became our Chief Medical Officer upon his employment
effective June 18, 2016. During our fiscal year ended March 31,
2017, Dr. Smith’s annual base cash salary was
$350,000.
(4)
Mr. Dotson served as Chief Financial Officer on a part-time
contract basis from September 19, 2011 through August 2012, at
which time he became our full-time employee. In our fiscal years
ended March 31, 2017 and 2016, Mr. Dotson’s annual base cash
salary was $300,000 and $250,000, respectively. To conserve cash
for our operations, Mr. Dotson did not receive a cash bonus in our
fiscal year ended March 31, 2016.
(5)
The amounts in the Option and Warrant Awards
column represent the aggregate grant date fair value of options
and/or warrants to purchase restricted shares of our common stock
awarded to Mr. Singh, Dr. Snodgrass, Dr. Smith and Mr. Dotson, and,
in Fiscal 2016, the effect of modifications to prior grants of
warrants, occurring during the fiscal year presented, computed in
accordance with the Financial Accounting Standards Board’s
Accounting Standards Codification Topic 718, Compensation –
Stock Compensation ( ASC
718). The amounts in this
column do not represent any cash payments actually received by Mr.
Singh, Dr. Snodgrass, Dr. Smith or Mr. Dotson with respect to any
of such options or warrants to purchase restricted shares of our
common stock awarded to them or modified during the periods
presented. To date, Mr. Singh, Dr. Snodgrass, Dr. Smith and Mr.
Dotson have not exercised any of such options or warrants to
purchase common stock, and there can be no assurance that any of
them will ever realize any of the ASC 718 grant date fair value
amounts presented in the Option and Warrant Awards
column.
(6)
The table below provides information regarding the option awards we
granted to Mr. Singh, Dr. Snodgrass, Dr. Smith and Mr. Dotson
during Fiscal 2017 and the assumptions used in the Black Scholes
Option Pricing Model to determine the grant date fair values of the
respective awards and modifications.
|
|
Option
Grant
|
Option
Grant
|
|
|
|
6/19/2016
|
11/9/2016
|
Total
|
|
Singh
|
$484,700
|
$272,510
|
$757,210
|
|
Snodgrass
|
302,938
|
218,008
|
520,946
|
|
Smith
|
436,230
|
218,008
|
654,238
|
|
Dotson
|
181,763
|
136,255
|
318,018
|
|
|
$1,405,631
|
$844,781
|
$2,250,412
|
|
|
|
|
|
|
Market
price per share
|
$3.49
|
$3.80
|
|
|
Exercise
price per share
|
$3.49
|
$3.80
|
|
|
Risk-free
interest rate
|
1.31%
|
1.71%
|
|
|
Volatility
|
79.82%
|
83.17%
|
|
|
Expected
term (years)
|
6.25
|
6.25
|
|
|
Dividend
rate
|
0%
|
0%
|
|
|
|
|
|
|
|
Fair
value per share
|
$2.42
|
$2.73
|
|
|
Aggregate
shares
|
580,000
|
310,000
|
|
____________________
(7)
The table below provides information regarding the warrant awards
and modifications we granted to Mr. Singh, Dr. Snodgrass and Mr.
Dotson during fiscal 2016 and the assumptions used in the Black
Scholes Option Pricing Model to determine the grant date fair
values of the respective awards and modifications.
|
|
Warrant
Grant
|
Warrant Modification
|
|
|
|
9/2/2015
|
11/11/2015
|
Total
|
|
Singh
|
$1,420,332
|
$209,242
|
$1,629,574
|
|
Snodgrass
|
852,199
|
132,826
|
985,025
|
|
Dotson
|
568,133
|
67,164
|
635,297
|
|
|
$2,840,664
|
$409,232
|
$3,249,896
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
(except shares)
|
|
|
|
|
Before
|
After
|
|
Market
price per share
|
$9.11
|
$6.50
|
$6.50
|
|
Exercise
price per share
|
$9.25
|
$9.99
|
$7.00
|
|
Risk-free
interest rate
|
1.15%
|
1.75%
|
1.76
|
|
Volatility
|
77.19%
|
78.8%
|
78.75%
|
|
Expected
term (years)
|
5
|
5.17
|
5.19
|
|
Dividend
rate
|
0%
|
0%
|
0%
|
|
|
|
|
|
|
Fair
value per share
|
$5.68
|
$3.67
|
$4.09
|
|
Aggregate
shares
|
500,000
|
952,803
|
952,803
|
Mr. Singh, Dr. Snodgrass and Mr. Dotson were granted warrants to
purchase 250,000, 150,000 and 100,000 restricted shares of our
common stock, respectively. We modified warrants to purchase an
aggregate of 477,803 shares, 310,000 shares and 165,000 shares held
by Mr. Singh, Dr. Snodgrass and Mr. Dotson,
respectively.
None of the NEOs is entitled to perquisites or other personal
benefits that, in the aggregate, are worth over $50,000 or over 10%
of their base salary.
Benefit Plans
401(k) Plan
We maintain, through a registered agent, a retirement and deferred
savings plan for our officers and employees. This plan is intended
to qualify as a tax-qualified plan under Section 401(k) of the
Internal Revenue Code of 1986, as amended. The retirement and
deferred savings plan provides that each participant may contribute
a portion of his or her pre-tax compensation, subject to statutory
limits. Under the plan, each employee is fully vested in his or her
deferred salary contributions. Employee contributions are held and
invested by the plan’s trustee. The retirement and deferred
savings plan also permits us to make discretionary contributions
subject to established limits and a vesting schedule. To
date, we have not made any discretionary contributions to the
retirement and deferred savings plan on behalf of participating
employees.
Options and Warrants Granted to NEOs
The following table provides information regarding each unexercised
stock option and warrant to purchase restricted shares of our
common stock held by each of the named executive officers as of
March 31, 2017:
|
|
|
Number of Securities Underlying Unexercised Options
(#) Exercisable
|
|
|
Number of Securities
Underlying Unexercised Options
(#) Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn K. Singh
|
|
2,000
|
|
|
-
|
|
|
14.40
|
|
|
5/17/2017
|
|
|
|
1,000
|
|
|
-
|
|
|
10.00
|
|
|
1/17/2018
|
|
|
|
1,000
|
|
|
-
|
|
|
10.00
|
|
|
1/17/2018
|
|
|
|
3,000
|
|
|
-
|
|
|
10.00
|
|
|
3/24/2019
|
|
|
|
1,125
|
|
|
-
|
|
|
10.00
|
|
|
6/17/2019
|
|
|
|
50,000
|
|
|
-
|
|
|
10.00
|
|
|
11/4/2019
|
|
|
|
21,250
|
|
|
-
|
|
|
10.00
|
|
|
12/30/2019
|
|
|
|
5,000
|
|
|
-
|
|
|
10.00
|
|
|
4/26/2021
|
|
|
|
4,017
|
|
|
-
|
|
|
7.00
|
|
|
3/19/2019
|
|
|
|
1,786
|
|
|
-
|
|
|
7.00
|
|
|
3/19/2019
|
|
|
|
72,000
|
|
|
-
|
|
|
7.00
|
|
|
3/3/2023
|
|
|
|
150,000
|
|
|
-
|
|
|
7.00
|
|
|
1/11/2020
|
|
|
|
250,000
|
|
|
-
|
|
|
7.00
|
|
|
9/2/2020
|
|
|
|
-
|
|
|
200,000
|
(1)
|
|
3.49
|
|
|
6/19/2026
|
|
|
|
11,111
|
(2)
|
|
88,889
|
(2)
|
|
3.80
|
|
|
11/9/2026
|
|
Total:
|
|
673,289
|
|
|
288,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. Ralph Snodgrass, Ph.D.
|
|
2,500
|
|
|
-
|
|
|
10.00
|
|
|
3/24/2019
|
|
|
|
1,250
|
|
|
-
|
|
|
10.00
|
|
|
6/17/2019
|
|
|
|
12,500
|
|
|
-
|
|
|
10.00
|
|
|
12/30/2019
|
|
|
|
50,000
|
|
|
-
|
|
|
7.00
|
|
|
3/3/2023
|
|
|
|
2,500
|
|
|
-
|
|
|
7.00
|
|
|
3/19/2024
|
|
|
|
7,500
|
|
|
-
|
|
|
7.00
|
|
|
3/19/2024
|
|
|
|
100,000
|
|
|
-
|
|
|
7.00
|
|
|
1/11/2020
|
|
|
|
150,000
|
|
|
-
|
|
|
7.00
|
|
|
9/20/2020
|
|
|
|
-
|
|
|
125,000
|
(1)
|
|
3.49
|
|
|
6/19/2026
|
|
|
|
8,888
|
(2)
|
|
71,112
|
(2)
|
|
3.80
|
|
|
11/9/2026
|
|
Total:
|
|
335,138
|
|
|
196,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Smith, M.D. Ph.D.
|
|
-
|
|
|
180,000
|
(1)
|
|
3.49
|
|
|
6/19/2026
|
|
|
|
8,888
|
(2)
|
|
71,112
|
(2)
|
|
3.80
|
|
|
11/9/2026
|
|
Total:
|
|
8,888
|
|
|
251,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerrold D. Dotson
|
|
5,001
|
|
|
-
|
|
|
10.00
|
|
|
10/30/2022
|
|
|
|
1,000
|
|
|
-
|
|
|
8.00
|
|
|
10/27/2023
|
|
|
|
10,000
|
|
|
-
|
|
|
7.00
|
|
|
3/3/2023
|
|
|
|
5,000
|
|
|
-
|
|
|
7.00
|
|
|
3/19/2024
|
|
|
|
50,000
|
|
|
-
|
|
|
7.00
|
|
|
1/11/2020
|
|
|
|
-
|
|
|
75,000
|
(1)
|
|
3.49
|
|
|
6/19/2026
|
|
|
|
5,555
|
(2)
|
|
44,445
|
(2)
|
|
3.80
|
|
|
11/9/2026
|
|
Total:
|
|
76,556
|
|
|
119,445
|
|
|
|
|
|
|
_______________
|
(1)
|
Represents an option to purchase shares of our common stock granted
on June 19, 2016 when the market price of our common stock was
$3.49 per share. The option will become exercisable for
25% of the shares granted on June 19, 2017 with the remaining
shares becoming exercisable ratably monthly through June 19, 2020,
when all shares granted will be fully exercisable.
|
|
(2)
|
Represents an option to purchase shares of our common stock granted
on November 9, 2016 when the market price of our common stock was
$3.80 per share. The option becomes exercisable for
1/36th
of the shares granted each month
beginning December 9, 2016 through November 9, 2019, when all
shares granted will be fully exercisable.
|
|
|
|
Subsequent
to March 31, 2017, in April 2017 we granted options to our NEOs to
purchase an aggregate total of 525,000 shares of common stock at
$1.96 per share, of which 175,000 options were granted to Mr.
Singh, 125,000 options were granted to each of Drs. Snodgrass and
Smith, and 100,000 options were granted to Mr. Dotson. In September
2017, we granted options to our NEOs to purchase an aggregate total
of 425,000 shares of common stock at $1.56 per share, of which
125,000 options were granted to Mr. Singh, 100,000 options were
granted to each of Drs. Snodgrass and Smith, and 100,000 options
were granted to Mr. Dotson.
Employment or Severance Agreements
We currently have employment agreements with Mr. Singh and Dr.
Snodgrass.
Singh
Agreement
We entered into an employment agreement with Mr. Singh on April 28,
2010. Under the agreement, as amended on June 22, 2016,
Mr. Singh’s base salary was increased from $347,500 per
year to $395,000 per year, effective June 16, 2016. Although under
his agreement, Mr. Singh is eligible to receive an annual
incentive cash bonus of up to 50% of his base salary, he has
foregone any such cash bonus payment to conserve cash for our
operations during our fiscal years 2012 through 2015. Mr. Singh
received a cash bonus in the amount of $173,750 in July 2016, for
his service during fiscal 2016. Payment of his annual incentive
bonus is at the discretion of our Board of Directors. In the event
we terminate Mr. Singh’s employment without cause, he is
entitled to receive severance in an amount equal to:
●
twelve months of his then-current base salary payable in the form
of salary continuation;
●
a pro-rated portion of the incentive cash bonus that the Board of
Directors determines in good faith that Mr. Singh earned prior to
his termination; and
●
such amounts required to reimburse him for
Consolidated Omnibus Budget Reconciliation Act (
COBRA)
payments for continuation of his medical health benefits for such
twelve-month period.
In addition, in the event Mr. Singh terminates his employment
with good reason following a change of control, he is entitled to
twelve months of his then-current base salary payable in the
form of salary continuation.
Snodgrass Agreement
We entered into an employment agreement with Dr. Snodgrass on April
28, 2010. Under the agreement, as amended on June 22,
2016, Dr. Snodgrass’s base salary was increased from
$305,000 per year to $350,000 per year, effective June 16,
2016. Although under his agreement, Dr. Snodgrass is
eligible to receive an annual incentive cash bonus of up to 50% of
his base salary, he has foregone any such cash bonus payment to
conserve cash for our operations during our fiscal years 2012
through 2015. Dr. Snodgrass received a cash bonus in the amount of
$152,500 in July 2016, for his service during fiscal 2016. Payment
of his annual incentive bonus is at the discretion of the Board of
Directors. In the event we terminate Dr. Snodgrass’s
employment without cause, he is entitled to receive severance in an
amount equal to:
●
twelve months of his then-current base salary payable in the form
of salary continuation;
●
a pro-rated portion of the incentive bonus that the Board of
Directors determines in good faith that Dr. Snodgrass earned prior
to his termination; and
●
such amounts required to reimburse him for COBRA payments for
continuation of his medical health benefits for such twelve-month
period.
In addition, in the event Dr. Snodgrass terminates his
employment with good reason, he is entitled to twelve months of his
then-current base salary payable in the form of salary
continuation.
Change
of Control Provisions
Pursuant to each of their respective employment agreements,
Dr. Snodgrass is entitled to severance if he terminates his
employment at any time for “good reason” (as defined
below), while Mr. Singh is entitled to severance if he
terminates his employment for good reason after a change of
control. Under their respective agreements, “good
reason” means any of the following events, if the event is
affected by us without the executive’s consent (subject to
our right to cure):
●
a material reduction in the executive’s responsibility;
or
●
a material reduction in the executive’s base salary except
for reductions that are comparable to reductions generally
applicable to similarly situated executives of
VistaGen.
Furthermore, pursuant to their respective employment agreements and
their stock option award agreements, as amended, in the event we
terminate the executive without cause within twelve months of
a change of control, the executive’s remaining unvested
option shares become fully vested and exercisable. Upon a change of
control in which the successor corporation does not assume the
executive’s stock options, the stock options granted to the
executive become fully vested and exercisable.
Pursuant to their respective employment agreements, a change of
control occurs when: (i) any “person” as such term
is used in Sections 13(d) and 14(d) of the Exchange Act (other
than VistaGen, a subsidiary, an affiliate, or a VistaGen employee
benefit plan, including any trustee of such plan acting as trustee)
becoming the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange), directly or indirectly, of
securities of VistaGen representing 50% or more of the combined
voting power of VistaGen’s then outstanding securities;
(ii) a sale of substantially all of VistaGen’s assets;
or (iii) any merger or reorganization of VistaGen whether or
not another entity is the survivor, pursuant to which the holders
of all the shares of capital stock of VistaGen outstanding prior to
the transaction hold, as a group, fewer than 50% of the shares of
capital stock of VistaGen outstanding after the
transaction.
In the event that, following termination of employment, amounts are
payable to an executive pursuant to his employment agreement, the
executive’s eligibility for severance is conditioned on
executive having first signed a release agreement.
Pursuant to their respective employment agreements, the estimated
amount that could be paid by us assuming that a change of control
occurred on the last business day of our current fiscal year, is
$395,000 for Mr. Singh and $350,000 for Dr. Snodgrass,
excluding the imputed value of accelerated vesting of incentive
stock options, if any.
DIRECTOR COMPENSATION
We do not have a formal compensation plan for our non-employee
directors. We adopted a director compensation policy for
our independent directors, as independence is defined by the NASDAQ
Stock Market, which became effective for our fiscal year beginning
April 1, 2014. Under the independent director compensation policy,
our independent directors are entitled to receive a $25,000 annual
retainer, payable in cash or shares of common stock. For service on
a committee of the board, an independent director is entitled to
receive an additional annual cash retainer as follows: $7,500 for
audit and compensation committee members and $5,000 for nominating
and governance committee members. In lieu of the annual cash
retainer for committee participation, each independent director
serving as a chair of a board committee shall receive the following
annual cash retainer: $15,000 for audit and compensation committee
chairs and $10,000 for the nominating and governance committee
chairs. We paid our independent directors cash compensation
consistent with the policy noted above during our fiscal year ended
March 31, 2017. To conserve cash for our operations, we had
accrued, but had not paid, our independent directors any cash
compensation during the period January 1, 2012 through March 31,
2016. We paid all such unpaid amounts, aggregating $278,500, during
Fiscal 2017.
Under our director compensation policy, as updated in March 2016,
each independent director will also receive an annual grant of an
option or warrant to purchase a minimum of 12,000 shares of our
common stock, which will vest monthly over a one-year period from
the date of grant. Prorated grants will be made for partial years
of service. In June 2016, we granted options to purchase 25,000
shares of our common stock at $3.49 per share to each of our three
independent directors. In November 2016, we granted options to
purchase an additional 25,000 shares of our common stock at $3.80
to each of the three independent directors. Subsequent to March 31,
2017, in April 2017 we granted options to purchase 35,000 shares of
our common stock at $1.96 per share, and in September 2017 we
granted options to purchase 50,000 shares of our common stock at
$1.56 per share to each of our three independent
directors.
The following table sets forth a summary of the compensation earned
by our non-employee directors in our fiscal year ended March 31,
2017.
|
|
|
Fees Earned or
Paid in Cash (1)
|
|
|
Option
Awards (2)
|
|
|
|
|
Other
Compensation
|
|
|
Total
|
|
|||||
|
Name
|
|
($)
|
|
|
($)
|
|
|
|
|
($)
|
|
|
($)
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Jon S. Saxe (3)
|
|
$
|
52,500
|
|
|
$
|
159,196
|
|
(6)
|
|
|
|
$
|
–
|
|
$
|
|
211,696
|
|
|
Brian J. Underdown, Ph.D. (4)
|
|
$
|
57,500
|
|
|
$
|
159,196
|
|
(6)
|
|
|
|
$
|
–
|
|
$
|
|
216,696
|
|
|
Jerry B. Gin, Ph.D., M.B.A (5)
|
|
$
|
32,500
|
|
|
$
|
159,196
|
|
(6)
|
|
|
|
$
|
–
|
|
$
|
|
191,696
|
|
_______________
|
(1)
|
|
The amounts shown represent fees earned for service on our Board of
Directors, and Audit Committee, Compensation Committee and
Corporate Governance and Nominating Committee during the fiscal
year ended March 31, 2017, which amounts were paid in full during
the fiscal year then ended. Fees paid during Fiscal 2017 for prior
years’ Board and committee service, $136,500 to Mr. Saxe, and
$142,000 to Dr. Underdown, are excluded from the amounts shown as
they had been reported, as appropriate, in the year in which they
were accrued.
|
|
|
|
|
|
(2)
|
|
The amounts in the Option Awards column represent the aggregate
grant date fair value of options to purchase shares of our common
stock awarded to Mr. Saxe, Dr. Underdown and Dr. Gin during our
fiscal year ended March 31, 2017, computed in accordance with the
Financial Accounting Standards Board’s Accounting Standards
Codification Topic 718, Compensation – Stock Compensation
(ASC
718). The amounts in this
column do not represent any cash payments actually received by Mr.
Saxe, Dr. Underdown or Dr. Gin with respect to any of such warrants
or options to purchase shares of our common stock awarded to them
during the fiscal year ended March 31, 2017. To date,
Mr. Saxe, Dr. Underdown and Dr. Gin have not exercised such
warrants or options to purchase common stock, and there can be no
assurance that any of them will ever realize any of the ASC 718
grant date fair value amounts presented in the Option and Warrant
Awards column.
|
|
(3)
|
|
Mr. Saxe has served as the Chairman of our Board of Directors, the
Chairman of our Audit Committee and a member of our Compensation
Committee and Corporate Governance and Nominating Committee
throughout our fiscal year ended March 31, 2017. At
March 31, 2017, Mr. Saxe holds: (i) 1,875 restricted shares of our
common stock; (ii) options to purchase 61,875 registered shares of
our common stock, of which options to purchase 14,652 shares are
exercisable; and (iii) warrants to purchase 83,250 restricted
shares of our common stock, all of which are
exercisable.
|
|
(4)
|
|
Dr. Underdown has served as a member of our Board of Directors, as
the Chairman of our Compensation Committee and Corporate Governance
and Nominating Committee and as a member of our Audit Committee
throughout our fiscal year ended March 31, 2017. At
March 31, 2017, Dr. Underdown holds: (i) options to purchase 59,250
registered shares of our common stock, of which options to purchase
12,027 shares are exercisable; and (ii) warrants to purchase 82,500
restricted shares of our common stock, all of which are
exercisable.
|
|
(5)
|
|
Dr. Gin was appointed to our Board of Directors and as a member of
our Audit Committee on March 29, 2016 and served in those
capacities throughout our fiscal year ended March 31,
2017. Effective on April 1, 2017, Dr. Gin was also appointed
as a member of the Compensation Committee and assumed chairmanship
of the Corporate Governance and Nominating Committee. At
March 31, 2017, Dr. Gin holds options to purchase 75,000 registered
shares of our common stock of which 27,777 are
exercisable.
|
|
(6)
|
|
The table below provides information regarding the option awards we
granted to Mr. Saxe, Dr. Underdown and Dr. Gin during Fiscal 2017
and the assumptions used in the Black Scholes Option Pricing Model
to determine the grant date fair values of the respective awards
and modifications.
|
|
|
Option
Grant
|
Option
Grant
|
|
|
|
6/19/2016
|
11/9/2016
|
Total
|
|
Saxe
|
$76,803
|
$82,393
|
$159,196
|
|
Underdown
|
76,803
|
82,393
|
159,196
|
|
Gin
|
76,803
|
82,393
|
159,196
|
|
|
$230,409
|
$247,179
|
$477,588
|
|
|
|
|
|
|
Market
price per share
|
$3.49
|
$3.80
|
|
|
Exercise
price per share
|
$3.49
|
$3.80
|
|
|
Risk-free
interest rate
|
1.62%
|
2.07%
|
|
|
Volatility
|
96.16%
|
91.65%
|
|
|
Expected
term (years)
|
10.00
|
10.00
|
|
|
Dividend
rate
|
0%
|
0%
|
|
|
|
|
|
|
|
Fair
value per share
|
$3.07
|
$3.30
|
|
|
Aggregate
shares
|
75,000
|
75,000
|
|
Mr. Saxe, Dr. Underdown and Dr. Gin were each granted options to
purchase 25,000 shares of our common stock on both of the dates
indicated.
Director Independence
Our securities are currently listed on The NASDAQ Capital Market,
which has a requirement that a majority of our directors be
independent. Accordingly, we evaluate independence by
the standards for director independence established by applicable
laws, rules, and listing standards, including, without limitation,
the standards for independent directors established by the SEC and
the NASDAQ Stock Market.
Subject to some exceptions, these standards generally provide that
a director will not be independent if (a) the director is, or in
the past three years has been, an employee of ours; (b) a member of
the director’s immediate family is, or in the past three
years has been, an executive officer of ours; (c) the director or a
member of the director’s immediate family has received more
than $120,000 per year in direct compensation from us other than
for service as a director (or for a family member, as a
non-executive employee); (d) the director or a member of the
director’s immediate family is, or in the past three years
has been, employed in a professional capacity by our independent
public accountants, or has worked for such firm in any capacity on
our audit; (e) the director or a member of the director’s
immediate family is, or in the past three years has been, employed
as an executive officer of a company where one of our executive
officers serves on the compensation committee; or (f) the director
or a member of the director’s immediate family is an
executive officer of a company that makes payments to, or receives
payments from, us in an amount which, in any twelve-month period
during the past three years, exceeds the greater of $1.0 million or
two percent of that other company’s consolidated gross
revenues.
Our Board of Directors has undertaken a review of its composition,
the composition of its committees and the independence of each
director. Based upon information requested from and
provided by each director concerning his background, employment and
affiliations, including family relationships, our Board of
Directors has determined that Mr. Saxe, Dr. Underdown and Dr.
Gin are “independent” as that term is defined under the
applicable rules and regulations of the SEC and NASDAQ Stock
Market. Our Board of Directors has also determined that
Mr. Saxe, Dr. Underdown and Dr. Gin, who together comprise our
audit committee, compensation committee, and corporate governance
and nominating committee, satisfy the independence standards for
those committees established by applicable SEC rules and NASDAQ
Stock Market rules. In making these determinations, our Board of
Directors considered the current and prior relationships that each
non-employee director has with the Company and all other facts and
circumstances that our Board of Directors deemed
relevant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to
the beneficial ownership of our common stock as of December
6, 2017 for:
●
each stockholder known by us to be the beneficial owner of more
than 5% of our common stock;
●
each of our directors;
●
each of our named executive officers; and
●
all of our directors and executive officers as a
group.
Applicable percentage ownership is based on 11,848,974 shares of
common stock outstanding at December 6, 2017. In computing the
number of shares of common stock beneficially owned by a person, we
deemed to be outstanding all shares of common stock subject to
options or warrants and all shares of preferred stock held by that
person or entity that are currently exercisable or exchangeable or
that will become exercisable or exchangeable within 60 days of
December 6, 2017. In computing the percentage of shares
beneficially owned, we deemed to be outstanding all shares of
common stock subject to options or warrants and all shares of
preferred stock held by that person or entity that are currently
exercisable or exchangeable or that will become exercisable or
exchangeable within 60 days of December 6, 2017. Unless
otherwise noted below, the address of each beneficial owner listed
in the table is c/o VistaGen Therapeutics, Inc., 343 Allerton
Avenue, South San Francisco, California
94080.
|
Name and address of beneficial owner
|
Number of shares beneficially owned
|
Percent
of shares beneficially
owned (1)
|
|
Executive officers and directors:
|
|
|
|
Shawn K. Singh (2)
|
760,021
|
6.04%
|
|
H. Ralph Snodgrass, Ph.D. (3)
|
511,508
|
4.16%
|
|
Mark A. Smith, M.D., Ph.D. (4)
|
146,804
|
1.22%
|
|
Jerrold D. Dotson (5)
|
265,262
|
2.19%
|
|
Mark McPartland (6)
|
79,443
|
*
|
|
Jon S. Saxe (7)
|
138,840
|
1.16%
|
|
Brian J. Underdown, Ph.D. (8)
|
133,589
|
1.11%
|
|
Jerry B. Gin, Ph.D., MBA (9)
|
216,839
|
1.81%
|
|
|
|
|
|
5% Stockholders:
|
|
|
|
Platinum Long Term Growth Fund VII/Montsant
Partners, LLC (10)
|
4,417,842
|
27.72%
|
|
Sphera Global Healthcare Master Fund
(11)
|
1,058,387
|
8.93%
|
|
Cato BioVentures (12)
|
907,294
|
7.66%
|
|
|
|
|
|
All executive officers and directors as a group (8
persons) (13)
|
2,252,296
|
16.19%
|
____________________
* less
than 1%
|
(1)
|
Based
on 11,848,974 shares of common stock issued and outstanding as of
December 6, 2017.
|
|
(2)
|
Includes
options to purchase 255,984 shares of common stock exercisable
within 60 days of December 6, 2017 and warrants to purchase 477,803
restricted shares of common stock exercisable within 60 days of
December 6, 2017.
|
|
(3)
|
Includes
options to purchase 141,284 shares of common stock exercisable
within 60 days of December 6, 2017 and warrants to purchase 310,000
restricted shares of common stock exercisable within 60 days of
December 6, 2017.
|
|
(4)
|
Includes
options to purchase 146,804 shares of common stock exercisable
within 60 days of December 6, 2017.
|
|
(5)
|
Includes
options to purchase 100,252 shares of common stock exercisable
within 60 days of December 6, 2017, including options to purchase
676 shares of common stock held by Mr. Dotson’s wife, and
warrants to purchase 165,000 restricted shares of common stock
exercisable within 60 days of December 6, 2017.
|
|
(6)
|
Includes
options to purchase 79,443 shares of common stock exercisable
within 60 days of December 6, 2017.
|
|
(7)
|
Includes
options to purchase 53,714 shares of common stock exercisable
within 60 days of December 6, 2017 and warrants to purchase 83,250
restricted shares of common stock exercisable within 60 days of
December 6, 2017.
|
|
(8)
|
Includes
options to purchase 51,089 shares of common stock exercisable
within 60 days of December 6, 2017 and warrants to purchase 82,500
restricted shares of common stock exercisable within 60 days of
December 6, 2017.
|
|
(9)
|
Includes
50,000 restricted shares of common stock held by Dr. Gin’s
wife, options to purchase 66,839 shares of common stock exercisable
within 60 days of December 6, 2017 and warrants to purchase 50,000
unregistered shares of common stock, including 25,000 shares held
by Dr. Gin’s wife, exercisable within 60 days of December 6,
2017. Excludes warrants to purchase an aggregate of 50,000 shares
of unregistered common stock (including warrants to purchase 25,000
shares held by Dr. Gin’s wife) not exercisable within 60 days
of December 6, 2017.
|
|
(10)
|
Based upon information contained
in SEC Form 13G/A filed on February 18, 2015 by Platinum Long Term
Growth Fund VII (PLTG)
and adjusted to give effect to the transactions consummated between
PLTG, Montsant Partners, LLC (Montsant),
a PLTG affiliate, and Platinum Partners Value Arbitrage Fund, L.P.
(In Official Liquidation) (PPVA),
and us through December 6, 2017. The number of beneficially owned
shares reported includes 637,500 restricted shares of common stock
that may currently be acquired by Montsant upon fixed exchange of
425,000 restricted shares of our Series A Preferred Stock
(Series A
Preferred).
Pursuant to the October 11, 2012 Note Exchange and Purchase
Agreement by and between us and PLTG. There is, however, a
limitation on exchange such that the number of shares of our common
stock that may be acquired by PLTG or its affiliates upon exchange
of the Series A Preferred is limited to the extent necessary to
ensure that, following such exchange, the total number of shares of
our common stock then beneficially owned by PLTG or its affiliates
does not exceed 9.99% of the total number of our then issued and
outstanding shares of common stock without providing us with 61
days’ prior notice thereof. Further, the reported number of
shares beneficially owned by Montsant also includes 1,131,669
shares of common stock pursuant to its ownership of 1,131,669
shares of our Series B 10% Convertible Preferred Stock
(Series B
Preferred),
immediately convertible into a like number of shares of our common
stock. Pursuant to the terms of the Certificate of Designation of
the Relative Rights and Preferences of the Series B 10% Convertible
Preferred Stock, there is, however, a limitation on conversion of
the Series B Preferred such that the number of shares of common
stock that Montsant may beneficially acquire upon such conversion
is limited to the extent necessary to ensure that, following such
conversion, the total number of shares of common stock then
beneficially owned by PLTG or Montsant does not exceed 9.99% of the
total number of then issued and outstanding shares of our common
stock without providing us with 61 days’ prior notice
thereof.
|
|
|
Further, the reported number of
shares beneficially owned by Montsant also includes 2,318,012
shares of common stock pursuant to its ownership of 2,318,012
shares of our Series C Convertible Preferred Stock
(Series C
Preferred),
immediately convertible on a fixed 1:1 conversion basis into a like
number of shares of our restricted common stock. Pursuant to the
terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series C Convertible Preferred Stock, there is,
however, a limitation on conversion of the Series C Preferred such
that the number of shares of common stock that Montsant may
beneficially acquire upon such conversion is limited to the extent
necessary to ensure that, following such conversion, the total
number of shares of common stock then beneficially owned by PLTG or
Montsant does not exceed 9.99% of the total number of then issued
and outstanding shares of our common stock without providing us
with 61 days’ prior notice thereof. Excluding the shares
otherwise subject to the beneficial ownership restrictions noted
above, PLTG, Montsant and PPVA may be deemed to be the beneficial
owner of 330,661 shares or 2.97% of our common
stock.
|
|
|
Matthew
Wright, Operating Manager of RHSW (Cayman) Ltd., and/or Moshe
Feuer, Chief Executive Officer and authorized signatory of BAM may,
subject to certain restrictions, be deemed to have voting and
investment control over the shares held by PPVA, PLTG and/or
Montsant. The address for PLTG, PPVA and Montsant is c/o BAM
Administrative Services LLC, 105 Madison Avenue, 19th Floor, New
York, NY 10016.
|
|
(11)
|
Based upon information contained in SEC Form 13F
filed on August 9, 2017, as updated to give effect to transactions
through December 6, 2017 as recorded on our books. The number of
shares reported excludes immediately exercisable warrants to
purchase 482,965 registered shares of our common stock, which
warrants are subject to a limitation on exercise such that the
number of shares of common stock that Sphera Global Healthcare
Master Fund and HFR HE Sphera Global Healthcare Master Trust
(together, "Sphera") may beneficially acquire upon such exercise is
limited to the extent necessary to ensure that, following such
exercise, the total number of shares of common stock then
beneficially owned by Sphera does not exceed 4.99% of the total
number of issued and outstanding shares of our common stock without
providing us with 61 days’ prior notice thereof.
Further excludes warrants to purchase an aggregate of 520,849
registered shares of our common stock not exercisable within 60
days of December 6, 2017 but also subject to the 4.99% ownership
limitation. The primary business address of Sphera Global
Healthcare Master Fund and its affiliates is c/o Sphera Funds
Management Ltd., 21 Ha’arba’ah Street, Tel Aviv 64739,
Israel. Moshe Arkin and Sphera Funds Management Ltd. have joint
voting and investment control over the shares held by
Sphera.
|
|
(12)
|
Based
upon information contained in SEC Form 4 filed on January 9, 2012,
as updated to give effect to transactions through December 6, 2017
as recorded on our books. Lynda Sutton has voting and
investment authority over the shares held by Cato Holding Company,
dba Cato BioVentures. The primary business address of
Cato BioVentures is 4364 South Alston Avenue, Durham, North
Carolina 27713.
|
|
(13)
|
Includes
options to purchase an aggregate of 804,574 shares of common stock
exercisable within 60 days of December 6, 2017 and warrants to
purchase an aggregate of 1,118,553 restricted shares of common
stock exercisable within 60 days of December 6,
2017.
|
Securities Authorized for Issuance Under Equity Compensation
Plans
Equity
Grants
As of
March 31, 2017, options to purchase a total of 1,659,324 registered
shares of our common stock were outstanding at a weighted average
exercise price of $4.76 per share, of which 351,532 options were
vested and exercisable at a weighted average exercise price of
$8.27 per share and 1,307,792 were unvested and not exercisable at
a weighted average exercise price of $3.81 per share. These options
were issued under our 2016 Plan and our 1999 Plan, each as
described below. At March 31, 2017, an additional 1,184,911 shares
remained available for future equity grants under our 2016
Plan.
|
Plan
category
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
|
Number of securities
remaining available for future issuance under equity compensation plans
(excluding securities
reflected in column (a))
(c)
|
|
Equity compensation
plans approved by security holders
|
1,650,089
|
$4.72
|
1,184,911
|
|
Equity compensation
plans not approved by security holders
|
9,235
|
$10.95
|
--
|
|
Total
|
1,659,324
|
$4.76
|
1,184,911
|
Amended
and Restated 2016 Stock Incentive Plan
Our
Board unanimously approved the Company’s Amended and Restated
2016 Stock Incentive Plan, formerly titled the 2008 Stock Incentive
Plan (the 2016 Plan), on
July 26, 2016, and the 2016 Plan was approved by our stockholders
at our 2016 Annual Meeting of Stockholders on September 26, 2016,
and further amended on September 15, 2017. The 2016 Plan provides
for the grant of stock options, restricted shares of common stock,
stock appreciation rights and dividend equivalent rights,
collectively referred to as “Awards”. Stock options
granted under the 2016 Plan may be either incentive stock options
under the provisions of Section 422 of the Internal Revenue Code of
1986, as amended (the Code), or non-qualified stock options.
We may grant incentive stock options only to employees of the
Company or any parent or subsidiary of the Company. Awards other
than incentive stock options may be granted to employees, directors
and consultants. A total of 10.0 million shares of our common stock
are currently authorized for issuance under the 2016 Plan. As of
December 7, 2017, 6,062,162 shares remain available for future
equity grants under our 2016 Plan.
Below
is a summary of the terms and conditions of the 2016 Plan. Unless
otherwise indicated, all capitalized terms have the same meaning as
defined in the 2016 Plan. This summary does not purport to be
complete, and is qualified, in its entirety, by the specific
language of the Amended and Restated 2016 Equity Incentive
Plan.
Description of the 2016 Plan
The
2016 Plan provides for the grant of stock options, restricted
shares of common stock, stock appreciation rights and dividend
equivalent rights, collectively referred to as
“Awards”. Stock options granted under the 2016 Plan may
be either incentive stock options under the provisions of
Section 422 of the Code, or non-qualified stock options. We
may grant incentive stock options only to employees of the Company
or any parent or subsidiary of the Company. Awards other than
incentive stock options may be granted to employees, directors and
consultants.
The
Compensation Committee of the Board of Directors, referred to as
the “Committee”, administers the 2016 Plan, including
selecting the Award recipients, determining the number of shares to
be subject to each Award, the exercise or purchase price of each
Award and the vesting and exercise periods of each
Award.
The
exercise price of all incentive stock options granted under the
2016 Plan must be at least equal to 100% of the fair market value
of the shares on the date of grant. If, however, incentive stock
options are granted to an employee who owns stock possessing more
than 10% of the voting power of all classes of our stock or the
stock of any of our subsidiaries, the exercise price of any
incentive stock option granted may not be less than 110% of the
fair market value on the grant date. The maximum term of incentive
stock options granted to employees who own stock possessing more
than 10% of the voting power of all classes of our stock or the
stock of any of our subsidiaries may not exceed five years. The
maximum term of an incentive stock option granted to any other
participant may not exceed 10 years. The Committee determines the
term and exercise or purchase price of all other Awards granted
under the 2016 Plan.
Under
the 2016 Plan, incentive stock options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the participant, only by
the participant. Other Awards shall be transferable:
●
by will and by the
laws of descent and distribution; and
●
during the lifetime
of the participant, to the extent and in the manner authorized by
the Committee by gift or pursuant to a domestic relations order to
members of the participant’s Immediate Family (as defined in
the 2016 Plan).
The
2016 Plan permits the designation of beneficiaries by holders of
Awards, including incentive stock options. In the event
of termination of a participant’s service for any reason
other than disability or death, such participant may, but only
during the period specified in the Award agreement of not less than
30 days (generally 90 days) commencing on the date of
termination (but in no event later than the expiration date of the
term of such Award as set forth in the Award Agreement), exercise
the portion of the Grantee’s Award that was vested at the
date of such termination or such other portion of the
Grantee’s Award as may be determined by the Committee. The
Grantee’s Award Agreement may provide that upon the
termination of the participant’s service for cause, the
participant’s right to exercise the Award shall terminate
concurrently with the termination of the participant’s
service. In the event of a participant’s change of status
from employee to consultant, an employee’s incentive stock
option shall convert automatically into a non-qualified stock
option on the day three months and one day following such change in
status. To the extent that the Grantee’s Award was unvested
at the date of termination, or if the participant does not exercise
the vested portion of the Grantee’s Award within the period
specified in the Award Agreement of not less than 30 days
commencing on the date of termination, the Award shall terminate.
If termination was caused by death or disability, any options that
have become exercisable prior to the time of termination, will
remain exercisable for twelve months from the date of termination
(unless a shorter or longer period of time is determined by the
Committee).
The
maximum number of shares with respect to which options and stock
appreciation rights may be granted to any participant in any
calendar year will be 300,000 shares of common stock. In connection
with a participant’s commencement of service with the
Company, a participant may be granted options and stock
appreciation rights for up to an additional 50,000 shares that
will not count against the foregoing limitation. In addition, for
Awards of restricted stock and restricted shares of common stock
that are intended to be “performance-based
compensation” (within the meaning of Section 162(m) of
the Code), the maximum number of shares with respect to which such
Awards may be granted to any participant in any calendar year will
be 300,000 shares of common stock. The limits described in this
paragraph are subject to adjustment in the event of any change in
our capital structure as described below.
The
terms and conditions of Awards are determined by the Committee,
including the vesting schedule and any forfeiture provisions.
Awards under the 2016 Plan may vest upon the passage of time or
upon the attainment of certain performance criteria. Although we do
not currently have any Awards outstanding that vest upon the
attainment of performance criteria, the Committee may establish
criteria based on any one of, or combination of, the
following:
●
increase in share
price;
●
earnings per
share;
●
total stockholder
return;
●
operating
margin;
●
gross
margin;
●
return on
equity;
●
return on
assets;
●
return on
investment;
●
operating
income;
●
net operating
income;
●
pre-tax
profit;
●
cash
flow;
●
revenue;
●
expenses;
●
earnings before
interest, taxes and depreciation;
●
economic value
added; and
●
market
share.
Subject
to any required action by our stockholders, the number of shares of
common stock covered by outstanding Awards, the number of shares of
common stock that have been authorized for issuance under the 2016
Plan, the exercise or purchase price of each outstanding Award, the
maximum number of shares of common stock that may be granted
subject to Awards to any participant in a calendar year, and the
like, shall be proportionally adjusted by the Committee in the
event of any increase or decrease in the number of issued shares of
common stock resulting from certain changes in our capital
structure as described in the 2016 Plan.
Effective
upon the consummation of a Corporate Transaction (as defined
below), all outstanding Awards under the 2016 Plan will terminate
unless the acquirer assumes or replaces such Awards. The Committee
has the authority, exercisable either in advance of any actual or
anticipated Corporate Transaction or Change in Control (as defined
below) or at the time of an actual Corporate Transaction or Change
in Control and exercisable at the time of the grant of an Award
under the 2016 Plan or any time while an Award remains outstanding,
to provide for the full or partial automatic vesting and
exercisability of one or more outstanding unvested Awards under the
2016 Plan and the release from restrictions on transfer and
repurchase or forfeiture rights of such Awards in connection with a
Corporate Transaction or Change in Control, on such terms and
conditions as the Committee may specify. The Committee also has the
authority to condition any such Award vesting and exercisability or
release from such limitations upon the subsequent termination of
the service of the grantee within a specified period following the
effective date of the Corporate Transaction or Change in Control.
The Committee may provide that any Awards so vested or released
from such limitations in connection with a Change in Control, shall
remain fully exercisable until the expiration or sooner termination
of the Award.
Under
the 2016 Plan, a Corporate Transaction is generally defined
as:
●
an acquisition of
securities possessing more than fifty percent (50%) of the total
combined voting power of our outstanding securities but excluding
any such transaction or series of related transactions that the
Committee determines shall not be a Corporate
Transaction;
●
a reverse merger in
which we remain the surviving entity but: (i) the shares of common
stock outstanding immediately prior to such merger are converted or
exchanged by virtue of the merger into other property, whether in
the form of securities, cash or otherwise; or (ii) in which
securities possessing more than fifty percent (50%) of the total
combined voting power of our outstanding securities are transferred
to a person or persons different from those who held such
securities immediately prior to such merger;
●
a sale, transfer or
other disposition of all or substantially all of the assets of the
Company;
●
a merger or
consolidation in which the Company is not the surviving entity;
or
●
a complete
liquidation or dissolution.
Under
the 2016 Plan, a Change in Control is generally defined as:
(i) the acquisition of more than 50% of the total combined
voting power of our stock by any individual or entity which a
majority of our Board of Directors (who have served on our board
for at least 12 months) do not recommend our stockholders
accept; (ii) or a change in the composition of our Board of
Directors over a period of 12 months or less.
Unless
terminated sooner, the 2016 Plan will automatically terminate in
2026. Our Board of Directors may at any time amend, suspend or
terminate the 2016 Plan. To the extent necessary to comply with
applicable provisions of U.S. federal securities laws, state
corporate and securities laws, the Code, the rules of any
applicable stock exchange or national market system, and the rules
of any non-U.S. jurisdiction applicable to Awards granted to
residents therein, we will obtain stockholder approval of any such
amendment to the 2016 Plan in such a manner and to such a degree as
required.
1999
Stock Incentive Plan
VistaGen California’s Board of Directors adopted the 1999
Plan on December 6, 1999. The 1999 Plan terminated
under its own terms in December 2009, and as a result, no awards
may currently be granted under the 1999 Plan. However, the options
and awards that have been granted pursuant to the 1999 Plan prior
to its expiration remain operative.
The 1999 Plan permitted VistaGen California to make grants of
incentive stock options, non-qualified stock options and restricted
stock awards. VistaGen California initially reserved 45,000
restricted shares of its common stock for the issuance of awards
under the 1999 Plan, which number was subject to adjustment in the
event of a stock split, stock dividend or other change in
capitalization. Prior to the 1999 Plan’s expiration, shares
that were forfeited or cancelled from awards under the 1999 Plan
were generally available for future awards.
The 1999 Plan could be administered by either VistaGen
California’s Board of Directors or a committee designated by
its Board of Directors. VistaGen California’s Board of
Directors designated its Compensation Committee as the committee
with full power and authority to select the participants to whom
awards were granted, to make any combination of awards to
participants, to accelerate the exercisability or vesting of any
award and to determine the specific terms and conditions of each
award, subject to the provisions of the 1999 Plan. All directors,
executive officers, and certain other key persons (including
employees, consultants and advisors) of VistaGen California were
eligible to participate in the 1999 Plan.
The exercise price of incentive stock options awarded under the
1999 Plan could not be less than the fair market value of the
common stock on the date of the option grant and could not be less
than 110% of the fair market value of the common stock to persons
owning stock representing more than 10% of the voting power of all
classes of our stock. The exercise price of non-qualified stock
options could not be less than 85% of the fair market value of the
common stock. The term of each option granted under the 1999 Plan
could not exceed ten years (or five years, in the case of an
incentive stock option granted to a 10% stockholder) from the date
of grant. VistaGen California’s Compensation Committee
determined at what time or times each option might be exercised
(provided that in no event could it exceed ten years from the date
of grant) and, subject to the provisions of the 1999 Plan, the
period of time, if any, after retirement, death, disability or
other termination of employment during which options could be
exercised.
The 1999 Plan also permitted the issuance of restricted stock
awards. Restricted stock awards issued by VistaGen
California were shares of common stock that vest in accordance with
terms and conditions established by VistaGen California’s
Compensation Committee. The Compensation Committee could impose
conditions to vesting that it determined to be appropriate. Shares
of restricted stock that did not vest were subject to our right of
repurchase or forfeiture. VistaGen California’s Compensation
Committee determined the number of shares of restricted stock
granted to any employee. Our 1999 Plan also gave VistaGen
California’s Compensation Committee discretion to grant stock
awards free of any restrictions.
Unless the Compensation Committee provided otherwise, the 1999 Plan
did not generally allow for the transfer of incentive stock options
and other awards and only the recipient of an award could exercise
an award during his or her lifetime. Non-qualified stock options
were transferable only to the extent provided in the award
agreement, in a manner consistent with the applicable law, and by
will and by the laws of descent and distribution. In the event of a
change in control of the Company, as defined in the 1999 Plan, the
outstanding options will automatically vest unless our Board of
Directors and the Board of Directors of the surviving or acquiring
entity make appropriate provisions for the continuation or
assumption of any outstanding awards under the 1999
Plan.
As of December 6, 2017, we have options outstanding
under the 1999 Plan to purchase an aggregate of 4,533 shares of our
common stock, the last of which, if not exercised before, expire in
March 2018.
Sales of Securities to Cato Holding
Company
Cato Holding Company (CHC), doing business as Cato BioVentures
(CBV), the parent of Cato Research Ltd.
(CRL), was one of our largest institutional common
stockholders at March 31, 2017, holding approximately 7% of our
outstanding common stock. Shawn Singh, our Chief Executive Officer
and member of our Board, served as Managing Principal of CBV and
Chief Business Officer, and General Counsel of CRL from February
2001 until August 2009. In October 2012, we issued to CHC an
unsecured promissory note in the principal amount of $310,443
(the 2012
CHC Note) and a five-year
warrant to purchase 12,500 restricted shares of the Company’s
common stock at a price of $30.00 per share (the
CHC
Warrant).
Also in October 2012, we issued to CRL: (i) an unsecured promissory
note in the initial principal amount of $1.0 million, which was
payable solely in restricted shares of our common stock and
which accrued interest at the rate of 7.5% per annum, compounded
monthly (the CRL Note), as payment in full for all contract research
and development services and regulatory advice rendered to us
by CRL through December 31, 2012 with respect to the preclinical
and clinical development of AV-101, and (ii) a five-year
warrant to purchase, at a price of $20.00 per share, 50,450
restricted shares of our common stock (the CRL Warrant). Each of the CRL Note and 2012 CHC Note
were scheduled to mature on March 31,
2016. In June 2015, the
outstanding balance of the 2012 CHC Note, the CRL Note and all
other outstanding amounts owed to CRL for CRO services were
converted into 328,571 shares of our Series B Preferred, and the
exercise prices of the CHC Warrant and the CRL Warrant were each
reduced to $7.00 per share. CHC
participated in the February 2016 warrant exchange for common
stock, exchanging the CHC Warrant and the CRL Warrant, as adjusted
to reflect accrued interest, for an aggregate of 54,894 shares of
our unregistered common stock. In May 2016, subsequent to our
consummation of the May 2016 Public Offering, all of the shares of
Series B Preferred held by CHC were automatically converted into
registered shares of our common stock.
Contract Research and Development
Agreement with Cato Research Ltd.
During
2007, we entered into a contract research organization master
services agreement with CRL related to the development of and
regulatory services related to AV101. In July 2017, we entered into
a Master Services Agreement (MSA) with CRL, which replaced a similar
May 2007 agreement, pursuant to which CRL may assist us in the
evaluation, development, commercialization and marketing of our
potential product candidates, including AV-101, and provide
regulatory and strategic consulting services as requested from time
to time. Specific projects or services will be delineated in
individual work orders negotiated from time-to-time under the MSA.
During the quarter ended September 30, 2014, we issued
to CRL an aggregate of 300,000 unregistered shares of our common
stock, having an aggregate fair value of $525,000 on the date of
issuance, for various services provided and to be provided under
the terms of five negotiated AV-101- related work
orders.
Under
work orders related to such agreement, we incurred expenses of
expenses of $612,200 and
$78,200 for the six months
ended September 30, 2017 and 2016, respectively and
expenses of $254,600 and $52,600 for the fiscal years ended March
31, 2017 and 2016, respectively.
Participation in Spring 2017
Private Placement by Dr. Jerry Gin
Between late-March 2017 and August 2017, we sold to accredited
investors, in a self-placed private placement, units consisting of
an aggregate of 523,572 unregistered shares of our common stock and
warrants to purchase up to an aggregate of 276,071 unregistered
shares of our common stock pursuant to which we received proceeds
of approximately $1.04 million (the Spring 2017 Private
Placement). Included with the
accredited investors that participated in the Spring 2017 Private
Placement was Dr. Jerry Gin, a member of our Board of Directors,
and his spouse, who together purchased an aggregate total of
100,000 shares of unregistered common stock and warrants to
purchase up to 50,000 shares of common stock for an aggregate
purchase price of $200,000.
In September 2017, the Board approved
the reduction of the
exercise price from $4.00 per share to $2.00 per share for all
warrants issued during the Spring 2017 Private Placement, as well
as the issuance of additional warrants to purchase shares of the
Company’s common stock, with an exercise price of $2.00 per
share, to each of the participants in the Spring 2017 Private
Placement. Accordingly, on September 15, 2017, the exercise price
of aforementioned warrants issued to Dr. Gin and his spouse was
decreased from $4.00 to $2.00 per share, and Dr. Gin and his spouse
received additional warrants to purchase up to 50,000 shares of the
Company’s common stock for $2.00 per
share.
DESCRIPTION OF
SECURITIES
General
Our authorized capital stock consists of 100.0 million shares of
our common stock, $0.001 par value per share, and 10.0 million
shares of preferred stock, $0.001 par value per share. The
following is a description of our common stock and certain
provisions of our Articles, and our amended and restated bylaws
(Bylaws), and certain provisions of Nevada law. This
summary does not purport to be complete and is qualified in its
entirety by the provisions of our Articles and our Bylaws, copies
of which have been filed with the SEC as exhibits to our periodic
filings under the Exchange Act.
As
of December 6, 2017, there were issued and outstanding, or reserved
for issuance:
●
11,848,974 shares of common stock held by approximately 1,300
stockholders of record;
●
750,000 shares of common stock reserved for issuance upon exchange
of 500,000 outstanding shares of our Series A Preferred, all of
which is held by one institutional investor and one accredited
investor;
●
1,160,240 shares of common stock reserved for issuance upon
exchange of our Series B Preferred held by two institutional
investors and 663,460 shares reserved for issuance as payment of
accrued dividends on outstanding shares of Series B
Preferred;
●
2,318,012 shares of common stock reserved for issuance upon
exchange of our Series C Preferred, all of which is held by one
institutional investor;
●
7,107,157 shares of common stock that have been reserved for
issuance upon exercise of outstanding warrants, with a weighted
average exercise price of $4.70 per share; and
●
3,279,871 shares of common stock reserved
for issuance upon exercise of outstanding stock options under our
1999 Stock Incentive Plan and our Amended and Restated 2016 Stock
Incentive Plan ( 2016
Plan), with a weighted
average exercise price of $3.23 per
share.
Common Stock
Except as otherwise expressly provided in our Articles, or as
required by applicable law, all shares of our common stock have the
same rights and privileges and rank equally, share ratably and are
identical in all respects as to all matters, including, without
limitation, those described below. All outstanding shares of common
stock are fully paid and nonassessable.
Voting Rights
Each holder of our common stock is entitled to cast one vote for
each share of common stock held on all matters submitted to a vote
of stockholders. Cumulative voting for election of directors is not
allowed under our Articles, which means that a plurality of the
shares voted can elect all of the directors then outstanding for
election. Except as otherwise provided under Nevada law or our
Articles and Bylaws, on matters other than election of directors,
action on a matter is approved if the votes cast favoring the
action exceed the votes cast opposing the action.
Dividend Rights
The holders of outstanding shares of our common stock are entitled
to receive dividends out of funds legally available, if our board
of directors, in its discretion, determines to issue dividend, and
only at the times and in the amounts that our board of directors
may determine. Our board of directors is not obligated to declare a
dividend. We have not paid any dividends in the past and we do not
intend to pay dividends in the foreseeable future. See
“Dividend
Policy” for more
information.
Liquidation Rights
Upon our liquidation, dissolution or winding-up, the holders of our
common stock will be entitled to share equally, identically and
ratably in all assets remaining, subject to the prior satisfaction
of all outstanding debt and liabilities and the preferential rights
and payment of liquidation preferences, if any, on any outstanding
shares of preferred stock.
No Preemptive or Similar Rights
Our common stock is not subject to conversion, redemption, sinking
fund or similar provisions.
Preferred Stock
We are authorized, subject to limitations prescribed by Nevada law,
to issue up to 10.0 million shares of preferred stock in one or
more series, to establish from time to time the number of shares to
be included in each series and to fix the designation, powers,
preferences and rights of the shares of each series and any of its
qualifications, limitations or restrictions. Our board of directors
can increase or decrease the number of shares of any series, but
not below the number of shares of that series then outstanding,
without any further vote or action by our stockholders. Our board
of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The
issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes,
could, among other things, have the effect of delaying, deferring
or preventing a change in control of the Company and may adversely
affect the market price of our common stock and the voting and
other rights of the holders of our common stock.
Series A Preferred
General
In December 2011, our board of directors authorized the creation of
a series of up to 500,000 shares of Series A Preferred. The
Certificate of Designation of the Relative Rights and Preferences
of the Series A Convertible Preferred Stock was filed with the
Nevada Secretary of State effective December 20, 2011.
Conversion and Rank
At December 6, 2017, there were 500,000 shares of
Series A Preferred outstanding, which shares are exchangeable at
the option of the holders into an aggregate of 750,000 shares of
our common stock. The Series A Preferred ranks prior to our common
stock for purposes of liquidation preference.
Conversion Restriction
At no time may a holder of shares of Series A Preferred convert
shares of the Series A Preferred if the number of shares of common
stock to be issued pursuant to such conversion would result in such
holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) more
than 9.99% of all of the common stock outstanding at such
time; provided, however, that this limitation may be waived upon
sixty-one (61) days notice to us.
Dividend Rights
The Series A Preferred has no separate dividend rights. However,
whenever the board of directors declares a dividend on the common
stock, each holder of record of a share of Series A Preferred, or
any fraction of a share of Series A Preferred, on the date set by
the board of directors to determine the owners of the common stock
of record entitled to receive such dividend (Record Date) shall be entitled to receive out of any assets
at the time legally available therefor, an amount equal to such
dividend declared on one share of common stock multiplied by the
number of shares of common stock into which such share, or such
fraction of a share, of Series A Preferred could be exchanged on
the Record Date.
Voting Rights
Except with respect to transactions upon which the Series A
Preferred shall be entitled to vote separately as a class, the
Series A Preferred has no voting rights. The common stock into
which the Series A Preferred is exchangeable shall, upon issuance,
have all of the same voting rights as other issued and outstanding
shares of our common stock.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of our
affairs, after payment or provision for payment of our debts and
other liabilities, the holders of Series A Preferred then
outstanding shall be entitled to receive, out of our assets, if
any, an amount per share of Series A Preferred calculated by taking
the total amount available for distribution to holders of all of
our outstanding common stock before deduction of any preference
payments for the Series A Preferred, divided by the total of (x),
all of the then outstanding shares of our common stock, plus (y)
all of the shares of our common stock into which all of the
outstanding shares of the Series A Preferred can be exchanged
before any payment shall be made or any assets distributed to the
holders of the common stock or any other junior stock.
Series B Preferred
General
In May 2015, our board of directors authorized the creation of a
series of up to 4.0 million shares of Series B 10% Convertible
Preferred Stock (Series B
Preferred). The Certificate of
Designation of the Relative Rights and Preferences of the Series B
10% Convertible Preferred Stock was filed with the Nevada Secretary
of State on May 7, 2015 (the Series B Certificate of
Designation).
Conversion
Each share of Series B Preferred is convertible, at the option of
the holder (Voluntary
Conversion), into one (1) share
of the Company’s common stock. All outstanding shares of
Series B Preferred are also automatically convertible into common
stock (Automatic
Conversion) upon the closing or
effective date of any of the following transactions or events: (i)
a strategic transaction involving AV-101 with an initial up front
cash payment to the Company of at least $10.0 million; (ii) a
registered public offering of Common Stock with aggregate gross
proceeds to the Company of at least $10.0 million; or (iii) for 20
consecutive trading days the Company’s Common Stock trades at
least 20,000 shares per day with a daily closing price of at least
$12.00 per share; provided, however, that Automatic Conversion and
Voluntary Conversion are subject to certain beneficial ownership
blockers set forth in Section 6 of the Certificate of
Designation.
At December
6, 2017, there were 1,160,240 shares of Series B
Preferred outstanding, which shares are exchangeable at the option
of the holder into an aggregate of 1,160,240 shares of our common
stock.
Conversion Restriction
At no time may a holder of shares of Series B Preferred convert
shares of the Series B Preferred, either by Voluntary Conversion or
Automatic Conversion, if the number of shares of common stock to be
issued pursuant to such conversion would result in such holder
beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder) more than 9.99% of
all of the common stock outstanding at such time;
provided, however, that this limitation may be waived upon
sixty-one (61) days notice to us.
Rank
The Series B Preferred ranks prior to our common stock, and
pari passu
with the Series A Preferred for
purposes of liquidation preference.
Dividend Rights
Prior to either a Voluntary Conversion or Automatic Conversion,
shares of Series B Preferred will accrue dividends, payable only in
common stock, at a rate of 10% per annum (the Accrued
Dividend). The Accrued Dividend
will be payable on the date of either a Voluntary Conversion or
Automatic Conversion solely in that number of shares of Common
Stock equal to the Accrued Dividend.
Voting Rights
Except with respect to transactions upon which the Series B
Preferred shall be entitled to vote separately as a class, the
Series B Preferred shall have no voting rights. The common stock
into which the Series B Preferred shall be exchangeable shall, upon
issuance, have all of the same voting rights as other issued and
outstanding shares of our common stock.
Liquidation Rights
Upon any liquidation, dissolution, or winding-up of the Company,
whether voluntary or involuntary, the holders of Series B Preferred
are entitled to receive out of the Company’s assets, whether
capital or surplus, an amount equal to the stated value of the
Series B Preferred ($7.00 per share), plus any accrued and unpaid
dividends thereon, before any distribution or payment shall be made
to the holders of any junior securities, including holders of our
common stock. If the assets of the Company are insufficient to pay,
in full, such amounts, then the entire assets to be distributed to
the holders of the Series B Preferred shall be ratably distributed
among the holders in accordance with the respective amounts that
would be payable on such shares if all amounts payable thereon were
paid in full.
Series C Preferred
General
In January 2016, our board of directors authorized the creation of
a series of up to 3.0 million shares of Series C Convertible
Preferred Stock (Series C
Preferred). The Certificate of
Designation of the Relative Rights and Preferences of the Series C
Convertible Preferred Stock was filed with the Nevada Secretary of
State, effective January 25, 2016 (the Series C Certificate of
Designation).
Conversion and Rank
At December
6, 2017, there were 2,318,012 shares of Series C
Preferred outstanding, which shares of Series C Preferred are
exchangeable at the option of the holder into 2,318,012 shares of
our common stock. The Series C Preferred ranks prior to our common
stock for purposes of liquidation preference, and
pari passu
with the Series A Preferred and Series
B Preferred.
Conversion Restriction
At no time may a holder of shares of Series C Preferred convert
shares of the Series C Preferred if the number of shares of common
stock to be issued pursuant to such conversion would result in such
holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) more
than 9.99% of all of the common stock outstanding at such
time; provided, however, that this limitation may be waived upon
sixty-one (61) days notice to us.
Dividend Rights
The Series C Preferred has no separate dividend rights. However,
whenever the board of directors declares a dividend on the common
stock, each holder of record of a share of Series C Preferred, or
any fraction of a share of Series C Preferred, on the date set by
the board of directors to determine the owners of the common stock
of record entitled to receive such dividend (Record Date) shall be entitled to receive out of any assets
at the time legally available therefor, an amount equal to such
dividend declared on one share of common stock multiplied by the
number of shares of common stock into which such share, or such
fraction of a share, of Series C Preferred could be exchanged on
the Record Date.
Voting Rights
Except with respect to transactions upon which the Series C
Preferred shall be entitled to vote separately as a class, the
Series C Preferred has no voting rights. The common stock into
which the Series C Preferred is exchangeable shall, upon issuance,
have all of the same voting rights as other issued and outstanding
shares of our common stock.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of our
affairs, after payment or provision for payment of our debts and
other liabilities, the holders of Series C Preferred then
outstanding shall be entitled to receive, out of our assets, if
any, an amount per share of Series C Preferred calculated by taking
the total amount available for distribution to holders of all of
our outstanding common stock before deduction of any preference
payments for the Series C Preferred, divided by the total of (x),
all of the then outstanding shares of our common stock, plus (y)
all of the shares of our common stock into which all of the
outstanding shares of the Series C Preferred can be exchanged
before any payment shall be made or any assets distributed to the
holders of the common stock or any other junior stock.
Options
As
of December 6, 2017, we had options to purchase 3,279,871 shares of
our common stock outstanding pursuant to our 1999 Plan and our 2016
Plan.
Warrants
As
of December 6, 2017, warrants to purchase 7,107,157 shares of our
common stock were outstanding, with a weighted average exercise
price of $4.70 per share.
Warrants offered hereby
We are offering
8,333,333
shares of
our common stock and warrants to purchase up
to 8,333,333 shares
of our common stock. Each share of common
stock will be accompanied by a warrant to purchase one share of
common stock at an exercise price per share equal to
100% of
the combined public
offering price per share and related
warrant. The common stock and warrants are immediately separable
but can only be purchased together in this
offering.
Form
The warrants will be issued in electronic book-entry form to the
investors. You should review a copy of the form of warrant, which
is filed as an exhibit to the registration statement of which this
prospectus forms a part, for a complete description of the terms
and conditions applicable to the warrants.
Exercisability
The warrants are
exercisable at any time after their original issuance, and at any
time up to the date that is five years after their original
issuance. Each of the
warrants may be exercised, in
whole or in part, by delivering to us
a written notice of
election to exercise the applicable warrant and delivering to us
cash payment of the exercise price, if applicable. The exercise
price and the number of shares of our common stock issuable upon
exercise of the warrants is subject to adjustment in the event of
certain subdivisions and combinations, including by any stock split
or reverse stock split, stock dividend, recapitalization or
otherwise.
Cashless
Exercise: If, at any time
during the term of the warrants, the issuance or resale of shares
of our common stock upon exercise of the warrants is not covered by
an effective registration statement, the holder is permitted to
effect a cashless exercise of the warrants (in whole or in part) in
which case the holder would receive upon such exercise the net
number of shares of common stock determined according to the
formula set forth in the warrants. Shares issued pursuant to a
cashless exercise would be deemed to have been issued pursuant to
the exemption from registration provided by Section 3(a)(9) of the
Securities Act of 1933, and amended (the Securities
Act), and the shares of common
stock issued upon such cashless exercise would take on the
characteristics of the Warrants being exercised, including, for
purposes of Rule 144(d) promulgated under the Securities Act, a
holding period beginning from the original issuance date of the
warrants.
Adjustment Provisions:
The exercise price and the number and
type of securities purchasable upon exercise of the warrants are
subject to adjustment upon certain corporate events, including
certain subdivisions, combinations and similar events. If we
declare any dividend or distribution of assets (including cash,
stock or other securities, evidence of indebtedness, purchase
rights or other property), each holder of a warrant will be
entitled to participate in such distribution to the same extent
that the holder would have participated had the applicable warrant
been exercised immediately before the record date for the
distribution. The terms of the warrants may make it difficult for
us to raise additional capital at prevailing market terms in the
future.
Transferability: Subject
to applicable laws, the warrants may be offered for sale, sold,
transferred or assigned without our consent. However, as of the
date of this prospectus supplement there is no established trading
market for the warrants and it is not expected that a trading
market for the warrants will develop in the future. Without an
active trading market, the liquidity of the warrants will be
limited.
Listing: We will not apply to list the warrants on
NASDAQ Capital Market. We do not intend to list the warrants on any
securities exchange or other quotation system. Without an
active market, the liquidity of the warrants will be
limited.
Rights as a
stockholder: Except as set
forth in the warrants or by virtue of such holders’ ownership
of shares of our common stock, the holders of the warrants do not
have the rights or privileges of holders of our common stock,
including any voting rights, until they exercise the
warrants.
Limitations on
Exercise: The exercise of
the warrants may be limited in certain circumstances if, after
giving effect to such exercise, the holder or any of its affiliates
would beneficially own (as determined in accordance with the terms
of the warrants) more than 4.99% (or, at the election of the
holder, 9.99%) of our outstanding common stock immediately after
giving effect to the exercise.
Fundamental
Transactions: In the event
of certain fundamental transactions, as described in the warrants
and generally including any merger or consolidation with or into
another entity, the holders of the warrants shall thereafter have
the right to exercise the applicable warrant for the same amount
and kind of securities, cash or property as it would have been
entitled to receive upon the occurrence of such fundamental
transaction if it had been, immediately prior to such fundamental
transaction, the holder of shares of common stock issuable upon
exercise in full of the warrant. In the event of a Change of
Control (as defined in the warrants) (other than a Change of
Control which was not approved by the Board of Directors, as to
which this right shall not apply), at the request of the holder
delivered before the 30th day after such Change of Control, a
holder of a warrant will have the right to require us or any
successor entity to purchase the holder’s warrant for the
Black-Scholes Value of the remaining unexercised portion of the
warrant on the effective date of such Change of Control (determined
in accordance with a formula specified in the warrants), payable in
cash; provided, that if the applicable Change of Control was not
approved by our Board of Directors, such amount shall be payable,
at our option in either (x) shares of our common stock or the
consideration receivable by holders of common stock in the Change
of Control transaction, as applicable, valued at the value of the
consideration received by the shareholders in such Change of
Control, or (y) cash.
Dividends and Other
Distributions: If we
declare or make any dividend or other distribution of our assets to
holders of shares of our common stock (including any distribution
of cash, stock or other securities, property, options, evidence of
indebtedness or any other assets), then, subject to certain
limitation on exercise described in the warrants, each holder of a
warrant shall receive the distributed assets that such holder would
have been entitled to receive in the distribution had the holder
exercised the warrant immediately prior to the record date for the
distribution.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
Computershare Trust Company, N.A., Jersey City, New
Jersey.
UNDERWRITING
We have entered into an underwriting agreement with
Oppenheimer & Co. Inc., as
the representative of the several underwriters named below. The
underwriting agreement provides for the purchase by the several
underwriters of the
shares of common stock and
related warrants offered hereby.
Subject to the terms and conditions of the
underwriting agreement, we have agreed to sell to the
underwriters, and each underwriter has severally agreed to purchase the number of shares
of common stock and related
warrants set forth opposite its name
below:
|
Name
|
Number of Shares
|
Number of Warrants
|
|
Oppenheimer
& Co. Inc.
|
|
|
|
Chardan
Capital Markets, LLC
|
|
|
|
Total
|
|
|
The underwriters have agreed to purchase all of the
shares and related warrants
offered by this prospectus if any are
purchased.
The underwriters have advised us that
they propose to offer the shares of
common stock and related
warrants directly to the public at the combined public offering price set forth on the
cover page of this prospectus. In addition, the underwriters may offer some of the shares
and related warrants to other
securities dealers at such price less a concession of $ per
share and related warrants.
The underwriters may also
allow, and such dealers may re-allow, a concession not in excess of
$ per share and related
warrants to other dealers. After the public offering of the shares
of common stock and related
warrants, the combined public
offering price and other selling terms may be changed by the
underwriters.
The
following table shows the underwriting discount to be paid to the
underwriters in connection with this offering.
|
|
Per Share and
Related Warrant
|
Total
|
|
Combined
public offering price
|
$
|
$
|
|
Underwriting
discount
|
$
|
$
|
We
estimate that our total expenses of the offering, excluding the
estimated underwriting discount, will be approximately $340,000,
which includes the costs and expenses for which we have agreed to
reimburse the underwriters for certain expenses, including for fees
and expenses of their legal counsel up to an amount of $125,000,
provided that any such costs and expenses may not exceed $145,000
in the aggregate.
We
have engaged Oppenheimer through September 30, 2018 to assist us in
our evaluation of financing alternatives and to act as the sole
underwriter, sole placement agent, sole selling agent, sole initial
purchaser and/or sole dealer-manager, or other appropriate sole
role as the case may be, on any capital-raising transaction,
including the sole financial advisor on any negotiated exercise of
our outstanding warrants, excluding any self-placed private
placements by us of our securities to accredited individual
investors. If during the term of Oppenheimer’s engagement, we
complete a financing or enter into an agreement that subsequently
results in a completed financing, we have agreed to pay Oppenheimer
fees and commissions equal to 7% of the gross proceeds raised in
the financing, subject to certain exceptions. We also agreed to
reimburse Oppenheimer for all of its reasonable expenses (including
reasonable fees and expenses of its legal counsel), subject to
certain agreed upon caps.
We
have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities
Act.
We
and our officers and directors have agreed to a 90-day
“lock-up” with respect to shares of our common stock
and other of our securities that they beneficially own, including
securities that are convertible into shares of common stock and
securities that are exchangeable or exercisable for shares of
common stock. This means that, subject to certain exceptions, for a
period of 90 days following the date of this prospectus, we and
such persons may not offer, sell, pledge or otherwise dispose of
these securities without the prior written consent of Oppenheimer
& Co. Inc.
Electronic Delivery of
Preliminary Prospectus: A
prospectus in electronic format may be delivered to potential
investors by the underwriters. The prospectus in electronic format
will be identical to the paper version of such preliminary
prospectus. Other than the prospectus in electronic format, the
information on any
underwriter’s website and any information contained in any
other website maintained by such underwriters is not part of this
prospectus or the registration statement of which this prospectus
forms a part.
Other: The underwriters and their affiliates have
provided in the past and may provide from time to time in the
future certain commercial banking, financial advisory, investment
banking and other services for us and our affiliates in the
ordinary course of their business, for which they may receive
customary fees and commissions. Oppenheimer acted as the sole
underwriter of the September 2017 Public Offering. In connection
therewith, Oppenheimer received a discount of approximately
$168,000 and reimbursement of expenses in the aggregate amount of
$95,000. Pursuant to engagement letters, each dated September 24,
2017, we retained each of Oppenheimer and Chardan Capital Markets,
LLC (Chardan) to assist us in our evaluation of certain
financial and strategic alternatives and, in connection therewith,
issued to each firm 75,000 unregistered shares of our common stock
and agreed to reimburse each of them for their reasonable expenses
incurred in connection therewith. In addition, from time to time,
the underwriters and their affiliates may effect transactions for
their own accounts or the accounts of customers, and hold on behalf
of themselves or their customers, long or short positions in our
debt or equity securities or loans, and may do so in the future.
The 75,000 shares of common stock issued to Oppenheimer, and the
75,000 shares of common stock issued to Chardan are deemed to be
compensation by the Financial Industry Regulatory Authority, Inc.,
or FINRA, and are therefore subject to FINRA Rule 5110(g)(1). In
accordance with FINRA Rule 5110(g)(1), such shares may not be sold,
transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put, or call transaction
that would result in the effective economic disposition of such
securities by any person for a period of 180 days immediately
following the date of effectiveness or commencement of sales of the
common stock in this offering, except the transfer of any
shares:
●
by
operation of law or by reason of our
reorganization;
●
to
any FINRA member firm participating in this offering and the
officers or partners thereof, if all shares so transferred remain
subject to the lock-up restriction described above for the
remainder of the time period;
●
if
the aggregate amount of our securities held by either the
underwriters or a related person do not exceed 1% of the securities
being offered;
●
that
is beneficially owned on a pro-rata basis by all equity owners of
an investment fund, provided that no participating member manages
or otherwise directs investments by the fund, and participating
members in the aggregate do not own more than 10% of the equity in
the fund; or
●
the
exercise or conversion of any security, if all securities received
remain subject to the lock-up restriction set forth above for the
remainder of the time period.
NOTICE TO INVESTORS
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or
the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by this
prospectus may not be offered or sold, directly or indirectly, nor
may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such
securities be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the
applicable rules and regulations of that jurisdiction. Persons into
whose possession this prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the
offering and the distribution of this prospectus. This prospectus
does not constitute an offer to sell or a solicitation of an offer
to buy any securities offered by this prospectus in any
jurisdiction in which such an offer or a solicitation is
unlawful.
European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each,
a Relevant Member
State) an offer to the public
of any securities which are the subject of the offering
contemplated by this prospectus supplement may not be made in that
Relevant Member State other than the offers contemplated in this
prospectus in name(s) of Member State(s) where prospectus will be
approved or passported for the purposes of a non-exempt offer once
this prospectus has been approved by the competent authority in
such Member State and published and passported in accordance with
the Prospectus Directive as implemented in name(s) of relevant
Member State(s) except that an offer to the public in that Relevant
Member State of any securities may be made at any time under the
following exemptions under the Prospectus Directive, if they have
been implemented in that Relevant Member State:
(a)
to legal entities which are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated, whose
corporate purpose is solely to invest in securities;
(b)
to any legal entity which has two or more of (1) an average of at
least 250 employees during the last financial year; (2) a total
balance sheet of more than €43,000,000 and (3) an annual net
turnover of more than €50,000,000, as shown in its last
annual or consolidated accounts;
(c)
by the representative to fewer than 100 natural or legal persons
(other than qualified investors as defined in the Prospectus
Directive); or
(d)
in any other circumstances falling within Article 3(2) of the
Prospectus Directive, provided that no such offer of securities
shall result in a requirement for the publication by the Company or
any underwriter of a prospectus pursuant to Article 3 of the
Prospectus Directive.
For the purposes of this provision, the expression an “offer
to the public” in relation to any securities in any Relevant
Member State means the communication in any form and by any means
of sufficient information on the terms of the offer and any
securities to be offered so as to enable an investor to decide to
purchase any securities, as the same may be varied in that Member
State by any measure implementing the Prospectus Directive in that
Member State and the expression “Prospectus Directive”
means Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
United Kingdom
The underwriters have represented, warranted and
agreed that:
(a) they have only communicated or
caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment
activity (within the meaning of section 21 of the Financial
Services and Markets Act 2000 (the FSMA)) received by them in connection
with the issue or sale of any securities in circumstances in which
section 21(1) of the FSMA does not apply to the Company;
and
(b)
they have complied with and will comply with all
applicable provisions of the FSMA with respect to anything done by
them in relation to the securities in, from or
otherwise involving the United Kingdom.
Israel
In the State of Israel, the securities offered hereby may not be
offered to any person or entity other than the
following:
(a) a
fund for joint investments in trust (i.e., mutual fund), as such
term is defined in the Law for Joint Investments in Trust,
5754-1994, or a management company of such a fund;
(b)
a provident fund as defined in Section 47(a)(2) of the Income Tax
Ordinance of the State of Israel, or a management company of such a
fund;
(c)
an insurer, as defined in the Law for Oversight of Insurance
Transactions, 5741-1981;
(d)
a banking entity or satellite entity, as such terms are defined in
the Banking Law (Licensing), 5741-1981, other than a joint services
company, acting for their own account or for the account of
investors of the type listed in Section 15A(b) of the Securities
Law 1968;
(e) a
company that is licensed as a portfolio manager, as such term is
defined in Section 8(b) of the Law for the Regulation of Investment
Advisors and Portfolio Managers, 5755-1995, acting on its own
account or for the account of investors of the type listed in
Section 15A(b) of the Securities Law 1968;
(f) a
company that is licensed as an investment advisor, as such term is
defined in Section 7(c) of the Law for the Regulation of Investment
Advisors and Portfolio Managers, 5755-1995, acting on its own
account;
(g)
a company that is a member of the Tel Aviv Stock Exchange, acting
on its own account or for the account of investors of the type
listed in Section 15A(b) of the Securities Law 1968;
(h)
an underwriter fulfilling the conditions of Section 56(c) of the
Securities Law, 5728-1968;
(i) a
venture capital fund (defined as an entity primarily involved in
investments in companies which, at the time of investment, (i) are
primarily engaged in research and development or manufacture of new
technological products or processes and (ii) involve above-average
risk);
(j)
an entity primarily engaged in capital markets activities in which
all of the equity owners meet one or more of the above criteria;
and
(k)
an entity, other than an entity formed for the purpose of
purchasing securities in this offering, in which the shareholders
equity (including pursuant to foreign accounting rules,
international accounting regulations and U.S. generally accepted
accounting rules, as defined in the Securities Law Regulations
(Preparation of Annual Financial Statements), 1993) is in excess of
NIS 50 million.
Any offeree of the securities offered hereby in the State of Israel
shall be required to submit written confirmation that it falls
within the scope of one of the above criteria. This prospectus will
not be distributed or directed to investors in the State of Israel
who do not fall within one of the above criteria.
In Canada
The securities subject to this offering are not qualified for sale
in Canada and may not be offered or sold in Canada, directly or
indirectly, on our behalf.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon by Disclosure Law Group, a Professional Corporation,
San Diego, California (DLG). Partners of DLG beneficially own an aggregate
of 84,487 registered and/or restricted shares of our common
stock. Lowenstein Sandler LLP,
New York, NY, is acting as counsel for the
underwriters in connection with this
offering.
EXPERTS
The financial statements as of March 31, 2017 and 2016, and for the
years then ended, included in this prospectus, have been audited
by OUM & Co. LLP, an independent registered public
accounting firm, as stated in their report appearing herein. Such
financial statements have been so included in reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special
reports, proxy statements and other information with the SEC. You
may read and copy any document we file at the SEC’s public
reference room at 100 F Street, NE, Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying
a fee for the copying cost. Please call the SEC at 1-800-SEC-0330
for more information about the operation of the public reference
room. Our SEC filings are also available, at no charge, to the
public at the SEC’s website at
http://www.sec.gov.
We have filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the shares of common stock
being offered by us under this prospectus. This prospectus is part
of that registration statement. This prospectus does not contain
all of the information set forth in the registration statement or
the exhibits to the registration statement. For further information
with respect to us and the securities we are offering pursuant to
this prospectus, you should refer to the registration statement and
its exhibits. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to
are not necessarily complete, and you should refer to the copy of
that contract or other documents filed as an exhibit to the
registration statement. You may read or obtain a copy of the
registration statement at the SEC’s public reference
facilities and Internet site referred to above.
VISTAGEN THERAPEUTICS INC.
INDEX TO FINANCIAL STATEMENTS
|
|
Page
|
|
Audited Financial Statements for the years ended March 31, 2017 and
2016
|
|
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
|
|
|
Financial statements for the three- and six-month periods ended
September 30, 2017 and 2016 (Unaudited)
|
|
|
F-34
|
|
|
F-35
|
|
|
F-36
|
|
|
F-3y
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of
Directors and Stockholders
VistaGen
Therapeutics, Inc.
We have audited the
accompanying consolidated balance sheets of VistaGen Therapeutics,
Inc. as of March 31, 2017 and 2016 and the related consolidated
statements of operations and comprehensive loss, cash flows, and
stockholders’ equity (deficit) for each of the two fiscal
years in the period ended March 31, 2017. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included
consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our
opinion.
In our opinion, the
consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
VistaGen Therapeutics, Inc. at March 31, 2017 and 2016, and the
consolidated results of its operations and its cash flows for each
of the two fiscal years in the period ended March 31, 2017, in
conformity with U.S. generally accepted accounting
principles.
The accompanying
consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has not yet
generated sustainable revenues, has suffered recurring losses and
negative cash flows from operations and has minimal
stockholders’ equity, all of which raise substantial doubt
about its ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ OUM & Co.
LLP
San Francisco,
California
June 28,
2017
VISTAGEN THERAPEUTICS,
INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in dollars, except share amounts)
|
|
March
31,
|
March 31,
|
|
|
2017
|
2016
|
|
|
|
|
|
ASSETS
|
||
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$2,921,300
|
$428,500
|
|
Prepaid expenses
and other current assets
|
456,600
|
426,800
|
|
Total
current assets
|
3,377,900
|
855,300
|
|
Property and
equipment, net
|
286,500
|
87,600
|
|
Security deposits
and other assets
|
47,800
|
46,900
|
|
Total
assets
|
$3,712,200
|
$989,800
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$867,300
|
$936,000
|
|
Accrued
expenses
|
443,000
|
814,000
|
|
Current portion of
notes payable and accrued interest
|
54,800
|
43,600
|
|
Capital lease
obligations
|
2,400
|
1,100
|
|
Total current
liabilities
|
1,367,500
|
1,794,700
|
|
|
|
|
|
Non-current
liabilities:
|
|
|
|
Notes
payable
|
-
|
27,200
|
|
Accrued dividends
on Series B Preferred Stock
|
1,577,800
|
2,089,600
|
|
Deferred rent
liability
|
139,200
|
55,500
|
|
Capital lease
obligations
|
11,900
|
-
|
|
Total
non-current liabilities
|
1,728,900
|
2,172,300
|
|
Total
liabilities
|
3,096,400
|
3,967,000
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
Preferred stock,
$0.001 par value; 10,000,000 shares authorized at March 31, 2017
and March 31, 2016:
|
|
|
|
Series A Preferred,
500,000 shares authorized and outstanding at March 31, 2017 and
March 31, 2016
|
500
|
500
|
|
Series B Preferred; 4,000,000 shares
authorized at March 31, 2017 and March 31, 2016; 1,160,240 shares
and 3,663,077 shares issued and outstanding at March 31, 2017 and
March 31, 2016, respectively
|
1,200
|
3,700
|
|
Series C Preferred:
3,000,000 shares authorized at March 31, 2017 and March 31, 2017;
2,318,012 shares issued and outstanding at March 31, 2017 and March
31, 2016
|
2,300
|
2,300
|
|
Common stock,
$0.001 par value; 30,000,000 shares authorized at March 31, 2017
and March 31, 2016;
|
|
|
|
8,974,386 and
2,623,145 shares issued at March 31, 2017 and March 31, 2016,
respectively
|
9,000
|
2,600
|
|
Additional paid-in
capital
|
146,569,600
|
132,725,000
|
|
Treasury stock, at
cost, 135,665 shares of common stock held at March 31, 2017 and
March 31, 2016
|
(3,968,100)
|
(3,968,100)
|
|
Accumulated
deficit
|
(141,998,700)
|
(131,743,200)
|
|
Total
stockholders’ equity (deficit)
|
615,800
|
(2,977,200)
|
|
Total
liabilities and stockholders’ equity (deficit)
|
$3,712,200
|
$989,800
|
See
accompanying notes to consolidated financial
statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(Amounts in dollars, except share amounts)
|
|
Fiscal
Years Ended
March
31,
|
|
|
|
2017
|
2016
|
|
Revenues:
|
|
|
|
Sublicense
fees
|
$1,250,000
|
$-
|
|
Total
revenues
|
1,250,000
|
-
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
5,203,700
|
3,931,600
|
|
General and
administrative
|
6,294,800
|
13,918,600
|
|
Total operating
expenses
|
11,498,500
|
17,850,200
|
|
Loss from
operations
|
(10,248,500)
|
(17,850,200)
|
|
Other expenses,
net:
|
|
|
|
Interest expense,
net
|
(4,600)
|
(770,800)
|
|
Change in warrant
liability
|
-
|
(1,894,700)
|
|
Loss on
extinguishment of debt
|
-
|
(26,700,200)
|
|
Other
expense
|
-
|
(2,300)
|
|
Loss before income
taxes
|
(10,253,100)
|
(47,218,200)
|
|
Income
taxes
|
(2,400)
|
(2,300)
|
|
Net loss and
comprehensive loss
|
(10,255,500)
|
(47,220,500)
|
|
|
|
|
|
Accrued dividend on
Series B Preferred stock
|
(1,257,000)
|
(2,140,500)
|
|
Deemed dividend on
Series B Preferred Units
|
(111,100)
|
(2,058,000)
|
|
|
|
|
|
Net loss
attributable to common stockholders
|
$(11,623,600)
|
$(51,419,000)
|
|
|
|
|
|
Basic and diluted
net loss attributable to common stockholders
|
|
|
|
per common
share
|
$(1.54)
|
$(29.08)
|
|
|
|
|
|
Weighted average
shares used in computing basic and diluted net loss
attributable
|
|
|
|
to common
stockholders per common share
|
7,531,642
|
1,767,957
|
See
accompanying notes to consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Amounts in dollars)
|
|
Fiscal
Years Ended
March
31,
|
|
|
|
2017
|
2016
|
|
Cash flows
from operating activities:
|
|
|
|
Net
loss
|
$(10,255,500)
|
$(47,220,500)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization
|
54,900
|
53,500
|
|
Amortization
of discounts on convertible and promissory notes
|
-
|
564,800
|
|
Change
in warrant liability
|
-
|
1,894,700
|
|
Stock-based
compensation
|
851,300
|
4,041,400
|
|
Expense related to modification of warrants, including exchange of
warrants for Series C Preferred and common stock
|
427,500
|
6,218,000
|
|
Amortization
of deferred rent
|
83,700
|
(27,500)
|
|
Fair
value of common stock granted for services
|
1,640,100
|
829,200
|
|
Fair
value of Series B Preferred stock granted for services
|
375,000
|
1,382,500
|
|
Fair
value of warrants granted for services
|
240,300
|
1,280,800
|
|
Gain
on currency fluctuation
|
-
|
(6,400)
|
|
Loss
on extinguishment of debt
|
-
|
26,700,200
|
|
Loss
on disposition of fixed assets
|
-
|
2,300
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Prepaid
expenses, security deposit and other current assets
|
(227,700)
|
25,700
|
|
Accounts
payable and accrued expenses, including accrued
interest
|
(451,700)
|
(547,200)
|
|
Net
cash used in operating activities
|
(7,262,100)
|
(4,808,500)
|
|
|
|
|
|
Cash flows
from investing activities:
|
|
|
|
Purchases
of equipment
|
(239,100)
|
(26,300)
|
|
Net cash used in
investing activities
|
(239,100)
|
(26,300)
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
Net
proceeds from issuance of common stock and warrants, including
Units
|
9,899,500
|
280,000
|
|
Net
proceeds from issuance of Series B Preferred Units
|
278,000
|
5,025,800
|
|
Repayment
of capital lease obligations
|
(1,300)
|
(1,000)
|
|
Repayment
of notes
|
(182,200)
|
(111,500)
|
|
Net cash provided
by financing activities
|
9,994,000
|
5,193,300
|
|
Net increase
in cash and cash equivalents
|
2,492,800
|
358,500
|
|
Cash and cash
equivalents at beginning of period
|
428,500
|
70,000
|
|
Cash and cash
equivalents at end of period
|
$2,921,300
|
$428,500
|
|
|
|
|
|
Supplemental
disclosure of cash flow activities:
|
|
|
|
Cash
paid for interest
|
$16,600
|
$12,700
|
|
Cash
paid for income taxes
|
$2,400
|
$2,400
|
|
|
|
|
|
Supplemental
disclosure of noncash activities:
|
|
|
|
Conversion of
Senior Secured Notes, Subordinate Convertible Notes,
Promissory
|
|
|
|
Notes, Accounts
payable and other debt into Series B Preferred
|
$-
|
$18,891,400
|
|
Insurance premiums
settled by issuing note payable
|
$178,200
|
$79,400
|
|
Accrued dividends
on Series B Preferred
|
$1,257,000
|
$2,140,500
|
|
Accrued dividends
on Series B Preferred settled upon conversion by issuance of common
stock
|
$1,768,800
|
$50,900
|
|
Acquisition of
equipment under capital lease
|
$14,700
|
$-
|
See
accompanying notes to consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
Fiscal Years Ended March 31, 2017 and 2016
(Amounts in dollars, except share amounts)
|
|
Series A
Preferred Stock
|
Series B
Preferred Stock
|
Series C
Preferred Stock
|
Common
Stock
|
Additional
Paid-in
|
Treasury
|
Accumulated
|
Total
Stockholders' Equity
|
||||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stock
|
Deficit
|
(Deficit)
|
|
Balances at
March 31, 2015
|
500,000
|
$500
|
-
|
$-
|
-
|
$-
|
1,677,126
|
$1,700
|
$67,945,800
|
$(3,968,100)
|
$(84,522,700)
|
$(20,542,800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
proceeds from sale of common stock Units for cash under 2014 Unit
Private Placement, including beneficial conversion
feature
|
-
|
-
|
-
|
-
|
-
|
-
|
33,000
|
-
|
277,200
|
-
|
-
|
277,200
|
|
Proceeds from
sale of Series B Preferred Units for cash under Series B
Preferred Unit Private Placement
|
-
|
-
|
717,978
|
700
|
-
|
-
|
-
|
-
|
5,025,100
|
-
|
-
|
5,025,800
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
4,041,400
|
-
|
-
|
4,041,400
|
|
Conversion of
Senior Secured and subordinate promissory notes into Series B
Preferred stock, including recapture of beneficial conversion
feature upon conversion
|
-
|
-
|
3,018,917
|
3,100
|
-
|
-
|
-
|
-
|
42,577,100
|
-
|
-
|
42,580,200
|
|
Elimination of
warrant liability resulting from modification of PLTG
Warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
4,903,100
|
-
|
-
|
4,903,100
|
|
Exchange of
common stock for Series B Preferred stock
|
-
|
-
|
30,000
|
-
|
-
|
-
|
(30,000)
|
-
|
-
|
-
|
-
|
-
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,140,500)
|
-
|
-
|
(2,140,500)
|
|
Conversion of
Series B Preferred stock into common stock, including
common stock issued in payment of accrued
dividends
|
|
|
(228,818)
|
(200)
|
-
|
-
|
235,655
|
200
|
50,900
|
-
|
-
|
50,900
|
|
Exchange of
common stock for Series C Preferred stock
|
-
|
-
|
-
|
-
|
200,000
|
200
|
(200,000)
|
(200)
|
-
|
-
|
-
|
-
|
|
Exchange of
outstanding warrants for Series C Preferred
stock
|
-
|
-
|
-
|
-
|
2,118,012
|
2,100
|
-
|
-
|
3,192,800
|
-
|
-
|
3,194,900
|
|
Exchange of
outstanding warrants for common stock and other warrant
modifications
|
-
|
-
|
-
|
-
|
-
|
-
|
814,989
|
800
|
3,022,300
|
-
|
-
|
3,023,100
|
|
Fair value of common
stock, Series B Preferred stock and warrants granted for
services
|
-
|
-
|
125,000
|
100
|
-
|
-
|
92,375
|
100
|
3,829,800
|
-
|
-
|
3,830,000
|
|
Net loss for
fiscal year ended March 31, 2016
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(47,220,500)
|
(47,220,500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at
March 31, 2016
|
500,000
|
$500
|
3,663,077
|
$3,700
|
2,318,012
|
$2,300
|
2,623,145
|
$2,600
|
$132,725,000
|
$(3,968,100)
|
$(131,743,200)
|
$(2,977,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
sale of Series B Preferred Units for cash under Series B
Preferred Unit Private Placement
|
-
|
-
|
39,714
|
-
|
-
|
-
|
-
|
-
|
278,000
|
-
|
-
|
278,000
|
|
Proceeds from
sale of common stock and warrants for cash in May 2016 Public
Offering
|
-
|
-
|
-
|
-
|
-
|
-
|
2,570,040
|
2,600
|
9,534,500
|
-
|
-
|
9,537,100
|
|
Proceeds from
sale of common stock and warrants for cash in private placement
offerings
|
-
|
-
|
-
|
-
|
-
|
-
|
124,250
|
100
|
362,300
|
-
|
-
|
362,400
|
|
Series B Preferred converted to common stock automatically upon
consummation of May 2016 Public Offering and
voluntarily
|
-
|
-
|
(2,542,551)
|
(2,500)
|
-
|
-
|
2,542,551
|
2,500
|
-
|
-
|
-
|
-
|
|
Common stock
issued for dividends upon conversion of Series B
Preferred
|
-
|
-
|
-
|
-
|
-
|
-
|
453,154
|
500
|
1,768,300
|
-
|
-
|
1,768,800
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,257,000)
|
-
|
-
|
(1,257,000)
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
851,300
|
-
|
-
|
851,300
|
|
Exchange of
outstanding warrants for common stock and other warrant
modifications
|
-
|
-
|
-
|
-
|
-
|
-
|
156,246
|
200
|
427,300
|
-
|
-
|
427,500
|
|
Fair value of
common stock and warrants granted for services
|
-
|
-
|
-
|
-
|
-
|
-
|
505,000
|
500
|
1,879,900
|
-
|
-
|
1,880,400
|
|
Net loss for
fiscal year ended March 31, 2017
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(10,255,500)
|
(10,255,500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2017
|
500,000
|
$500
|
1,160,240
|
$1,200
|
2,318,012
|
$2,300
|
8,974,386
|
$9,000
|
$146,569,600
|
$(3,968,100)
|
$(141,998,700)
|
$615,800
|
See
accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Description of Business
We are a clinical-stage biopharmaceutical company
focused on developing new generation medicines for depression and
other central nervous system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase
2 clinical development in the United States, initially as a new
generation adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally differentiated from all FDA-approved antidepressants,
as well as all atypical antipsychotics often used adjunctively to
augment them. We believe AV-101 also has potential as a new
treatment alternative for several additional indications involving
the CNS, including epilepsy, Huntington’s disease,
L-DOPA-induced dyskinesia associated with Parkinson’s
disease, and neuropathic pain.
Clinical studies conducted at the U.S. National
Institute of Mental Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by 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, have focused on the antidepressant effects of low dose
ketamine hydrochloride injection (ketamine), an NMDA receptor antagonist, in MDD patients
with inadequate therapeutic responses to multiple
standard antidepressants. These NIMH studies, as well as clinical
research at Yale University and other academic institutions, have
demonstrated robust antidepressant effects in these MDD patients
within twenty-four hours of a single sub-anesthetic dose of
ketamine administered by intravenous (IV) infusion.
We believe AV-101 may have potential to deliver
ketamine-like antidepressant effects without the need for IV
administration and ketamine’s psychological and other
negative side effects. As published in the October 2015 issue of
the peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
both inhibiting the GlyB site of the NMDA receptor and activating
the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and
Development Agreement (CRADA) with the NIMH, the NIMH is currently funding,
and Dr. Zarate, as Principal Investigator, and his team are
currently conducting, a small Phase 2 clinical study of AV-101
monotherapy in adult subjects with treatment-resistant MDD
(the NIMH
AV-101 MDD Phase 2 Monotherapy Study). In October 2017, we received FDA authorization
to launch our 180-patient Phase 2 multi-center, multi-dose, double
blind, placebo-controlled efficacy and safety study of AV-101 as a
new generation adjunctive treatment of MDD in adult patients with
an inadequate therapeutic response to standard, FDA-approved
antidepressants (the AV-101 MDD Phase 2 Adjunctive
Treatment Study). Subject to completion of this
offering, we intend to launch the AV-101 MDD Phase 2 Adjunctive
Treatment Study in the first quarter of 2018, with Dr. Maurizio
Fava, Professor of Psychiatry at Harvard Medical School and
Director, Division of Clinical Research, Massachusetts General
Hospital (MGH) Research Institute, as the Principal
Investigator. Dr. Fava was the co-Principal Investigator
with Dr. A. John Rush of the STAR*D study, the largest clinical
trial conducted in depression to date, whose findings were
published in journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We
currently anticipate completing our AV-101 MDD Phase 2 Adjunctive
Treatment Study by the end of 2018 with top line results available
in the first quarter of 2019.
VistaGen Therapeutics, Inc., a California
corporation dba VistaStem Therapeutics (VistaStem), is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology, internally and with third-party
collaborators, to discover, rescue, develop and commercialize (i)
proprietary new chemical entities (NCEs), including small molecule NCEs with regenerative
potential, for CNS and other diseases and (ii) cellular therapies
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
pipeline. In December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, a next generation regenerative medicine
company established by Bayer AG and Versant Ventures, rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease (the
BlueRock
Agreement). VistaStem may
also pursue additional potential regenerative medicine
(RM) applications, including using blood, cartilage,
and/or liver cells derived from hPSCs for (A) cell-based therapy,
(B) cell repair therapy, and/or (C) tissue engineering. In a
manner similar to our exclusive sublicense agreement with BlueRock
Therapeutics, VistaStem may pursue these additional RM applications
in collaboration with third-parties.
2. Basis of Presentation and Going Concern
The
accompanying Consolidated Financial Statements have been prepared
assuming that 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 $142.0 million accumulated
from inception through March 31, 2017. We expect losses and
negative cash flows from operations to continue for the foreseeable
future as we engage in further potential development of AV-101,
initially as an adjunctive treatment for MDD, and subsequently as a
new treatment alternative for other CNS conditions, execute our
drug rescue programs, and pursue potential drug development and
regenerative medicine opportunities.
Since
our inception in May 1998 through March 31, 2017, we have financed
our operations and technology acquisitions primarily through the
issuance and sale of equity and debt securities, including
convertible promissory notes and short-term promissory notes, for
cash proceeds of approximately $44.7 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 AV-101
MDD Phase 2 Monotherapy Study), strategic collaboration payments,
intellectual property sublicensing and other revenues.
Additionally, we have issued equity securities with an approximate
value at issuance of $30.8 million in non-cash settlements of
certain liabilities, including liabilities for professional
services rendered to us or as compensation for such
services.
During the first quarter of our fiscal year ended
March 31, 2017, we sold to accredited investors Series B Preferred
Units consisting of 39,714 unregistered shares of our Series B 10%
Convertible Preferred Stock, par value $0.001 per share
(Series B
Preferred), and five year
warrants exercisable at $7.00 per share (Series B Preferred
Warrants) to purchase 39,714
shares of our common stock, from which we received cash proceeds of
$278,000.
In May 2016, we consummated an underwritten public
offering pursuant to which we received net cash proceeds of
approximately $9.5 million, after deducting fees and expenses, and
..issued an aggregate of 2,570,040 registered shares of our
common stock at the public offering price of $4.24 per share and
five-year warrants to purchase up to 2,705,883 registered
shares of common stock, with an exercise price of $5.30 per share,
at the public offering price of $0.01 per warrant, including shares
and warrants issued pursuant to the exercise of the underwriters'
over-allotment option (the May 2016 Public
Offering).
During
the last two quarters of our fiscal year ended March 31, 2017, we
sold to accredited investors units consisting of an aggregate of
124,250 unregistered shares of our common stock and three-year and
five-year warrants to purchase an aggregate of 45,375 shares of our
unregistered common stock. We received cash proceeds of $342,400
from this self-placed private placement.
At March 31, 2017, we had a cash and cash
equivalents balance of $2.9 million. This amount was not sufficient
to enable us to fund our planned operations, including expected
cash expenditures of approximately $12 million for
the twelve months following the issuance of these financial
statements, including expenditures required to further prepare for,
launch and satisfy a significant portion of the projected expenses
associated with our proposed AV-101 MDD Phase 2 Adjunctive
Treatment Study. However, during the first quarter of our fiscal
year ending March 31, 2018 (Fiscal 2018), we sold to accredited investors in a
self-placed private placement units consisting of an aggregate
of 437,751 unregistered shares of our common stock and
warrants to purchase an aggregate of 218,875 unregistered shares of our common stock pursuant
to which we received $837,300 in cash proceeds, bringing total proceeds for the
Spring 2017 Private Placement to approximately $1.0 million
(the Spring
2017 Private Placement).
Our limited cash position at March 31, 2017 plus
subsequent proceeds from the Spring 2017 Private Placement
considered with our recurring and anticipated losses and negative
cash flows from operations make it probable, in the absence of
additional financing, that we will not be able to meet our
obligations as they come due within one year from the date of this
Report, raising substantial doubt that we can continue as a going
concern. However, to alleviate that doubt, we plan, as we have in
the past, to raise additional financing when needed, primarily
through the sale of our equity securities in one or more public
offerings or private placements. On January 23, 2017, we filed a
Registration Statement on Form S-3 (Registration No. 333-215671)
with the Securities and Exchange Commission (the
Commission) covering
the potential future sale of our equity securities. The Commission
declared such Registration Statement effective on May 12, 2017
(the S-3
Registration Statement). As of
the date of this Report, we have not yet sold any securities under
the S-3 Registration Statement, nor do we have an obligation to do
so. At March 31, 2017, we had a limited number of unallocated or
unreserved shares of our common stock available for issuance in
future offerings or for other purposes. To facilitate a substantial
offering of our equity securities to sustain our operations and
enable the launch and completion of our AV-101 MDD Phase 2
Adjunctive Treatment Study, our Board of Directors has approved an
amendment to our Restated Articles of Incorporation to increase the
number of shares of common stock available for issuance thereunder
to 100 million shares. Before taking effect, this amendment must be
approved by a majority of our stockholders. We plan to present this
amendment to our stockholders at our 2017 annual meeting of
stockholders to be held in the fall of 2017.
In
addition to the sale of our equity securities, we may also seek to
enter research and development collaborations that could generate
revenue or provide funding for development of AV-101 and additional
product candidates. We may also seek additional government grant
awards or agreements similar to our current CRADA with the NIMH,
which provides for the NIMH to fully fund the NIMH AV-101 MDD Phase
2 Monotherapy 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. In a manner similar to the BlueRock Agreement, we may
also pursue similar arrangements with third-parties covering other
of our intellectual property. Although we may seek additional
collaborations that could generate revenue and/or non-dilutive
funding for development of AV-101 and 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 AV-101 as an adjunctive treatment for MDD and
other potential CNS conditions, 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 and 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 our stockholders will
authorize the issuance of additional shares of our common stock to
facilitate further financing opportunities and for other purposes,
or that future financing will be available 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 later in 2017 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 Consolidated Financial Statements do not include
any adjustments that might result from the negative outcome of this
uncertainty.
3. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles
(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, but are not limited to, those
relating to stock-based compensation, revenue recognition, and
the assumptions used to value warrants, warrant modifications
and warrant liabilities.
Principles of Consolidation
The
accompanying consolidated financial statements include the
Company’s accounts, VistaStem’s accounts and the
accounts of VistaStem’s two wholly-owned inactive
subsidiaries, Artemis Neurosciences and VistaStem
Canada.
Cash and Cash Equivalents
Cash
and cash equivalents are considered to be highly liquid investments
with maturities of three months or less at the date of
purchase.
Property and Equipment
Property
and equipment is stated at cost. Repairs and maintenance costs are
expensed in the period incurred. Depreciation is calculated using
the straight-line method over the estimated useful lives of the
assets. The estimated useful lives of property and equipment range
from five to seven years.
Impairment of Long-Lived Assets
Our long-lived
assets consist of property and equipment. Long-lived assets to be
held and used are tested for recoverability whenever events or
changes in business circumstances indicate that the carrying amount
of the assets may not be fully recoverable. Factors that we
consider in deciding when to perform an impairment review include
significant underperformance of the business in relation to
expectations, significant negative industry or economic trends, and
significant changes or planned changes in our use of the assets. An
impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of an asset are
less than its carrying amount. The impairment loss would be based
on the excess of the carrying value of the impaired asset over its
fair value, determined based on discounted cash flows. To date, we
have not recorded any impairment losses on long-lived
assets.
Revenue Recognition
We
have historically generated revenue principally from collaborative
research and development arrangements, licensing and technology
transfer agreements, including strategic licenses or sublicenses,
and government grants. Revenue arrangements with multiple
components are divided into separate units of accounting if certain
criteria are met, including whether the delivered component has
stand-alone value to the customer. Consideration received is
allocated among the separate units of accounting based on their
respective selling prices. The selling price for each
unit is based on vendor-specific objective evidence, or VSOE, if
available, third party evidence if VSOE is not available, or
estimated selling price if neither VSOE nor third party evidence is
available. The applicable revenue recognition criteria
are then applied to each of the units.
We
recognize revenue when four basic criteria of revenue recognition
are met: (i) a contractual agreement exists; (ii) the
transfer of technology has been completed or services have been
rendered; (iii) the fee is fixed or determinable; and
(iv) collectability is reasonably assured. For each source of
revenue, we comply with the above revenue recognition criteria in
the following manner:
●
Collaborative
arrangements typically consist of non-refundable and/or exclusive
up front technology access fees, cost reimbursements for specific
research and development spending, and future product development
milestone and royalty payments. If the delivered
technology does not have stand-alone value, the amount of revenue
allocable to the delivered technology is
deferred. Non-refundable upfront fees with stand-alone
value that are not dependent on future performance under these
agreements are recognized as revenue when received, and are
deferred if we have continuing performance obligations and have no
objective and reliable evidence of the fair value of those
obligations. We recognize non-refundable upfront
technology access fees under agreements in which we have a
continuing performance obligation ratably, on a straight-line
basis, over the period during which we are obligated to provide
services. Cost reimbursements for research and
development spending are recognized when the related costs are
incurred and when collectability is reasonably
assured. Payments received related to substantive,
performance-based “at-risk” milestones are recognized
as revenue upon achievement of the milestone event specified in the
underlying contracts, which represent the culmination of the
earnings process. Amounts received in advance are
recorded as deferred revenue until the technology is transferred,
costs are incurred, or a milestone is reached.
●
Technology
license agreements typically consist of non-refundable upfront
license fees, annual minimum access fees, development and/or
regulatory milestone payments and/or royalty payments.
Non-refundable upfront license fees and annual minimum payments
received with separable stand-alone values are recognized when the
technology is transferred or accessed, provided that the technology
transferred or accessed is not dependent on the outcome of the
continuing research and development efforts. Otherwise, revenue is
recognized over the period of our continuing involvement, and, in
the case of development and/or regulatory milestone payments, when
the applicable event triggering such a payment has
occurred.
●
Government
grants, which support our research efforts on specific projects,
generally provide for reimbursement of approved costs as defined in
the terms of grant awards. Grant revenue is recognized when
associated project costs are incurred.
Research and Development Expenses
Research
and development expenses are composed of both internal and external
costs. Internal costs include salaries and
employment-related expenses 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, our prodrug candidate in
clinical development for MDD, sponsored stem cell research and
development costs, and costs related to the application and
prosecution of patents related to AV-101 and our stem cell
technology platform. All such costs are charged to expense as
incurred.
Stock-Based Compensation
We
recognize compensation cost for all stock-based awards to employees
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 granted no 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. Compensatory grants
of stock to non-employees are generally treated as fully-earned at
the time of the grant and the non-cash expense recognized is based
on the quoted market price of the stock on the date of
grant.
Income Taxes
We
account for income taxes using the asset and liability approach for
financial reporting purposes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Valuation allowances are established, when necessary, to
reduce the deferred tax assets to an amount expected to be
realized.
Concentrations of Credit Risk
Financial
instruments, which potentially subject us to concentrations of
credit risk, consist of cash and cash equivalents. Our investment
policies limit any such investments to short-term, low-risk
investments. We deposit cash and cash equivalents with quality
financial institutions and are insured to the maximum of federal
limitations. Balances in these accounts may exceed federally
insured limits at times.
Warrant Liability
Although we did not have a warrant liability at
March 31, 2017 or 2016, in conjunction with certain Senior Secured
Convertible Promissory Notes that we issued to Platinum Long Term
Growth VII, LLC (PLTG) between October 2012 and July 2013 and the
related warrants, and the contingently issuable Series A Exchange
Warrant (collectively, the PLTG
Warrants), we determined that
the PLTG Warrants included certain exercise price and other
adjustment features requiring them to be treated as liabilities.
Accordingly, the PLTG Warrants were recorded at their issuance-date
estimated fair values and marked to market at each subsequent
reporting period, recording the change in the fair value as
non-cash expense or non-cash income. The key component in
determining the fair value of the PLTG Warrants and the related
liability was the market price of our common stock, which is
subject to significant fluctuation and is not under our control.
The resulting change in the fair value of the warrant liability on
our net loss was therefore also subject to significant fluctuation
and would have continued to be so until all of the PLTG Warrants
were issued and exercised, amended or expired. Assuming all other
fair value inputs remained generally constant, we recorded an
increase in the warrant liability and non-cash losses when our
stock price increased and a decrease in the warrant liability and
non-cash income when our stock price decreased.
Notwithstanding the foregoing, and as disclosed in
Note 9, Capital
Stock, in May 2015, we entered
into an agreement with PLTG pursuant to which PLTG agreed to amend
the PLTG Warrants to (i) fix the exercise price thereof at $7.00
per share, (ii) eliminate the exercise price reset features and
(iii) fix the number of shares of our common stock issuable
thereunder. This agreement and the related amendments to
the PLTG Warrants resulted in the elimination of the warrant
liability with respect to the PLTG Warrants during the quarter
ended June 30, 2015 and the recognition of a non-cash loss of
$1,874,700 in that quarter, reflecting the change in the fair value
of the PLTG Warrants between March 31, 2015 and the date of their
amendment. As further disclosed in Note 9, Capital
Stock, the PLTG Warrants,
including the right to receive the Series A Exchange Warrant, were
cancelled in exchange for our issuance of shares of our Series C
Preferred stock to PLTG in January 2016.
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 Attributable to Common
Stockholders
Basic net income (loss) attributable to common
stockholders per share of common stock excludes the effect of
dilution and is computed by dividing net income (loss) less
the accrual for dividends on our Series B Preferred and the deemed
dividend attributable to the issuance of our Series B Preferred
Units by the weighted-average number
of shares of common stock outstanding for the period. Diluted net
income (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 income (loss) attributable to common stockholders per
share, we have historically adjusted the numerator for the change
in the fair value of the warrant liability attributable to any
outstanding PLTG Warrants, only if dilutive, and increased the
denominator to include the number of potentially dilutive common
shares assumed to be outstanding during the period using the
treasury stock method. The change in the fair value of the warrant
liability, which was last recognized in the first quarter of our
fiscal year ended March 31, 2016, had no impact on the diluted net
loss per share calculation for that fiscal
year.
As
a result of our net loss for both years presented, potentially
dilutive securities were excluded from the computation of diluted
loss per share, as their effect would be antidilutive.
Basic
and diluted net loss attributable to common stockholders per share
was computed as follows:
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2017
|
2016
|
|
Numerator:
|
|
|
|
Net loss
attributable to common stockholders for basic and diluted earnings
per share
|
$(11,623,600)
|
$(51,419,000)
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted
average basic and diluted common shares outstanding
|
7,531,642
|
1,767,957
|
|
|
|
|
|
Basic and
diluted net loss attributable to common stockholders per common
share
|
$(1.54)
|
$(29.08)
|
F-10
Potentially
dilutive securities excluded in determining diluted net loss per
common share for the fiscal years ended March 31, 2017 and 2016 are
as follows:
|
|
As of March 31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Series A Preferred stock issued and
outstanding (1)
|
750,000
|
750,000
|
|
|
|
|
|
Series B Preferred stock issued and
outstanding (2)
|
1,160,240
|
3,663,077
|
|
|
|
|
|
Series C Preferred stock issued and
outstanding (3)
|
2,318,012
|
2,318,012
|
|
|
|
|
|
Outstanding
options under the 2016 (formerly 2008) and 1999 Stock Incentive
Plans
|
1,659,324
|
336,987
|
|
|
|
|
|
Outstanding
warrants to purchase common stock
|
4,577,631
|
1,907,221
|
|
|
|
|
|
Total
|
10,465,207
|
8,975,297
|
|
_______________
|
|
|
|
(1) Assumes exchange under the terms of the
October 11, 2012 Note Exchange and Purchase Agreement with PLTG, 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
|
||
Recent Accounting Pronouncements
We believe the
following recent accounting pronouncements or changes in accounting
pronouncements are of significance or potential significance to the
Company.
In May 2014, the
Financial Accounting Standards Board (the FASB) issued ASU No. 2014-09,
Revenue from Contracts with
Customers (Topic 606), which supersedes all existing revenue
recognition requirements, including most industry-specific
guidance. The new standard requires a company to recognize revenue
when it transfers goods or services to customers in an amount that
reflects the consideration that the company expects to receive for
those goods or services. The standard creates a five-step model
that requires entities to exercise judgment when considering the
recognition of revenue, including (1) identifying the contract(s)
with the customer, (2) identifying the separate performance
obligations in the contract, (3) determining the transaction price,
(4) allocating the transaction price to the separate performance
obligations, and (5) recognizing revenue as each performance
obligation is satisfied. The standard also requires additional
disclosure about the nature, amount, timing and uncertainty of
revenue and cash flows arising from customer contracts, including
qualitative and quantitative information about contracts with
customers, significant judgments and changes in judgments and
assets recognized with respect to costs incurred to obtain or
fulfill a contract. The FASB has continued
to issue accounting standards updates to clarify and provide
implementation guidance related to Revenue from Contracts with
Customers, including ASU 2016-08,
Revenue from Contract with Customers: Principal versus Agent
Considerations, ASU 2016-10,
Revenue
from Contracts with Customers: Identifying Performance Obligations
and Licensing, and ASU
2016-12, Revenue
from Contracts with Customers: Narrow-Scope Improvements and
Practical Expedients. These amendments
address a number of areas, including a company’s
identification of its performance obligations in a contract,
collectability, non-cash consideration, presentation of sales tax
and a company’s evaluation of the nature of its promise to
grant a license of intellectual property and whether or not that
revenue is recognized over time or at a point in time. These new
standards will be effective for our fiscal year beginning April 1,
2018, with earlier adoption permitted. We have completed our
initial assessment of the new guidance and will be developing an
implementation plan to evaluate the accounting and disclosure
requirements under the new standards. Based on our assessment to
date, we do not believe that adoption of Topic 606 and the related
standards will have a material impact on our consolidated financial
statements. We have not yet finalized our transition method for
adoption of the new standards.
In August 2014, the FASB issued ASU No.
2014-15, Presentation of Financial
Statements—Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern (ASU 2014-15). The ASU sets forth a
requirement for management to evaluate whether there are conditions
or events that raise substantial doubt about an entity’s
ability to continue as a going concern by incorporating and
expanding upon certain principles that are currently in U.S.
auditing standards. Specifically, the amendments (1) provide a
definition of the term substantial doubt; (2) require an evaluation
every reporting period, including interim periods; (3) provide
principles for considering the mitigating effect of
management’s plans; (4) require certain disclosures when
substantial doubt is alleviated as a result of consideration of
management’s plans; (5) require an express statement or other
disclosures when substantial doubt is not alleviated; and (6)
require an assessment for a period of one year after the date the
financial statements are issued or available to be issued.
Substantial doubt about an
entity’s ability to continue as a going concern exists when
relevant conditions and events, considered in the aggregate,
indicate that it is probable (as defined under ASC 450,
Contingencies)
that the entity will be unable to meet its obligations as they
become due within one year after the date that the financial
statements are issued or are available to be issued. If substantial
doubt exists, the extent of the required disclosures depends on an
evaluation of management’s plans (if any) to mitigate the
going concern uncertainty. This evaluation should include
consideration of conditions and events that are either known or are
reasonably knowable at the date the financial statements are issued
or are available to be issued, as well as whether it is probable
that management's plans to address the substantial doubt will be
implemented and, if so, whether it is probable that the plans will
alleviate the substantial doubt. We adopted ASU 2014-15 for our
fiscal year ended March 31, 2017 and Note 2, Basis of Presentation
and Going Concern, includes our disclosures
regarding substantial doubt about our ability to continue as a
going concern and the steps we have planned to alleviate such doubt
for the twelve months following the date of the issuance of these
Consolidated Financial Statements.
In April 2015, the
FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance
Costs. The amendments in this ASU require that debt issuance
costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of
that debt liability, consistent with debt discounts. The amendments
in this update are effective for financial statements issued for
fiscal years ending after December 31, 2015, and interim periods
within those fiscal years. We have adopted this ASU effective with
our fiscal year beginning April 1, 2016, but have incurred no debt
issuance costs since that date.
In November 2015,
the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred
Taxes, which amends existing guidance on income taxes to
require the classification of all deferred tax assets and
liabilities as non-current on the balance sheet. We have adopted
this ASU effective with our fiscal year beginning April 1, 2017 on
a prospective basis. We do not expect this ASU to have a material
impact on our consolidated financial statements
In January 2016,
the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition
and Measurement of Financial Assets and Financial
Liabilities. The updated guidance enhances the reporting
model for financial instruments, which includes amendments to
address aspects of recognition, measurement, presentation and
disclosure. The amendment to the standard is effective for
financial statements issued for our fiscal year beginning April 1,
2018. We do not believe that this ASU will have a material impact
on our consolidated financial statements.
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. The standard is effective
for financial statements issued for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years,
with early adoption permitted. We are in the process of evaluating
the impact that this new guidance will have on our consolidated
financial statements.
In March 2016, the
FASB issued ASU No. 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment
Accounting which includes multiple provisions intended to
simplify several aspects of accounting for share-based payment
transactions, including income tax consequences, classification of
awards as either equity or liabilities, an option to recognize
gross stock compensation expense with actual forfeitures recognized
as they occur, as well as certain classifications on the statement
of cash flows. The standard is effective for our fiscal year
beginning April 1, 2017. We are evaluating the impact of this ASU
on our consolidated financial statements.
In August 2016, the
FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash
Payments. The standard
reduces the diversity in practice of
how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The guidance addresses
the following eight specific cash flow issues: (1) debt prepayment
or debt extinguishment costs, (2) settlement of zero-coupon debt
instruments or other debt instruments with coupon interest rates
that are insignificant in relation to the effective interest rate
of the borrowing, (3) contingent consideration payments made after
a business combination, (4) proceeds from the settlement of
insurance claims, (5) proceeds from settlement of corporate-owned
life insurance policies, including bank-owned life insurance
policies, (6) distributions received from equity method investees,
(7) beneficial interests in securitization transitions and (8)
separately identifiable cash flows and application of predominance
principle. The guidance will be effective for our fiscal year
beginning April 1, 2018, and early adoption is permitted. The
guidance requires retrospective adoption. We are evaluating the
impact of this ASU on our consolidated financial statements and
related disclosures.
In November 2016,
the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash that changes the presentation of restricted
cash and cash equivalents on the statement of cash flows.
Restricted cash and restricted cash equivalents must be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. This standard is effective for our fiscal
year beginning April 1, 2018, but early adoption is permissible. As
we do not currently have nor have we historically had restricted
cash or restricted cash equivalents, we do not believe that this
ASU will have a material impact on our consolidated financial
statements.
4. Fair Value Measurements
We
do not use derivative instruments for hedging of market risks or
for trading or speculative purposes.
We
follow the principles of fair value accounting as they relate to
our financial assets and financial liabilities. Fair value is
defined as the estimated exit price received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date, rather than an entry
price that represents the purchase price of an asset or
liability. Where available, fair value is based on
observable market prices or parameters, or derived from such prices
or parameters. Where observable prices or inputs are not
available, valuation models are applied. These valuation
techniques involve some level of management estimation and
judgment, the degree of which is dependent on several factors,
including the instrument’s complexity. The
required fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three broad
levels is described as follows:
●
Level 1 —
Quoted prices (unadjusted) in active markets that are accessible at
the measurement date for assets or liabilities. The fair value
hierarchy gives the highest priority to Level 1
inputs.
●
Level 2 —
Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
●
Level 3 —
Unobservable inputs (i.e., inputs that reflect the reporting entity’s
own assumptions about the assumptions that market participants
would use in estimating the fair value of an asset or liability)
are used when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3
inputs.
A
financial instrument’s categorization within the valuation
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Where quoted
prices are available in an active market, securities are classified
as Level 1 of the valuation hierarchy. If quoted market prices
are not available for the specific financial instrument, then we
estimate fair value by using pricing models, quoted prices of
financial instruments with similar characteristics or discounted
cash flows. In certain cases where there is limited activity or
less transparency around inputs to valuation, financial assets or
liabilities are classified as Level 3 within the valuation
hierarchy.
In
conjunction with certain Senior Secured Convertible Promissory
Notes that we issued to PLTG between October 2012 and July 2013 and
the related PLTG Warrants, and the contingently issuable Series A
Exchange Warrant, we determined that the warrants included certain
exercise price and other adjustment features requiring the warrants
to be treated as liabilities, which were recorded at their
issuance-date estimated fair values and marked to market at each
subsequent reporting period. We determined the fair value of the
warrant liabilities using Level 3 (unobservable) inputs, since
there was minimal comparable external market data available. Inputs
used to determine fair value included the remaining contractual
term of the warrants, risk-free interest rates, expected volatility
of the price of the underlying common stock, and the probability of
a financing transaction that would trigger a reset in the warrant
exercise price, and, in the case of the Series A Exchange Warrant,
the probability of PLTG’s exchange of the shares of Series A
Preferred it holds into shares of common stock. The change in the
fair value of these warrant liabilities between March 31, 2015 and
their subsequent elimination (described below) was recognized as a
non-cash expense in the Consolidated Statement of Operations and
Comprehensive Loss for the fiscal year ended March 31,
2016.
In
May 2015, we entered into an agreement with PLTG pursuant to which
PLTG agreed to amend the PLTG Warrants to (i) fix the exercise
price thereof at $7.00 per share, (ii) eliminate the exercise price
reset features and (iii) fix the number of shares of our common
stock issuable thereunder. This agreement and the
related modification of the PLTG Warrants resulted in the
elimination of the warrant liability with respect to the PLTG
Warrants during the quarter ended June 30, 2015.
In January 2016, we entered into an Exchange
Agreement with PLTG pursuant to which PLTG exchanged all
outstanding PLTG Warrants plus the shares issuable pursuant to the
Series A Preferred Exchange Warrant for unregistered shares of our
Series C Convertible Preferred Stock (Series C
Preferred) in the ratio of 0.75
share of Series C Preferred for each warrant share cancelled. As a
result of the Exchange Agreement, all warrants previously issued to
PLTG have been cancelled.
We
carried no assets or liabilities at fair value at March 31, 2017 or
2016.
5. Prepaid Expenses and Other Current
Assets
Prepaid
expenses and other current assets consist of the
following:
|
|
March
31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Insurance
|
$85,800
|
$27,000
|
|
AV-101
materials and services
|
352,800
|
-
|
|
Prepaid
compensation under financial advisory
|
|
|
|
and
other consulting agreements
|
-
|
337,500
|
|
Public
offering expenses
|
11,600
|
57,400
|
|
All
other
|
6,400
|
4,900
|
|
|
|
|
|
|
$456,600
|
$426,800
|
F-13
6. Property and Equipment
Property
and equipment consists of the following:
|
|
March
31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Laboratory
equipment
|
$888,300
|
$659,000
|
|
Tenant
improvements
|
26,900
|
26,900
|
|
Computers and
network equipment
|
53,000
|
43,200
|
|
Office
furniture and equipment
|
79,700
|
69,500
|
|
|
1,047,900
|
798,600
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
(761,400)
|
(711,000)
|
|
|
|
|
|
Property and
equipment, net
|
$286,500
|
$87,600
|
Other
than certain leased office equipment, none of our assets were
subject to third party security interests at March 31, 2017 or
2016.
7. Accrued Expenses
Accrued
expenses consist of:
|
|
March
31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Accrued
professional services
|
$37,000
|
$318,000
|
|
Accrued
AV-101 development and related expenses
|
402,400
|
186,000
|
|
Accrued
compensation
|
-
|
310,000
|
|
All
other
|
3,600
|
-
|
|
|
|
|
|
|
$443,000
|
$814,000
|
8. Notes Payable
The
following table summarizes our notes payable:
|
|
March
31, 2017
|
March
31, 2016
|
||||
|
|
Principal
|
Accrued
|
|
Principal
|
Accrued
|
|
|
|
Balance
|
Interest
|
Total
|
Balance
|
Interest
|
Total
|
|
8.25% Note
payable to insurance
|
|
|
|
|
|
|
|
premium
financing company (current)
|
$54,800
|
$-
|
$54,800
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
|
7.0% Note
payable to Progressive Medical
|
$-
|
$-
|
$-
|
$58,800
|
$12,000
|
$70,800
|
|
less:
current portion
|
-
|
-
|
-
|
(31,600)
|
(12,000)
|
(43,600)
|
|
7.0% Note
payable - non-current portion
|
$-
|
$-
|
$-
|
$27,200
|
$-
|
$27,200
|
|
|
|
|
|
|
|
|
|
Total notes payable
to unrelated parties
|
$54,800
|
$-
|
$54,800
|
$58,800
|
$12,000
|
$70,800
|
|
less:
current portion
|
(54,800)
|
-
|
(54,800)
|
(31,600)
|
(12,000)
|
(43,600)
|
|
Net non-current
portion
|
$-
|
$-
|
$-
|
$27,200
|
$-
|
$27,200
|
In June 2016, we paid in full the $71,600
then-outstanding balance (principal and accrued but unpaid
interest) of the promissory note we issued to Progressive Medical
Research (PMR) in connection with our clinical development
relationship with PMR.
In
May 2016, we executed a promissory note in the face amount of
$117,500 in connection with certain insurance policy premiums. The
note was payable in monthly installments of $12,100, including
principal and interest, through March 2017. In February 2017, we
executed a promissory note in the face amount of $60,700 in
connection with other insurance policy premiums. The note is
payable in monthly installments of $6,300, including principal and
interest, and has an outstanding balance of $54,800 at March 31,
2017.
Convertible and Promissory Notes and Other Indebtedness Converted
into Series B Preferred
Between May 2015 and
September 2015, we extinguished outstanding indebtedness having a
carrying value of approximately $15.9 million (principal plus
unpaid accrued interest less unamortized debt discount), including
all of our senior secured promissory notes, all except $58,800
principal of our unsecured promissory notes, and a substantial
portion of other indebtedness, and certain adjustments thereto,
that were either due and payable or would have become due and
payable prior to March 31, 2016, by converting all such
indebtedness into shares of our Series B Preferred (as described
more completely in Note 9, Capital
Stock, under the
caption Series B Preferred
Stock). Evaluating each note
or debt class separately, we determined that the conversion of each of the
notes or other debt instruments into Series B Preferred should be
accounted for as an extinguishment of debt. Further, considering
the direct exchangeability of the Series B Preferred shares into
shares of our common stock, the 10% dividend applicable to the
Series B Preferred prior to such exchange, and other factors, we
determined that the fair value of a share of Series B Preferred
issued pursuant to the conversion of each of the notes or other
debt instruments was equal to the market value of a share of our
common stock on the conversion date. Because the fair value of the
Series B Preferred into which the debt instruments were converted
in all cases exceeded the carrying value of the debt, we recorded
an aggregate loss on extinguishment of debt of $26,700,200, in the
first and second quarters of the fiscal year ended March 31, 2016,
as reflected in the accompanying Consolidated Statement of
Operations and Comprehensive Loss for that period. The carrying
values and components of the loss on extinguishment of our notes
and other indebtedness converted into Series B Preferred during our
fiscal year ended March 31, 2016 are summarized in a table
presented in Note 9, Capital Stock,
under the caption Conversion of Debt Securities
into Series B Preferred and Loss on Extinguishment of
Debt.
9. Capital Stock
Series A Preferred Stock
In December 2011, our Board of Directors
authorized the creation of a series of up to 500,000 shares of
Series A Preferred, par value $0.001 (Series A
Preferred). Each
restricted share of Series A Preferred was initially convertible at
the option of the holder into one-half of one restricted share of
our common stock. The Series A Preferred ranks prior to
the common stock for purposes of liquidation
preference.
The
Series A Preferred has no separate dividend rights, however,
whenever the Board of Directors declares a dividend on the common
stock, each holder of record of a share of Series A Preferred shall
be entitled to receive an amount equal to such dividend declared on
one share of common stock multiplied by the number of shares of
common stock into which such share of Series A Preferred could be
converted on the Record Date.
Except
with respect to transactions upon which the Series A Preferred
shall be entitled to vote separately as a class, the Series A
Preferred has no voting rights. The restricted common stock into
which the Series A Preferred is convertible shall, upon issuance,
have all of the same voting rights as other issued and outstanding
shares of our common stock.
In
the event of the liquidation, dissolution or winding up of the
affairs of the Company, after payment or provision for payment of
our debts and other liabilities, the holders of Series A Preferred
then outstanding shall be entitled to receive an amount per share
of Series A Preferred calculated by taking the total amount
available for distribution to holders of all of our outstanding
common stock before deduction of any preference payments for the
Series A Preferred, divided by the total of (x), all of the then
outstanding shares of our common stock, plus (y) all of the shares
of our common stock into which all of the outstanding shares of the
Series A Preferred can be converted before any payment shall be
made or any assets distributed to the holders of the common stock
or any other junior stock.
At
March 31, 2017 and 2016, there were 500,000 restricted shares of
Series A Preferred outstanding, convertible into 750,000 shares of
our common stock at the option of the holder, all held by PLTG or
its affiliates and a third party to whom PLTG transferred certain
of the shares. PLTG initially acquired the Series A Preferred
pursuant to certain transactions with us that occurred between
December 2011 and June 2012, the latter of which involved, among
other considerations, the exchange of common stock then owned by
PLTG for shares of Series A Preferred. The common shares exchanged
for shares of Series A Preferred are treated as treasury stock in
the accompanying Consolidated Balance Sheets at March 31, 2017 and
2016
Series B Preferred Stock
In July 2014, our Board of Directors authorized
the creation of a class of Series B Preferred Stock. In May
2015, we filed a Certificate of Designation of the Relative Rights
and Preferences of the Series B 10% Preferred Stock of VistaGen
Therapeutics, Inc. (Certificate of
Designation) with the Nevada
Secretary of State to designate 4.0 million shares of our
authorized preferred stock as Series B
Preferred.
Each share of Series B Preferred is convertible,
at the option of the holder (Voluntary
Conversion), into one (1) share
of our Common Stock, subject to adjustment only for customary stock
dividends, reclassifications, splits and similar transactions set
forth in the Certificate of Designation. All outstanding shares of
Series B Preferred are also convertible automatically on a
one-to-one basis into shares of our Common Stock
(Automatic
Conversion) upon the closing or
effective date of any of the following transactions or events: (i)
a strategic transaction involving AV-101 with an initial up-front
cash payment to us of at least $10.0 million; (ii) a registered
public offering of our common stock with aggregate gross proceeds
to us of at least $10.0 million; or (iii) for 20 consecutive
trading days, our common stock trades at least 20,000 shares per
day with a daily closing price of at least $12.00 per share;
provided, however, that Automatic Conversion and Voluntary
Conversion (collectively, Conversion) are subject to certain beneficial ownership
blockers as set forth in the Certificate of Designation and/or
securities purchase agreements.
Prior to Conversion, shares of Series B Preferred
accrue in-kind dividends (payable only in unregistered shares of
our common stock) at a rate of 10% per annum (Accrued
Dividends). The
Accrued Dividends are payable on the date of either a Voluntary
Conversion or Automatic Conversion solely in that number of shares
of common stock equal to the Accrued Dividends. At March 31, 2017,
we have recognized a liability in the amount of $1,577,800 for
Accrued Dividends in the accompanying Consolidated Balance
Sheet at March 31, 2017, based on the
Series B Preferred issued and outstanding, net of conversions to
common stock, through that date. We have recognized a deduction
from net loss of $1,257,000 and $2,140,500 related to dividends on
Series B Preferred in arriving at net loss attributable to common
stockholders in the accompanying Consolidated Statement of
Operations and Comprehensive Loss for the fiscal years ended March
31, 2017 and 2016, respectively. The liquidation value of the
Series B Preferred at March 31, 2017 is approximately
$9,699,500.
Following
the completion of the May 2016 Public Offering, which occurred
concurrently with and facilitated the listing of our common stock
on the NASDAQ Capital Market, approximately 2.4 million shares of
Series B Preferred were converted automatically into approximately
2.4 million shares of our common stock pursuant to the Automatic
Conversion provision. At March 31, 2017, there were 1,160,240
shares of Series B Preferred outstanding, which shares are
currently subject to beneficial ownership blockers and are
exchangeable at the option of the respective holders by Voluntary
Conversion, or pursuant to Automatic Conversion to the extent not
otherwise subject to beneficial ownership blockers, into an
aggregate of 1,160,240 shares of our common stock.
Series C Preferred Stock
In January 2016,
our Board authorized the creation of and, accordingly, we filed a Certificate of Designation of the
Relative Rights and Preferences of the Series C Convertible
Preferred Stock of VistaGen Therapeutics, Inc. (the
Series C
Preferred Certificate of
Designation) with the Nevada
Secretary of State to designate 3.0 million shares of our preferred
stock, par value $0.001 per share, as Series C Convertible
Preferred Stock (Series C
Preferred). Upon liquidation,
each share of Series C Preferred ranks pari-passu with our Series B
Preferred and our Series A Preferred, and is convertible, at the
option of the holder into one share of our common stock, subject to
certain beneficial ownership limitations as set forth in the Series
C Preferred Certificate of Designation. Shares of the Series C
Preferred do not accrue dividends, and holders of the Series C
Preferred have no voting rights. Each share of Series C Preferred
is convertible into one (1) share of our common stock. At March 31,
2017, PLTG or its affiliates held all 2,318,012 outstanding shares
of Series C Preferred.
2014 Unit Private Placement
Between late-March 2014 and May 14, 2015, we
entered into securities purchase agreements with accredited
investors for the self-placed 2014 Unit Private
Placement pursuant to which we sold 2014 Units consisting of
(i) promissory notes (2014 Unit
Notes) in the aggregate face
amount of $3,413,500 due between March 31, 2015 and May 15, 2015 or
automatically convertible into securities issuable upon our
consummation of a Qualified Financing, as defined in the note; (ii)
an aggregate of 315,850 restricted shares of our common stock; and
(iii) warrants exercisable through December 31, 2016 to purchase an
aggregate of 307,100 restricted shares of our common stock at an
exercise price of $10.00 per share. We received aggregate cash
proceeds of $3,413,500 from the 2014 Unit Private Placement. We
sold 2014 Units resulting in $280,000 of cash proceeds during our
fiscal year ended March 31, 2016.
May 2015 Agreement with PLTG
In May 2015, we entered into an Agreement with
PLTG (the PLTG
Agreement) pursuant to which
PLTG:
●
Converted
into 641,335 shares of Series B Preferred all of the approximately
$4.5 million outstanding balance (principal and accrued but unpaid
interest) of the Senior Secured Notes we had previously issued to
PLTG;
●
Released
in their entirety its security interests in our assets and those of
our subsidiaries by terminating the Amended and Restated Security
Agreement, IP Security Agreement and Negative Covenant, each of
which had been executed in October 2012;
●
Converted into 240,305 shares of Series B
Preferred and five-year warrants to purchase 240,305 shares of our
common stock at a fixed exercise price of $7.00 per
share (Series B Warrants) all of the approximately $1.3 million
outstanding balance (principal and accrued but unpaid interest) of
the 2014 Unit Notes that we issued to PLTG;
●
Purchased approximately $1.5 million (including
accrued but unpaid interest thereon) of outstanding 2014 Unit Notes
we had previously issued to various accredited investors from the
respective holders thereof (Acquired Unit
Notes) and converted the entire
approximately $1.5 million outstanding balance of the Acquired Unit
Notes into 265,699 shares of Series B Preferred and Series B
Warrants to purchase 265,699 shares of our common
stock;
●
Entered into a Securities Purchase
Agreement (SPA) to purchase from us, in our self-placed private
placement, for $1.0 million, a total of 142,857 shares of Series B
Preferred and a Series B Warrant to purchase 142,857 shares of our
common stock, which purchase was consummated and the shares and
warrants issued;
●
Amended the PLTG Warrants previously issued to
PLTG in connection with the Senior Secured Notes and the Series A
Exchange Warrant to (i) fix the exercise price thereof, (ii)
eliminate the exercise price reset features; (iii) fix the number
of shares of our common stock issuable thereunder, and (iv)
eliminate the cashless exercise provisions from the PLTG Warrants,
as described in Note 4. Fair Value
Measurements;
and
●
Agreed
to refrain from the sale of any shares of our common stock held by
PLTG or its affiliates until the earlier to occur of an effective
registration statement under the Securities Act of 1933, as
amended, relating to resale of certain shares of common stock
issuable upon conversion of shares of Series B Preferred held by
PLTG, or the closing price of our common stock is at least $15.00
per share.
As additional consideration under the PLTG
Agreement, we issued to PLTG 400,000 shares of Series B Preferred
(Additional
Consideration Shares) and
Series B Warrants (Additional Consideration
Warrants) to purchase 1.2
million shares of our common stock, and exchanged 30,000 shares of
our common stock then beneficially owned or controlled by PLTG for
30,000 shares of Series B Preferred. Considering the
exchangeability of the Series B Preferred into our common stock,
the dividend applicable to the Series B Preferred prior to such
exchange, and other factors, we determined that the fair value of a
share of Series B Preferred issued to PLTG pursuant to the PLTG
Agreement was equal to the market value of a share of our common
stock on the effective date of the PLTG Agreement. Based on the
$10.00 per share fair value of the Series B Preferred at the
effective date of the PLTG Agreement, we issued Additional
Consideration Shares having an aggregate fair value of $4.0 million
to PLTG. We valued the Additional Consideration Warrants at an
aggregate of $8,270,900 using the Black Scholes option pricing
model and the following assumptions:
market price per share: $10.00; exercise price per share: $7.00;
risk-free interest rate: 1.58%; contractual term: 5.00 years;
volatility: 76.5%; expected dividend rate: 0%. We recognized the
aggregate fair value of the Additional Consideration Shares and
Additional Consideration Warrants, $12,270,900, as a component of
loss on debt extinguishment in the second quarter of our
fiscal year ended March 31, 2016.
Conversion of Debt Securities into Series B Preferred and Loss on
Extinguishment of Debt
As described in Note
8, Notes
Payable, during the first
and second quarters of our fiscal year ended March 31, 2016,
we extinguished a substantial
portion of our outstanding indebtedness, including all of our
senior secured promissory notes issued to PLTG, all except $58,800
principal of our unsecured promissory notes, and a significant
portion of outstanding accounts payable and accrued expenses, by
converting such indebtedness into shares of our Series B Preferred.
In most instances, the consideration given upon conversion was
limited to shares of Series B Preferred. In certain instances, as
in the case of the Additional Consideration Warrants noted
previously, we agreed to issue new warrants or modify outstanding
warrants as additional incentive provided to our counterparty to
accept the equity for debt settlement offer. Further, with respect
to the 2014 Unit Notes, we determined that the Series B Preferred
Unit Offering (described below) would be treated as a Qualified
Financing with respect to such notes, entitling the 2014 Unit Note
holders at the time of conversion to the 25% Qualified Financing
conversion premium under the terms of the 2014 Unit Notes.
Evaluating each note or debt class separately, we
determined that the
conversion of each of the notes or other debt instruments into
Series B Preferred should be accounted for as an extinguishment of
debt. Because, in each
instance, the fair value of the consideration given exceeded the
carrying value of the debt, we incurred a loss on extinguishment in
the settlement of each debt instrument or agreement.
Nearly
all of the 2014 Unit Notes contained a beneficial conversion
feature at the time they were originally issued. We accounted for
the repurchase of the beneficial conversion feature at the time of
the extinguishment and conversion of the 2014 Unit Notes, an
aggregate of $2,237,200, as a reduction to the loss on
extinguishment of debt, with a corresponding reduction to
additional paid-in capital.
The
following table summarizes the carrying value of the debt
instruments at the date they were converted into Series B
Preferred, the components of the consideration given and the
resulting loss on debt extinguishment attributable to each
settlement and the number of shares and warrants, if any, issued in
the settlement for each debt instrument or class. We recorded the
aggregate loss on debt extinguishment, $26,700,200, in the first
and second quarters of our fiscal year ended March 31, 2016, as
reflected in the accompanying Consolidated Statement of Operations
and Comprehensive Loss for the fiscal year ended March 31,
2016.
|
|
Carrying
|
Consideration Given
|
|
|
|
|
||
|
|
Amount
(Principal plus Accrued Interest less Discount)
|
Fair
Value of Series B Preferred at Issuance
|
Fair
Value of Warrants at Issuance
|
Incremental
Fair Value of Warrant Modifications
|
Repurchase
of Beneficial Conversion Feature
|
Loss on
Extinguishment
of
Debt
|
Series
B Preferred Shares Issued
|
New
Warrants Issued
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Convertible Notes (1)
|
$4,489,300
|
$10,413,400
|
$8,270,800
|
$-
|
$-
|
$(14,194,900)
|
1,041,335
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
PLTG
Unit Notes
|
1,345,700
|
2,403,100
|
1,656,300
|
-
|
-
|
(2,713,700)
|
240,305
|
240,305
|
|
Acquired
Unit Notes
|
1,487,900
|
2,657,000
|
1,827,200
|
-
|
(514,900)
|
(2,481,400)
|
265,699
|
265,699
|
|
Investor
Unit Notes
|
1,831,200
|
2,616,100
|
1,684,900
|
-
|
(1,722,300)
|
(747,500)
|
327,016
|
327,016
|
|
University
Health Network note
|
628,900
|
937,800
|
-
|
-
|
-
|
(308,900)
|
93,775
|
-
|
|
Cato
Holding Company and Cato Research Ltd. notes
and accounts payable
|
1,708,300
|
3,285,700
|
-
|
222,700
|
-
|
(1,800,100)
|
328,571
|
-
|
|
Morrison
& Foerster Note A
|
1,191,700
|
2,359,700
|
-
|
-
|
-
|
(1,168,000)
|
192,628
|
-
|
|
Morrison
& Foerster Note B and accounts payable
|
1,510,000
|
2,571,400
|
-
|
244,200
|
-
|
(1,305,600)
|
257,143
|
-
|
|
McCarthy
Tetrault note and accounts payable
|
381,700
|
829,200
|
-
|
-
|
-
|
(447,500)
|
59,230
|
-
|
|
Burr
Pilger & Mayer note and accounts payable
|
123,100
|
353,600
|
-
|
-
|
-
|
(230,500)
|
21,429
|
-
|
|
Icahn
School of Medicine at Mount Sinai note
and accounts payable
|
289,500
|
676,000
|
-
|
16,600
|
-
|
(403,100)
|
43,000
|
-
|
|
National
Jewish Health note
|
115,000
|
267,900
|
-
|
-
|
-
|
(152,900)
|
17,857
|
-
|
|
Desjardins
Securities note
|
187,400
|
450,000
|
-
|
-
|
-
|
(262,600)
|
32,143
|
-
|
|
MicroConstants
note and accounts payable
|
92,400
|
250,000
|
-
|
-
|
-
|
(157,600)
|
17,857
|
-
|
|
Other
service provider accounts payable
|
497,900
|
823,800
|
-
|
-
|
-
|
(325,900)
|
80,929
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$15,880,000
|
$30,894,700
|
$13,439,200
|
$483,500
|
$(2,237,200)
|
$(26,700,200)
|
3,018,917
|
2,033,020
|
_______________
(1)
Includes 400,000 Series B Preferred shares with fair value of
$4,000,000 issued as Additional Consideration Shares and warrants
to purchase 1,200,000 shares of common stock with fair value of
$8,270,800 issued as Additional Consideration Warrants for the
various agreements of PLTG pursuant to the PLTG Agreement in May
2015
Series B Preferred Unit Offering
Between May 2015 and May 2016, in self-placed
private placement transactions, we sold to accredited investors an
aggregate of $5,303,800 of units in our Series B Preferred Unit
offering, which units consisted of Series B Preferred and Series B
Warrants (together Series B Preferred
Units), including $2,650,000 to
PLTG. We issued 757,692 shares of Series B Preferred and Series B
Warrants to purchase 757,692 shares of our common
stock. During our fiscal year ended March 31, 2017, we
received an aggregate of $278,000 in cash proceeds from our
self-placed private placement and sale of the Series B Preferred
Units.
We allocated the proceeds from the sale of the
Series B Preferred Units to the Series B Preferred and the Series B
Warrants based on their relative fair values on the dates of the
sales. We determined that the fair value of a share of
Series B Preferred was equal to the quoted market value of a share
of our common stock on the date of a Series B Preferred Unit sale.
We calculated the fair value of the
Series B Warrants using the Black Scholes Option Pricing Model and
the weighted average assumptions indicated in the table below. The
table below also presents the aggregate allocation of the Series B
Preferred Unit sales proceeds based on the relative fair values of
the Series B Preferred and the Series B Warrants as of their
respective Series B Preferred Unit sales dates. The difference
between the relative fair value per share of the Series B
Preferred, approximately $4.14 per share, and its Conversion Price
(or stated value) of $7.00 per share represents a deemed dividend
to the purchasers of the Series B Preferred Units. Accordingly, we
have recognized a deemed dividend in the aggregate amount of
$111,100 and $2,058,000 in arriving at net loss attributable to
common stockholders in the accompanying Consolidated
Statement of Operations and Comprehensive Loss for the fiscal years
ended March 31, 2017 and 2016, respectively.
|
|
|
Unit
Warrants
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
Weighted Average
Issuance Date Valuation Assumptions
|
|
|
Per Share
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate Allocation of Proceeds Based on
Relative
|
|||||||||||||
|
Warrant
|
|
|
|
|
|
|
|
|
|
Risk
free
|
|
|
|
|
|
|
Fair
|
|
|
Fair
Value
|
|
|
Proceeds
|
|
|
Fair Value
of:
|
|||
|
Shares
|
|
|
Market
|
|
|
Exercise
|
|
Term
|
|
Interest
|
|
|
|
Dividend
|
|
|
Value
of
|
|
|
of
Unit
|
|
|
of
Unit
|
|
|
Unit
|
|
|
Unit
|
|
Issued
|
|
|
Price
|
|
|
Price
|
|
(Years)
|
|
Rate
|
|
Volatility
|
|
Rate
|
|
|
Warrant
|
|
|
Warrants
|
|
|
Sales
|
|
|
Stock
|
|
|
Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757,692
|
|
$
|
10.34
|
|
$
|
7.00
|
|
5.00
|
|
1.60%
|
|
77.36%
|
|
0.0%
|
|
$
|
7.27
|
|
$
|
5,512,100
|
|
$
|
5,303,800
|
|
$
|
3,134,800
|
|
$
|
2,169,000
|
Registration Statement for Common Stock underlying Series B
Preferred and Series B Warrants
The securities purchase agreements for the Series
B Preferred and Series B Preferred Units executed with PLTG, the
holders of the Investor Unit Notes, the holders of our promissory
notes and other indebtedness converted into shares of Series B
Preferred, initial investors in Series B Preferred Units, and
certain others to whom we issued Series B Preferred, contained
registration rights requiring that a Registration Statement on Form
S-1 (Secondary Registration
Statement) registering, under
the Securities Act of 1933, as amended, (the Securities
Act), certain shares of common
stock underlying the Series B Preferred and the Series B Warrants
be declared effective on or before August 30, 2015. We filed the
initial Secondary Registration Statement with the SEC on July 21,
2015, which we later amended on August 25, 2015, and which was
declared effective by the SEC on August 28, 2015. The Secondary
Registration Statement registered an aggregate of 3,992,479 shares
of our common stock underlying outstanding Series B Preferred and
Series B Warrants. Accordingly, we incurred no cash or in kind
penalties under the securities purchase
agreements.
Conversion of Series B Preferred into Common Stock
Between September
2015 and March 2016, holders of an aggregate of 228,818 shares of
Series B Preferred voluntarily converted such shares into an
equivalent number of registered shares of our common stock. In
connection with these conversions, we issued an aggregate of 6,837
shares of our restricted common stock in payment of $50,900 in
accrued dividends on the Series B Preferred that was
converted.
During
April 2016, holders of an aggregate of 7,500 shares of Series B
Preferred voluntarily converted such shares into an equivalent
number of registered shares of our common stock. In
connection with these conversions, we issued an aggregate of 510
shares of our unregistered common stock as payment in full of
$4,000 in accrued dividends on the Series B Preferred that was
voluntarily converted.
On
May 19, 2016, following the consummation of the May 2016 Public
Offering, an aggregate of 2,403,051 shares of Series B Preferred
were automatically converted into an aggregate of 2,192,847
registered shares of our common stock and an aggregate of 210,204
shares of our unregistered common stock. Additionally, we issued an
aggregate of 416,806 shares of our unregistered common stock as
payment in full of $1,642,100 in accrued dividends on the Series B
Preferred that was automatically converted on May 19, 2016, at the
rate of one share of common stock for each $3.94 of Series B
Preferred accrued dividends. On June 15, 2016, pursuant
to the underwriters’ exercise of their over-allotment option,
an additional 44,500 shares of Series B Preferred were converted
into 44,500 shares of our registered common stock. We
issued an additional 9,580 shares of our unregistered common stock
as payment in full of $37,400 of accrued dividends on the Series B
Preferred that was automatically converted on June 15, 2016, at the
rate of one share of common stock for each $3.90 in accrued
dividends.
In August 2016, one
of the remaining holders of our Series B Preferred voluntarily converted 87,500 shares of Series B
Preferred into an equivalent number of registered shares of our
common stock. In connection with this conversion, we
issued 26,258 shares of our unregistered common stock as payment in
full of $85,300 in accrued dividends on the Series B Preferred that
was voluntarily converted, at the rate of one share of common stock
for each $3.25 in accrued dividends.
May 2016 Public Offering and Listing of our Common Stock on
the NASDAQ Capital Market
Effective
on May 16, 2016, we consummated an underwritten public offering of
our securities, pursuant to which we issued units consisting of an
aggregate of 2,570,040 registered shares of our common stock at a
public sales price of $4.24 per share and five-year warrants
exercisable at $5.30 per share to purchase an aggregate of
2,705,883 shares of our common stock at a public sales price of
$0.01 per warrant share, including shares and warrants issued in
June 2016 pursuant to the exercise of the underwriters’
over-allotment option. We received gross proceeds of approximately
$10.9 million and net proceeds of approximately $9.5 million from
the May 2016 Public Offering, after deducting underwriters’
commissions and other offering expenses. The warrants issued in the
May 2016 Public Offering have no anti-dilution or other exercise
price or share reset features, except as is customary with respect
to a change in our capital structure in the event of a stock split
or dividend, and, accordingly, we have accounted for them as equity
warrants.
The securities
included in the May 2016 Public Offering were offered, issued and
sold under a prospectus filed with the Commission pursuant to an
effective registration statement (Primary Registration Statement) filed
with the Commission on Form S-1 (File No. 333-210152) pursuant to
the Securities Act. The Primary Registration Statement was first
filed with the Commission on March 14, 2016, and was declared
effective on May 10, 2016.
In connection with
the completion of our May 2016 Public Offering, NASDAQ approved our
common stock for listing on the NASDAQ Capital Market.
Our common stock began trading on the NASDAQ Capital
Market under the symbol “VTGN” on May 11,
2016.
Common Stock and Warrants Issued in Private Placement
In December 2016,
in self-placed private transactions, we sold to two individual
accredited investors units, at a purchase price of $3.70 per unit,
consisting of an aggregate of 67,000 unregistered shares of our
common stock and warrants, exercisable through November 30, 2019,
to purchase an aggregate of 16,750 unregistered shares of our
common stock at an exercise price of $6.00 per share. 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 $247,900 in connection with
this private placement, the entire amount of which was credited to
stockholders’ equity.
In March 2017, in a self-placed private
transaction, we sold to an accredited investor units, at a purchase
price of $2.00 per unit, consisting of an aggregate of 57,250
unregistered shares of our common stock and warrants, exercisable
through April 2021, to purchase an aggregate of 28,625 unregistered
shares of our common stock at an exercise price of $4.00 per share.
The purchaser of the units has 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 $114,500 in connection
with this private placement, the entire amount of which was
credited to stockholders’ equity. See Note 16, Subsequent Events, for disclosure of
additional sales of our securities in private placement
offerings.
Issuance of Common Stock, Series B Preferred Stock and Warrants to
Professional Services Providers
During our fiscal
years ended March 31, 2017 and 2016, we issued the following
securities in private placement transactions as compensation for
various professional services. Unless otherwise noted, we recorded
the related non-cash expense as a component of general and
administrative expense in the Consolidated Statement of Operations
and Comprehensive Loss for the fiscal years ended March 31, 2017
and 2016, as appropriate.
●
During
the quarter ended June 30, 2015, we issued an aggregate of 25,000
unregistered shares of our Series B Preferred having a fair value
of $250,000 on the date of issuance as compensation for legal
services related to our debt restructuring and other corporate
finance matters.
●
During
the quarter ended June 30, 2015, we issued an aggregate of 90,000
unregistered shares of our Series B Preferred having an aggregate
value on the date of issuance of $1,350,000 as compensation for
financial advisory and corporate development service contracts with
two independent contractors for services to be performed through
June 2016. The value of the Series B Preferred grants was recorded
as a prepaid expense at the date of the grant and was expensed
ratably over the twelve months ending June 2016, with $337,500 and
$1,012,500 expensed during the fiscal years ended March 31, 2017
and 2016, respectively.
●
During
the quarter ended June 30, 2015, we also issued an aggregate of
50,000 shares of our unregistered common stock having an aggregate
fair value on the date of issuance of $500,000, as compensation
under two corporate development service contracts.
●
During
the quarter ended September 30, 2015 we issued to two providers of
intellectual property-related legal services an aggregate of 10,000
unregistered shares of our Series B Preferred having an aggregate
fair value on the date of issuance of $120,000.
●
During
the quarter ended December 31, 2015 we issued 15,750 unregistered
shares of our common stock having a fair value on the date of
issuance of $106,300 as partial compensation for investment banking
services.
●
During
the quarter ended March 31, 2016, we issued an aggregate of 26,625
shares of our unregistered common stock having an aggregate fair
value on the dates of issuance of $223,000 in connection with legal
($140,000) and investor relations ($83,000) services.
●
During
the quarter ended September 30, 2016, we issued an aggregate of
170,000 shares of our unregistered common stock having an aggregate
fair value on the date of issuance of $737,800 as compensation to
various professional services providers. Of that amount, we issued
120,000 shares having a fair value of
$520,800 on the date of issuance for services to be rendered from
October 2016 to December 2016.
●
During
the quarter ended December 31, 2016, we issued an aggregate of
135,000 shares of our unregistered common stock having an aggregate
fair value on the respective dates of issuance of $479,800 as
compensation to various professional services
providers.
●
During
the quarter ended March 31, 2017, we issued an aggregate of 200,000
unregistered shares of our common stock, of which 150,000
unregistered shares were issued from our 2016 Stock Plan (defined
below), having an aggregate fair value of $422,500 on the dates of
issuance to various professional services providers.
During the quarter
ended December 31, 2015, we issued warrants to purchase an
aggregate of 45,000 shares of our unregistered common stock to four
parties as compensation under certain investment banking
agreements. In connection with one of the warrant grants, we also
issued 15,750 shares of unregistered common stock valued at
$106,300 and, in connection with another warrant grant, we made a
cash payment of $20,000. In March 2016, we issued warrants to
purchase an aggregate of 230,000 shares of our common stock to
eleven professional service providers in connection with investment
banking, strategic planning and financing, tax, legal and research
and development consulting services. We recognized $1,042,400 of
general and administrative expense and $127,100 of research and
development expense attributable to the March 2016 grants. We
valued the warrants granted on the dates indicated using the Black
Scholes Option Pricing Model and the following
assumptions:
|
Assumption:
|
November 2015
|
December 2015
|
March 2016
|
|
Market
price per share
|
$6.75
|
$5.00
|
8.00
|
|
Exercise
price per share
|
$7.00
|
$7.00
|
8.00
|
|
Risk-free
interest rate
|
1.70%
|
1.16%
|
1.39%
|
|
Contractual
term in years
|
5.0
|
3.0
|
5.0
|
|
Volatility
|
77.95%
|
77.88%
|
78.96%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
0.0%
|
|
|
|
|
|
|
Fair Value per share
|
$4.22
|
$2.12
|
$5.08
|
|
Warrant
shares granted
|
7,500
|
37,500
|
230,000
|
|
Expense
recognized
|
$31,700
|
$79,600
|
$1,169,500
|
F-20
Warrant Exchanges into Series C Preferred and Common
Stock
In January 2016, we
entered into an Exchange Agreement
(the Exchange
Agreement) with PLTG and
Montsant Partners, LLC, an organization affiliated with PLTG
(Montsant and, together with PLTG, the Holders), pursuant to which (i) 200,000 shares of our
common stock held by the Holders were exchanged for 200,000 shares
of Series C Preferred; and (ii) the Holders canceled outstanding
warrants to purchase an aggregate of 2,368,658 shares of our
unregistered common stock (the Outstanding PLTG
Warrants) in exchange for a
total of 1,776,494 shares of Series C Preferred. In addition, PLTG
terminated its right under the October 2012 Note Exchange and
Purchase Agreement, as amended (the NEPA), to receive the Series A Exchange Warrant to
purchase a total of 455,358 shares of our common stock upon
conversion of all of its shares of our Series A Preferred, and, as
consideration, we issued to PLTG 341,518 shares of Series C
Preferred. Upon execution of the Exchange Agreement and the
termination of PLTG’s right to receive Series A Exchange
Warrants under the NEPA, we issued a Series A Exchange Warrant to
purchase a total of 80,357 shares of our common stock to the
current holder of shares of Series A Preferred previously held, but
subsequently assigned, by PLTG.
During the quarter
ended March 31, 2016, we entered into Warrant Exchange Agreements
with certain holders of other outstanding warrants (Other Warrants) to purchase an
aggregate of 1,086,610 shares of our common stock pursuant to which
the holders agreed to the cancellation of such warrants in exchange
for our issuance to them of an aggregate of 814,989 shares of our
unregistered common stock. In connection with these exchanges, we
extended the expiration date of certain warrants by three
months.
We accounted for
the exchange of the Outstanding PLTG Warrants, the Series A
Preferred Exchange Warrant, and the Other Warrants as warrant
modifications, determining the fair value of the Outstanding PLTG
Warrants and the Other Warrants, and the Series A Preferred
Exchange Warrant as if issued on the Exchange Agreement date, as of
the respective exchange agreement dates, and comparing that to the
fair value of the Series C Preferred or common stock issued.
Considering the direct exchangeability
of the Series C Preferred shares into shares of our common stock,
we determined that the fair value of a share of Series C Preferred
issued pursuant to the Exchange Agreement with PLTG was equal to
the market value of a share of our common stock on the date of the
Exchange Agreement. We calculated the weighted average fair value
of the warrants prior to the respective exchanges using the Black
Scholes Option Pricing Model and the weighted average assumptions
indicated in the table below. We determined the post-modification
fair value based on the quoted market price of our common stock on
the effective date of each exchange and the number of unregistered
shares issued in each exchange, as also indicated in the table
below. We recognized the amount of the incremental fair value of
the unregistered Series C Preferred or common stock issued in
excess of the fair value of the warrants cancelled, $5,608,300, as
a component of warrant modification expense, which is included in
general and administrative expenses in our accompanying
Consolidated Statement of Operations and Comprehensive Loss
for the fiscal year ended March 31, 2016.
|
Warrant
Exchanges - FY 2016
|
||||||
|
|
January
2016
|
January
- March 2016
|
||||
|
|
PLTG
Outstanding
Warrants
|
PLTG
Series A
Exchange
Warrant
|
Other
outstanding
warrants
|
|||
|
|
Pre-
|
Post-
|
Pre-
|
Post-
|
Pre-
|
Post-
|
|
|
modification
|
modification
|
modification
|
modification
|
modification
|
modification
|
|
|
|
|
|
|
|
|
|
Market
Price per share
|
$8.25
|
$8.25
|
$8.25
|
$8.25
|
$8.00
|
$7.97
|
|
Exercise
price per share
|
$7.13
|
|
$7.00
|
|
$8.47
|
|
|
Risk-free
interest rate
|
1.27%
|
|
1.47%
|
|
0.88%
|
|
|
Contractual
term (years)
|
3.99
|
|
5.00
|
|
3.04
|
|
|
Volatility
|
79.5%
|
|
77.9%
|
|
81.0%
|
|
|
Dividend
Rate
|
0%
|
|
0%
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value per share
|
$4.98
|
|
$5.45
|
|
$3.76
|
|
|
|
|
|
|
|
|
|
|
Warrant
shares cancelled and exchanged
|
2,368,658
|
|
455,358
|
|
1,986,610
|
|
|
|
|
|
|
|
|
|
|
Common
(Series C Preferred for PLTG Warrants) shares issued in
exchange
|
|
1,776,494
|
|
341,518
|
|
814,989
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
$11,797,400
|
$14,656,100
|
$2,481,300
|
$2,817,500
|
$4,081,600
|
$6,495,000
|
|
|
|
|
|
|
|
|
|
Incremental
fair value recognized as warrant modification expense
|
|
$2,858,700
|
|
$336,200
|
|
$2,413,400
|
During
our fiscal year ended March 31, 2017, we entered into additional
Warrant Exchange Agreements with certain other holders of
outstanding warrants to purchase an aggregate of 224,693 shares of
our common stock pursuant to which the holders agreed to cancel
such warrants in exchange for the issuance of an aggregate of
156,246 unregistered shares of common stock.
We
also accounted for the exchanges of these warrants as warrant
modifications, comparing the fair value of the warrants immediately
prior to the exchanges with the fair value of the unregistered
common stock issued, using the same procedures as described
previously. We calculated the weighted average fair value of the
warrants prior to the respective exchanges using the Black Scholes
Option Pricing Model and the weighted average assumptions indicated
in the table below. We determined the post-modification fair value
based on the quoted market price of our common stock on the
effective date of each exchange and the number of unregistered
shares issued in the exchange, as also indicated in the table
below. We recognized the incremental fair value of the unregistered
common stock issued in excess of the fair value of the warrants
cancelled, $350,700, as a component of warrant modification expense
which is included in general and administrative expenses in our
accompanying Consolidated Statement of Operations and
Comprehensive Loss for the fiscal year ended March 31,
2017.
|
Warrant
Exchanges - FY 2017
|
||||||||
|
|
April -
May 2016
|
August
2016
|
October
2016
|
December
2016
|
||||
|
|
Pre-
|
Post-
|
Pre-
|
Post-
|
Pre-
|
Post-
|
Pre-
|
Post-
|
|
|
modification
|
modification
|
modification
|
modification
|
modification
|
modification
|
modification
|
modification
|
|
|
|
|
|
|
|
|
|
|
|
Market
Price per share
|
$8.44
|
$8.45
|
$3.33
|
$3.33
|
$4.05
|
$4.05
|
$3.73
|
$3.73
|
|
Exercise
price per share
|
$7.37
|
|
$8.00
|
|
$8.15
|
|
$10.00
|
|
|
Risk-free
interest rate
|
1.23%
|
|
1.10%
|
|
0.77%
|
|
0.44%
|
|
|
Contractual
term (years)
|
4.77
|
|
4.58
|
|
2.40
|
|
0.003
|
|
|
Volatility
|
79.0%
|
|
87.0%
|
|
93.0%
|
|
100.3%
|
|
|
Dividend
Rate
|
0%
|
|
0%
|
|
0%
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value per share
|
$5.37
|
|
$1.64
|
|
$1.27
|
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
shares cancelled and exchanged
|
41,649
|
|
20,000
|
|
113,944
|
|
49,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued in exchange
|
|
31,238
|
|
15,000
|
|
85,458
|
|
24,550
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
$223,700
|
$264,000
|
$32,900
|
$50,000
|
$144,400
|
$346,100
|
$-
|
$91,600
|
|
|
|
|
|
|
|
|
|
|
|
Incremental
fair value recognized as warrant modification expense
|
|
$40,300
|
|
$17,100
|
|
$201,700
|
|
$91,600
|
F-21
Additional Warrant Modifications
In addition to
warrants modified in connection with conversions of certain of our
outstanding promissory notes into Series B Preferred during the
first and second quarters of our fiscal year ended March 31, 2016,
as described earlier in this note, the incremental fair value of
which modifications was included in the determination of loss on
extinguishment of debt, and the
warrants modified in connection with the various warrant exchange
transactions described immediately above, we modified other
outstanding warrants during our fiscal years ended March 31, 2017
and 2016.
In June 2015, we modified certain
outstanding warrants to purchase an aggregate of 54,576 shares of
our common stock to reduce their exercise price. We calculated the fair value of the modified warrants
immediately before and after the modifications and determined that
the fair value of the warrants increased by an aggregate of
$122,300, which we recognized as a component of warrant
modification expense which is included in general and
administrative expense in the accompanying
Consolidated Statement of Operations and Comprehensive Loss
for the fiscal year ended March 31, 2016. The warrants subject to
the exercise price modifications were valued using the
Black-Scholes Option Pricing Model and the following
assumptions:
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$10.00
|
$10.00
|
|
Exercise
price per share (weighted average)
|
$30.23
|
$11.92
|
|
Risk-free
interest rate (weighted average)
|
0.83%
|
0.83%
|
|
Remaining
contractual term in years (weighted average)
|
2.26
|
2.26
|
|
Volatility
(weighted average)
|
73.7%
|
73.7%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Fair Value per share (weighted average)
|
$1.55
|
$3.79
|
In November 2015,
our Board of Directors (the Board) authorized the modification of
outstanding warrants to purchase an aggregate of 1,123,533 shares
of our common stock, including warrants to purchase an aggregate of
600,000 shares granted in September 2015 to company officers,
independent members of the Board and a key scientific advisor to
reduce the exercise prices thereof to $7.00 per share and to extend
through March 19, 2019 the expiration date of such warrants to
purchase an aggregate of 10,803 shares of our unregistered common
stock otherwise scheduled to expire during calendar 2016. We
calculated the fair value of the
modified warrants immediately before and after the modifications
and determined that the fair value of the warrants increased by an
aggregate of $492,600. We recognized $357,500 of such increase as a
component of general and administrative expense in the accompanying
Consolidated Statement of Operations and Comprehensive Loss for the
fiscal year ended March 31, 2016, and the remaining $135,100 as a
component of research and development expense in the same period.
The warrants subject to the exercise price modifications were
valued using the Black-Scholes Option Pricing Model and the
following assumptions:
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$6.50
|
$6.50
|
|
Exercise
price per share (weighted average)
|
$9.97
|
$7.00
|
|
Risk-free
interest rate (weighted average)
|
1.74%
|
1.75%
|
|
Remaining
contractual term in years (weighted average)
|
5.13
|
5.16
|
|
Volatility
(weighted average)
|
78.8%
|
78.7%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Fair Value per share (weighted average)
|
$3.65
|
$4.08
|
As
noted with respect to the exchange of the Other Warrants into
shares of our common stock, in January 2016, we extended the term
of certain warrants to purchase an aggregate of 91,230 unregistered
shares of our common stock otherwise due to expire between January
31, 2016 and June 11, 2016 by three months. We calculated the fair
value of the extended warrants immediately before and after the
extension and determined that the fair value of the warrants
increased by an aggregate of $45,700, which we treated as an
additional component of warrant modification expense for the fiscal
year ended March 31, 2016 in the accompanying Consolidated
Statement of Operations and Comprehensive Loss. The warrants
subject to the term extension were valued using the Black-Scholes
Option Pricing Model and the following weighted average
assumptions:
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$8.25
|
$8.25
|
|
Exercise
price per share
|
$12.99
|
$12.99
|
|
Risk-free
interest rate
|
0.28%
|
0.36%
|
|
Remaining
contractual term in years
|
0.15
|
0.40
|
|
Volatility
|
91.2%
|
91.2%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Fair Value per share
|
$0.30
|
$0.80
|
For
warrants which were extended and subsequently exchanged, the
pre-modification fair value used in the warrant exchange
calculation was the post-modification term extension fair value,
since those warrants were treated as having been modified twice in
a twelve-month period.
In
December 2016, the Board authorized the modification of an
outstanding warrant to both alter the exercise terms and increase
the number of shares for which the warrant was exercisable. We
calculated the fair value of the warrant immediately before and
after the modification using the Black Scholes Option Pricing Model
and the assumptions indicated in the table below. We recognized the
additional fair value, $76,900, as warrant modification expense,
included as a component of general and administrative expenses, in
our Consolidated Statement of Operations and Comprehensive
Loss for the fiscal year ended March 31, 2017.
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$3.51
|
$3.51
|
|
Exercise
price per share
|
$8.00
|
$3.51
|
|
Risk-free
interest rate
|
1.88%
|
2.07%
|
|
Remaining
contractual term in years
|
4.26
|
5.03
|
|
Volatility
|
87.1%
|
85.8%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Number
of warrant shares
|
25,000
|
50,000
|
|
Weighted average fair value per share
|
$1.71
|
$2.39
|
Warrants Outstanding
The
following table summarizes outstanding warrants to purchase shares
of our common stock as of March 31, 2017. The weighted
average exercise price of outstanding warrants at March 31, 2017
was $6.29 per share.
|
|
|
Weighted
|
Shares
Subject
|
|
Exercise
|
|
Average
|
to
Purchase at
|
|
Price
|
Expiration
|
Remaining
|
March
31,
|
|
per
Share
|
Date
|
Term
(Years)
|
2017
|
|
|
|
|
|
|
$3.51
|
12/31/2021
|
4.75
|
50,000
|
|
$4.00
|
4/30/2021
|
4.08
|
28,625
|
|
$4.50
|
9/26/2019
|
2.49
|
25,000
|
|
$5.30
|
5/16/2021
|
4.13
|
2,705,883
|
|
$6.00
|
9/26/2019 to
11/30/2019
|
2.52
|
97,750
|
|
$7.00
|
12/11/2018 to
3/3/2023
|
3.41
|
1,346,931
|
|
$8.00
|
3/25/2021
|
3.98
|
185,000
|
|
$10.00
|
11/15/2017 to
1/11/2020
|
2.39
|
24,394
|
|
$20.00
|
9/15/2019
|
2.46
|
110,448
|
|
$30.00
|
11/20/2017
|
0.64
|
3,600
|
|
|
|
|
|
|
|
3.82
|
4,577,631
|
|
Reserved Shares
At
March 31, 2017, we have reserved shares of our common stock for
future issuance as follows:
|
Upon exchange of all shares of Series A Preferred
Stock currently issued and outstanding (1)
|
750,000
|
|
|
|
|
Upon exchange of all shares of Series B Preferred
Stock currently issued and outstanding (2)
|
1,823,700
|
|
|
|
|
Upon
exchange of all shares of Series C Preferred Stock currently issued
and outstanding
|
2,318,012
|
|
|
|
|
Pursuant
to warrants to purchase common stock:
|
|
|
Subject
to outstanding warrants
|
4,577,631
|
|
|
|
|
Pursuant
to stock incentive plans:
|
|
|
Subject to outstanding options under the Amended and Restated 2016
and 1999 Stock Incentive Plans
|
1,659,324
|
|
Available
for future grants under the Amended and Restated 2016 Stock
Incentive Plan
|
1,134,911
|
|
|
2,794,235
|
|
|
|
|
|
|
|
Total
|
12,263,578
|
_______________
(1)
assumes exchange under the terms of the
October 11, 2012 Note Exchange and Purchase Agreement with
PLTG
(2)
includes 663,460 common shares issuable
in payment of an estimated $1,658,600 in accrued dividends through
April 30, 2017 at $2.50 per share
F-23
10. Research and Development Expenses
We
recorded research and development expenses of approximately $5.2
million and $3.9 million in the fiscal years ended March 31,
2017 and 2016, respectively. Research and development expense is
composed primarily of employee compensation expenses, including
stock–based compensation, direct project expenses,
particularly in Fiscal 2017 related to our preparations for our
AV-101 MDD Phase 2 Adjunctive Treatment Study, and costs to
maintain and prosecute our intellectual property suite, including
new patent applications for AV-101 for various
indications.
11. Income Taxes
The
provision for income taxes for the periods presented in the
Consolidated Statements of Operations and Comprehensive Loss
represents minimum California franchise taxes. Income tax expense
differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to pretax losses as a
result of the following:
|
|
Fiscal Years Ended
March 31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Computed expected
tax benefit
|
(34.00)%
|
(34.00)%
|
|
Tax effect of loss
on debt extinguishment
|
-%
|
19.22%
|
|
Tax effect of
warrant modifications
|
1.42%
|
4.38%
|
|
Tax effect of
Warrant Liability mark to market
|
-%
|
1.36%
|
|
Other losses not
benefitted
|
32.58%
|
9.04%
|
|
Other
|
0.02%
|
0.01%
|
|
|
|
|
|
Income tax
expense
|
0.02%
|
0.01%
|
Deferred
income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred tax assets are as
follows (in thousands):
|
|
March
31,
|
|
|
|
2017
|
2016
|
|
Deferred tax
assets:
|
|
|
|
Net operating loss
carryovers
|
$30,184
|
$26,606
|
|
Basis differences
in fixed assets
|
(4)
|
-
|
|
Stock based
compensation
|
3,674
|
3,681
|
|
Accruals and
reserves
|
928
|
928
|
|
|
|
|
|
Total deferred tax
assets
|
34,782
|
31,215
|
|
|
|
|
|
Valuation
allowance
|
(34,782)
|
(31,215)
|
|
|
|
|
|
Net deferred tax
assets
|
$-
|
$-
|
Realization
of deferred tax assets is dependent upon future earnings, if any,
the timing and amount of which are uncertain. Accordingly, the
deferred tax assets have been fully offset by a valuation
allowance. The valuation allowance increased by $3,567,000 and
$5,443,000 during the fiscal years ended March 31, 2017 and 2016,
respectively. When realized, deferred tax assets related to
employee stock options will be credited to additional paid-in
capital.
As
of March 31, 2017, we had U.S. federal net operating loss
carryforwards of approximately $77.1 million, which will expire in
fiscal years 2020 through 2037. As of March 31, 2017, we
had state net operating loss carryforwards of approximately $67.6
million, which will expire in fiscal years 2018 through
2037.
U.S. federal
and state tax laws include substantial restrictions on the
utilization of net operating loss carryforwards in the event of an
ownership change of a corporation. We have not performed a change
in ownership analysis since our inception in 1998 and accordingly
some or all of our net operating loss carryforwards may not be
available to offset future taxable income, if any.
We
file income tax returns in the U.S. federal and Canadian
jurisdictions and California and Maryland state jurisdictions. We
are subject to U.S. federal and state income tax examinations
by tax authorities for tax years 2000 through 2017 due to net
operating losses that are being carried forward for tax purposes,
but we are not currently under examination by tax authorities in
any jurisdiction.
Uncertain Tax Positions
Our
unrecognized tax benefits at March 31, 2017 and 2016 relate
entirely to research and development tax credits. The total amount
of unrecognized tax benefits at March 31, 2017 and 2016 is $290,500
and $142,400, respectively. If recognized, none of the unrecognized
tax benefits would impact our effective tax rate. The following
table summarizes the activity related to our unrecognized tax
benefits.
|
|
Fiscal Years Ended
March 31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Unrecognized
benefit - beginning of period
|
$142,400
|
$48,200
|
|
Current period tax
position increases
|
77,700
|
35,300
|
|
Prior period tax
position increases
|
70,400
|
58,900
|
|
|
|
|
|
Unrecognized
benefit - end of period
|
$290,500
|
$142,400
|
Our
policy is to recognize interest and penalties related to income
taxes as components of interest expense and other expense,
respectively. We incurred no interest or penalties related to
unrecognized tax benefits in the years ended March 31, 2017 or
2016. We do not anticipate any significant changes of our uncertain
tax positions within twelve months of this reporting
date.
12. Licensing, Sublicensing and Collaborative
Agreements
BlueRock Therapeutics Sublicense Agreement
In December 2016, we entered into an Exclusive
License and Sublicense Agreement (BlueRock Therapeutics
Agreement) with BlueRock
Therapeutics, LP, a next generation regenerative medicine company
established in December 2016 by Bayer AG and Versant Ventures
(BlueRock
Therapeutics), pursuant to
which BlueRock received exclusive rights to utilize certain
technologies exclusively licensed by us from University Health
Network (UHN) for the production of cardiac stem cells for the
treatment of heart disease. We retained rights to cardiac stem cell
technology licensed from UHN related to small molecule, protein and
antibody drug discovery, drug rescue and drug development,
including small molecules with cardiac regenerative potential, as
well as small molecule, protein and antibody testing involving
cardiac cells.
Under
the BlueRock Therapeutics Agreement, we received an upfront payment
of $1.25 million and we have the potential to receive additional
milestone payments and royalties in the future, in the event
certain performance-based milestones and commercial sales are
achieved. At December 31, 2016, we had no further obligations under
the BlueRock Therapeutics Agreement and, accordingly, we recorded a
receivable for the $1.25 million upfront payment with a
corresponding recognition of the sublicense revenue. We received
the $1.25 million cash payment due under the BlueRock Therapeutics
Agreement in January 2017 and have recognized $1.25 million in
sublicense revenue in the accompanying Consolidated Statement of
Operations and Comprehensive Loss for the fiscal year ended March
31, 2017.
U.S. National Institutes of Health
During
fiscal years 2006 through 2008, the NIH awarded a $4.2 million
grant to the Company to support preclinical development of AV-101
for pain. In June 2009, the NIH further awarded the Company a
$4.2 million grant to support the Phase I clinical development
of AV-101, which amount was subsequently increased to a total of
$4.6 million in July 2010. The grant expired in the
ordinary course on June 30, 2012 and all funds had been
expended. AV-101, our orally available prodrug candidate
is currently in Phase 2 development, initially for the adjunctive
treatment of MDD in patients with an inadequate response to
standard antidepressants. In February 2015, we entered into
the CRADA with the NIMH to collaborate on an NIH-sponsored Phase 2
clinical study of the efficacy and safety of AV-101 in subjects
with MDD. The first patient in the NIMH AV-101 MDD Phase 2
Monotherapy Study was dosed in November 2015 and we currently
anticipate that the NIMH will complete the study in 2017, with top
line results in the first half of 2018. We believe AV-101 may also
have broad therapeutic utility with multiple near term central
nervous system pipeline expansion opportunities, including chronic
neuropathic pain, epilepsy, Huntington’s disease and
Parkinson’s disease.
Cato Research Ltd.
We have built a strategic development relationship
with Cato Research Ltd. (CRL), a global contract research and development
organization, or CRO, and an affiliate of one of our largest
institutional stockholders. CRL has provided us with
access to essential CRO services and regulatory expertise
supporting our AV-101 preclinical and clinical development programs
and other projects. We recorded research and development
expenses for CRO services provided by CRL in the amounts of
$254,600 and $52,600 for the fiscal years ended March 31, 2017 and
2016, respectively.
University Health Network
In September 2007, we entered into a Sponsored
Research Collaboration Agreement (SRCA) with University Health Network to develop
certain stem cell technologies for drug discovery, development and
rescue technologies. Under the terms of the SRCA, we have acquired
exclusive worldwide rights to patent applications in the U.S. and
foreign countries on multiple inventions arising from studies we
have sponsored, under pre-negotiated license terms. Those license
terms provide for royalty payments based on product sales that
incorporate the licensed technology and milestone payments based on
the achievement of certain events. Any drug rescue new chemical
entity that we develop will not incorporate the licensed technology
and, therefore, will not require any royalty payments. To the
extent we incur royalty payment obligations from other business
activities, the royalty payments will be subject to anti-stacking
provisions, which reduce our payments by a percentage of any
royalty payments paid to third parties who have licensed necessary
intellectual property to us. These licenses will remain in force
for so long as we have an obligation to make royalty or milestone
payments to UHN, but may be terminated earlier upon mutual consent,
by us at any time, or by UHN for our breach of any material
provision of the license agreement that is not cured within
90 days. The SRCA with UHN, as amended, had a term of ten
years, ending in September 2017, but was terminated in
December 2016, as described below.
In
December 2016, we entered into a series of agreements with UHN
pursuant to which we (i) executed two new exclusive patent license
agreements related to certain cardiac stem cell technologies
discovered by Dr. Gordon Keller, Director of UHN's McEwen Centre
for Regenerative Medicine, under the SRCA; (ii) amended two
exclusive cardiac stem cell technology patent license agreements
previously entered into between us and UHN under the SRCA; (iii)
terminated the SRCA to facilitate the BlueRock Therapeutics
Agreement, described above; and (iv) agreed to make a sublicense
consideration payment to UHN with respect to the upfront payment we
received under the BlueRock Therapeutics Agreement. All financial
obligations related to these agreements with UHN, aggregating
$233,400, are reflected in research and development expense in the
accompanying Consolidated Statement of Operations and Comprehensive
Loss for the fiscal year ended March 31, 2017.
13. Stock Option Plans and 401(k) Plan
We
have the following share-based compensation plans.
Amended and Restated 2016 Stock Incentive Plan
Our Board unanimously
approved the Company’s Amended and Restated 2016 Equity
Incentive Plan (“2016
Plan”), formerly
titled the 2008 Equity Incentive Plan, on July 26, 2016. Our
stockholders approved the 2016 Plan on September 26, 2016.
The 2008 Stock Incentive Plan
(the 2008
Plan) was adopted by the
shareholders of VistaGen California in December 2018 and we assumed
it in connection with our going-public transaction. The
maximum number of shares of common stock issuable under the 2016
Plan is 3.0 million shares, subject to adjustments for stock
splits, stock dividends or other similar changes in our common
stock or our capital structure.
Board-approved
amendments to the 2016 Plan included increasing the number of
shares of our common stock authorized for issuance from 1.0 million
to 3.0 million, increasing the maximum number of shares of common
stock that may be granted to a Grantee (as such term is defined in
the 2016 Plan) in any calendar year from 125,000 to 300,000 shares
(350,000 shares if the grant is issued in connection with the
commencement of service to the Company), extending the expiration
date of the 2016 Plan to July 26, 2026, and removing certain
provisions that only pertained to the Company or the plan before
the Company became a publicly traded entity. The 2016 Plan
delegates the authority to administer the plan to the Board’s
Compensation Committee (the Committee).
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan (the
1999
Plan) was adopted by the
shareholders of VistaStem on December 6, 1999 and we assumed
it in connection with our going-public transaction. We initially
reserved 45,000 shares for the issuance of awards under the
1999 Plan. The 1999 Plan has terminated under its own terms and, as
a result, no awards may currently be granted under the 1999 Plan.
The unexpired options and awards that have already been granted
pursuant to the 1999 Plan remain operative.
Description of the 2016 Plan
The
2016 Plan provides for the grant of stock options, restricted
shares of common stock, stock appreciation rights and dividend
equivalent rights, collectively referred to as
“Awards”. Stock options granted under the 2016 Plan may
be either incentive stock options or non-qualified stock options.
We may grant incentive stock options only to employees of the
Company or any parent or subsidiary of the Company. Awards other
than incentive stock options may be granted to employees, directors
and consultants.
The
Committee administers the 2016 Plan, including selecting the Award
recipients, determining the number of shares to be subject to each
Award, the exercise or purchase price of each Award and the vesting
and exercise periods of each Award.
The
exercise price of all incentive stock options granted under the
2016 Plan must be at least equal to 100% of the fair market value
of the shares on the date of grant. If, however, incentive stock
options are granted to an employee who owns stock possessing more
than 10% of the voting power of all classes of our stock or the
stock of any of our subsidiaries, the exercise price of any
incentive stock option granted may not be less than 110% of the
fair market value on the grant date. The maximum term of incentive
stock options granted to employees who own stock possessing more
than 10% of the voting power of all classes of our stock or the
stock of any of our subsidiaries may not exceed five years. The
maximum term of an incentive stock option granted to any other
participant may not exceed 10 years. The Committee determines the
term and exercise or purchase price of all other Awards granted
under the 2016 Plan.
Under
the 2016 Plan, incentive stock options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the participant, only by
the participant. Other Awards shall be transferable:
●
by
will and by the laws of descent and distribution; and
●
during
the lifetime of the participant, to the extent and in the manner
authorized by the Committee by gift or pursuant to a domestic
relations order to members of the participant’s Immediate
Family (as defined in the 2016 Plan).
The
maximum number of shares with respect to which options, restricted
stock, restricted shares of common stock or stock appreciation
rights may be granted to any participant in any calendar year will
be 300,000 shares of common stock. In connection with a
participant’s commencement of service with the Company, a
participant may be granted options, restricted stock or stock
appreciation rights for up to an additional 50,000 shares that
will not count against the foregoing limitation. In addition, for
Awards of restricted stock and restricted shares of common stock
that are intended to be “performance-based
compensation” (within the meaning of Section 162(m) of
the Code), the maximum number of shares with respect to which such
Awards may be granted to any participant in any calendar year will
be 300,000 shares of common stock. The limits described in this
paragraph are subject to adjustment in the event of any change in
our capital structure as described below.
The
terms and conditions of Awards are determined by the Committee,
including the vesting schedule and any forfeiture provisions.
Awards under the 2016 Plan may vest upon the passage of time or
upon the attainment of certain performance criteria. Although we do
not currently have any Awards outstanding that vest upon the
attainment of performance criteria, the Committee may establish
criteria based on any one of, or combination of, a number of
financial measurements.
Effective
upon the consummation of a Corporate Transaction (as defined
below), all outstanding Awards under the 2016 Plan will terminate
unless the acquirer assumes or replaces such Awards. The Committee
has the authority, exercisable either in advance of any actual or
anticipated Corporate Transaction or Change in Control (as defined
below) or at the time of an actual Corporate Transaction or Change
in Control and exercisable at the time of the grant of an Award
under the 2016 Plan or any time while an Award remains outstanding,
to provide for the full or partial automatic vesting and
exercisability of one or more outstanding unvested Awards under the
2016 Plan and the release from restrictions on transfer and
repurchase or forfeiture rights of such Awards in connection with a
Corporate Transaction or Change in Control, on such terms and
conditions as the Committee may specify. The Committee also has the
authority to condition any such Award’s vesting and
exercisability or release from such limitations upon the subsequent
termination of the service of the grantee within a specified period
following the effective date of the Corporate Transaction or Change
in Control. The Committee may provide that any Awards so vested or
released from such limitations in connection with a Change in
Control, shall remain fully exercisable until the expiration or
sooner termination of the Award.
Under
the 2016 Plan, a Corporate Transaction is generally defined
as:
●
an
acquisition of securities possessing more than fifty percent (50%)
of the total combined voting power of our outstanding securities
but excluding any such transaction or series of related
transactions that the Committee determines shall not be a Corporate
Transaction;
●
a
reverse merger in which we remain the surviving entity but: (i) the
shares of common stock outstanding immediately prior to such merger
are converted or exchanged by virtue of the merger into other
property, whether in the form of securities, cash or otherwise; or
(ii) in which securities possessing more than fifty percent (50%)
of the total combined voting power of our outstanding securities
are transferred to a person or persons different from those who
held such securities immediately prior to such merger;
●
a
sale, transfer or other disposition of all or substantially all of
the assets of the Company;
●
a
merger or consolidation in which the Company is not the surviving
entity; or
●
a
complete liquidation or dissolution.
Under
the 2016 Plan, a Change in Control is generally defined as:
(i) the acquisition of more than 50% of the total combined
voting power of our stock by any individual or entity which a
majority of our Board of Directors (who have served on our board
for at least 12 months) do not recommend our stockholders
accept; (ii) or a change in the composition of our Board of
Directors over a period of 12 months or less.
Unless
terminated sooner, the 2016 Plan will automatically terminate in
2026. Our Board of Directors may at any time amend, suspend or
terminate the 2016 Plan. To the extent necessary to comply with
applicable provisions of U.S. federal securities laws, state
corporate and securities laws, the Code, the rules of any
applicable stock exchange or national market system, and the rules
of any non-U.S. jurisdiction applicable to Awards granted to
residents therein, we will obtain stockholder approval of any such
amendment to the 2016 Plan in such a manner and to such a degree as
required.
During
our fiscal year ended March 31, 2017, we granted from the 2016
Plan:
●
options
to purchase an aggregate of 655,000 shares of our common stock at
an exercise price of $3.49 per share to the independent members of
our Board and to our officers, including one newly-employed
officer, in June 2016;
●
options
to purchase 125,000 shares of our common stock at an exercise price
of $4.27 per share to a newly-employed officer in September
2016
●
options
to purchase an aggregate of 560,000 shares of our common stock at
an exercise price of $3.80 per share to the independent members of
our Board, officers, non-officer employees and a consultant in
November 2016; and
●
an
aggregate of 150,000 unregistered shares of our common stock
pursuant to four consulting agreements in March 2017.
During
our fiscal year ended March 31, 2016, we granted from the 2008
Plan:
●
options
to purchase an aggregate of 90,000 shares of our common stock at an
exercise price of $9.25 per share to our non-officer employees and
certain strategic consultants in September 2015;
●
options
to purchase an aggregate of 30,000 shares of our common stock at an
exercise price of $8.00 per share to two parties in connection with
an investor relations agreement in February 2016; and
●
options
to purchase 25,000 shares of our common stock at an exercise price
of $8.00 per share to a new independent member of our Board of
Directors in March 2016.
The
following table summarizes share-based compensation expense,
including share-based expense related to grants of warrants in
prior years to certain of our officers, independent directors,
consultants and service providers, included in the accompanying
Consolidated Statement of Operations and Comprehensive Loss for the
years ended March 31, 2017 and 2016.
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2017
|
2016
|
|
Research and
development expense:
|
|
|
|
|
|
|
|
Stock option
grants
|
$375,100
|
$227,700
|
|
Warrants
granted to officer in March 2014
|
-
|
11,400
|
|
Fully-vested
warrants granted to officer in September 2015
|
-
|
852,200
|
|
|
|
|
|
|
375,100
|
1,091,300
|
|
General and
administrative expense:
|
|
|
|
|
|
|
|
Stock option
grants
|
476,200
|
93,800
|
|
Warrants granted to
officers and directors in March 2014
|
-
|
15,600
|
|
Fully-vested
warrants granted to officers, directors and consultants in
September 2015
|
-
|
2,840,700
|
|
|
476,200
|
2,950,100
|
|
|
|
|
|
Total
stock-based compensation expense
|
$851,300
|
$4,041,400
|
In September 2015,
when the market price of our common stock was $9.11 per share, our
Board of Directors (Board)
authorized the grant of fully-vested five-year warrants to purchase
an aggregate of 650,000 restricted shares of our common stock at an
exercise price of $9.25 per share, including an aggregate of
600,000 of such shares to company officers and independent members
of the Board. We valued the new
warrant grants at $5.68 per share, or an aggregate of $3,692,900,
using the Black Scholes Option Pricing Model and the following
assumptions: market price per share: $9.11; exercise price per
share: $9.25; risk-free interest rate: 1.52%; contractual term: 5.0
years; volatility: 77.2%; expected dividend rate: 0%. As
indicated in the table above, we recognized non-cash
research and development and general and administrative stock
compensation expense in the amounts of $852,200 and $2,840,700,
respectively, in the accompanying Consolidated Statement of
Operations and Comprehensive Loss for the fiscal year ended March
31, 2016.
The
fair value of the 150,000 unregistered shares of common stock
granted from the 2016 Plan in March 2017, an aggregate of $442,500,
is reflected as an additional component of general and
administrative expense in the accompanying Consolidated Statement
of Operations and Comprehensive Loss for the year ended March 31,
2017.
We
used the Black-Scholes Option Pricing model with the following
weighted average assumptions to determine share-based compensation
expense related to option grants during the fiscal years ended
March 31, 2017 and 2016:
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2017
|
2016
|
|
|
(weighted
average)
|
(weighted
average)
|
|
Exercise
price
|
$3.69
|
$8.78
|
|
Market price on
date of grant
|
$3.69
|
$8.69
|
|
Risk-free interest
rate
|
1.51%
|
1.99%
|
|
Expected term
(years)
|
6.68
|
8.45
|
|
Volatility
|
82.96%
|
93.27%
|
|
Expected dividend
yield
|
0.00%
|
0.00%
|
|
|
|
|
|
Fair value per
share at grant date
|
$2.68
|
$7.09
|
The expected term of options represents the period
that our share-based compensation awards are expected to be
outstanding. We have calculated the weighted-average expected term
of the options using the simplified method as prescribed by
Securities and Exchange Commission Staff Accounting Bulletins
No. 107 and No. 110 (SAB No. 107 and
110). The utilization of SAB
No. 107 and 110 is based on the lack of relevant historical data
due to both our limited historical experience as a publicly traded
company as well as the historical lack of liquidity resulting from
the limited number of freely-tradable shares of our common stock.
Those factors also resulted in our decision to utilize the
historical volatilities of a peer group of public companies’
stock over the expected term of the option in determining our
expected volatility assumptions. The risk-free interest
rate for periods related to the expected life of the options is
based on the U.S. Treasury yield curve in effect at the time
of grant. The expected dividend yield is zero, as we have not paid
any dividends and do not anticipate paying dividends in the near
future. We calculated the forfeiture rate based on an analysis of
historical data, as it reasonably approximates the currently
anticipated rate of forfeitures for granted and outstanding options
that have not vested.
The
following table summarizes activity for the fiscal years ended
March 31, 2017 and 2016 under our stock option plans:
|
|
Fiscal Years
Ended March 31,
|
|||
|
|
2017
|
2016
|
||
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Average
|
|
Average
|
|
|
Number
of
|
Exercise
|
Number
of
|
Exercise
|
|
|
Shares
|
Price
|
Shares
|
Price
|
|
|
|
|
|
|
|
Options
outstanding at beginning of period
|
336,987
|
$9.56
|
207,638
|
$10.09
|
|
Options
granted
|
1,340,000
|
$3.69
|
145,000
|
$8.78
|
|
Options
exercised
|
-
|
$-
|
-
|
$-
|
|
Options
forfeited
|
-
|
$-
|
(10,359)
|
$9.26
|
|
Options
expired
|
(17,663)
|
$15.52
|
(5,292)
|
$9.42
|
|
|
|
|
|
|
|
Options
outstanding at end of period
|
1,659,324
|
$4.76
|
336,987
|
$9.56
|
|
Options
exercisable at end of period
|
351,532
|
$8.27
|
201,779
|
$10.11
|
|
|
|
|
|
|
|
Weighted
average grant-date fair value of
|
|
|
|
|
|
options
granted during the period
|
|
$2.69
|
|
$7.09
|
The
following table summarizes information on stock options outstanding
and exercisable under our stock option plans as of March 31,
2017:
|
|
Options
Outstanding
|
Options
Exercisable
|
|||
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
Weighted
|
|
Weighted
|
|
|
|
Remaining
|
Average
|
|
Average
|
|
Exercise
|
Number
|
Years
until
|
Exercise
|
Number
|
Exercise
|
|
Price
|
Outstanding
|
Expiration
|
Price
|
Exercisable
|
Price
|
|
|
|
|
|
|
|
|
$3.49
|
655,000
|
9.22
|
$3.49
|
-
|
$3.49
|
|
$3.80
|
560,000
|
9.61
|
$3.80
|
62,215
|
$3.80
|
|
$4.27
|
125,000
|
9.50
|
$4.27
|
-
|
$4.27
|
|
$8.00
|
98,335
|
7.47
|
$8.00
|
98,335
|
$8.00
|
|
$9.25
|
80,000
|
8.42
|
$9.25
|
49,993
|
$9.25
|
|
$10.00
|
138,488
|
3.00
|
$10.00
|
138,488
|
$10.00
|
|
$14.40
to $15.00
|
2,501
|
1.22
|
$14.52
|
2,501
|
$14.52
|
|
|
|
|
|
|
|
|
|
1,659,324
|
8.70
|
$4.76
|
351,532
|
$8.27
|
At
March 31, 2017, there were 1,184,911 shares of our common stock
remaining available for grant under the 2016 Plan. There
were no option exercises during the years ended March 31, 2017 or
2016.
Aggregate intrinsic value is the sum of the amount
by which the fair value of the underlying common stock exceeds the
aggregate exercise price of the outstanding options
(in-the-money-options).
Based on the $1.96 per share quoted market price of our common
stock on March 31, 2017, there was no intrinsic value in any of our
outstanding options at that date.
As
of March 31, 2017, there was approximately $3,004,900 of
unrecognized compensation cost related to non-vested share-based
compensation awards from the 2016 Plan, which is expected to be
recognized through September 2020.
401(k) Plan
Through
a third-party agent, we maintain a retirement and deferred savings
plan for our employees. This plan is intended to qualify as a
tax-qualified plan under Section 401(k) of the Internal
Revenue Code. The retirement and deferred savings plan provides
that each participant may contribute a portion of his or her
pre-tax compensation, subject to statutory limits. Under the plan,
each employee is fully vested in his or her deferred salary
contributions. Employee contributions are held and invested by the
plan’s trustee. The retirement and deferred savings plan also
permits us to make discretionary contributions, subject to
established limits and a vesting schedule. To date, we have not
made any discretionary contributions to the retirement and deferred
savings plan on behalf of participating employees.
14. Related Party Transactions
Cato Holding Company (CHC), doing business as Cato BioVentures
(CBV), is the parent of CRL. CRL is a contract
research, development and regulatory services organization
(CRO) engaged by us for certain aspects of the
development and regulatory affairs associated with AV-101. CBV is
among our largest institutional stockholders at March 31, 2017,
holding approximately 6.9% of our outstanding common stock. In
October 2012, we issued certain unsecured promissory notes in the
aggregate face amount of approximately $1.3 million to CBV and CRL
(the Cato
Notes) as payment in full for
all contract research and development services and regulatory
advice previously rendered to us by CRL. As described in Note
9, Capital
Stock, the Cato Notes and
additional amounts payable to CRL for CRO services were
extinguished in June 2015 in exchange for our issuance of an
aggregate of 328,571 shares of Series B Preferred to CBV, which
shares of Series B Preferred were automatically converted into an
equal number of registered shares of our common stock in connection
with the May 2016 Public Offering.
Under
the terms of our contract research arrangement with CRL related to
the development of AV-101, we incurred expenses of $254,600 and
$52,600 for the fiscal years ended March 31, 2017 and 2016,
respectively. Total interest expense on the Cato Notes
was $28,200 for the fiscal year ended March 31, 2016.
15. Commitments, Contingencies, Guarantees and
Indemnifications
From
time to time, we may become involved in claims and other legal
matters arising in the ordinary course of business. Management is
not currently aware of any claims made or other legal matters that
will have a material adverse effect on our consolidated financial
position, results of operations or its cash flows.
We
indemnify our officers and directors for certain events or
occurrences while the officer or director is or was serving at our
request in such capacity. The term of the indemnification period is
for the officer’s or director’s lifetime. We will
indemnify the officers or directors against any and all expenses
incurred by the officers or directors because of their status as
one of our directors or executive officers to the fullest extent
permitted by Nevada law. We have never incurred costs to defend
lawsuits or settle claims related to these indemnification
agreements. We have a director and officer insurance policy
which limits our exposure and may enable us to recover a portion of
any future amounts paid. We believe the fair value of these
indemnification agreements is minimal. Accordingly, there are no
liabilities recorded for these agreements at March 31, 2017 or
2016.
In
the normal course of business, we provide indemnifications of
varying scopes under agreements with other companies, typically
clinical research organizations, investigators, clinical sites,
suppliers and others. Pursuant to these agreements, we
generally indemnify, hold harmless, and agree to reimburse the
indemnified parties for losses suffered or incurred by the
indemnified parties in connection with the use or testing of our
product candidates or with any U.S. patents or any copyright or
other intellectual property infringement claims by any third party
with respect to our product candidates. The terms of these
indemnification agreements are generally perpetual. The
potential future payments we could be required to make under
these indemnification agreements is unlimited. We maintain
liability insurance coverage that limits our exposure. We
believe the fair value of these indemnification agreements is
minimal. Accordingly, we have not recorded any liabilities
for these agreements as of March 31, 2017 or 2016.
Leases
As
of March 31, 2017 and 2016, the following assets are subject to
capital lease obligations and included in property and
equipment:
|
|
March
31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Office
equipment
|
14,600
|
4,500
|
|
Accumulated
depreciation
|
(600)
|
(3,400)
|
|
|
|
|
|
Net book
value
|
$14,000
|
$1,100
|
Amortization
expense for assets recorded under capital leases is included in
depreciation expense. Future minimum payments, by year and in
the aggregate, required under capital leases are as
follows:
|
|
Capital
|
|
Fiscal Years Ending
March 31,
|
Leases
|
|
2018
|
$3,800
|
|
2019
|
3,800
|
|
2020
|
3,800
|
|
2021
|
3,800
|
|
2022
|
3,300
|
|
Future minimum
lease payments
|
18,500
|
|
|
|
|
Less imputed
interest included in minimum lease payments
|
(4,200)
|
|
|
|
|
Present value of
minimum lease payments
|
14,300
|
|
|
|
|
Less current
portion
|
(2,400)
|
|
|
|
|
Non-current capital
lease obligation
|
$11,900
|
At
March 31, 2017, future minimum payments under operating leases
relate to our facility lease in South San Francisco, California
through July 31, 2022 and are as follows:
|
Fiscal Years Ending
March 31,
|
Amount
|
|
2018
|
$388,400
|
|
2019
|
602,800
|
|
2020
|
623,900
|
|
2021
|
645,800
|
|
2022
|
668,400
|
|
2023
|
225,300
|
|
|
$3,154,600
|
We
incurred total facility rent expense for the fiscal years ended
March 31, 2017 and 2016 of $482,100 and $337,200,
respectively.
Debt Repayment
At
March 31, 2017, future minimum principal payments on outstanding
notes related only to our insurance premium financing arrangement
in the principal amount of $54,800, which will be repaid in monthly
principal and interest installments of $6,300 through December
2017.
16. Subsequent Events
We
have evaluated subsequent events through the date of this report
and have identified the following material events and transactions
that occurred after March 31, 2017:
Private Placement Common Stock and Warrants
Between April 1 and
June 27, 2017, in self-placed private placement transactions, we
sold to accredited investors units consisting of (i) an aggregate
of 437,751 shares of our unregistered common stock and (ii)
warrants to purchase an aggregate of 218,875 shares of our common
stock at an exercise price of $4.00 per share. We received cash
proceeds of $873,300 from these sales of our securities, bringing
total proceeds from the Spring 2017 Private Placement to
approximately $1.0 million.
Option
Grants
On April 27, 2017,
when the quoted market price of our common stock was $1.96 per
share, the Board granted options to purchase an aggregate of
880,000 shares of our common stock at an exercise price of $1.96
per share to all officers, employees and independent members of the
Board pursuant to the 2016 Plan.
17. Supplemental Financial Information (Unaudited)
The
following table presents the unaudited statements of operations
data for each of the eight quarters in the period ended March 31,
2017. The information has been presented on the same basis as the
audited financial statements and all necessary adjustments,
consisting only of normal recurring adjustments, have been included
in the amounts below to present fairly the unaudited quarterly
results when read in conjunction with the audited financial
statements and related notes. The operating results for any quarter
should not be relied upon as necessarily indicative of results for
any future period.
Quarterly Results of Operations (Unaudited)
(in thousands, except share and per share
amounts)
|
|
Three Months Ended
|
Total
|
|||
|
|
June 30,
2016
|
September 30,
2016
|
December 31,
2016
|
March 31,
2017
|
Fiscal Year
2017
|
|
|
|
|
|
|
|
|
Sublicense
revenue
|
$-
|
$-
|
$1,250
|
$-
|
$1,250
|
|
Total
revenue
|
-
|
-
|
1,250
|
-
|
1,250
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
826
|
1,606
|
1,611
|
1,161
|
5,204
|
|
General and
administrative
|
1,138
|
1,494
|
2,276
|
1,387
|
6,295
|
|
Total
operating expenses
|
1,964
|
3,100
|
3,887
|
2,548
|
11,499
|
|
Loss from
operations
|
(1,964)
|
(3,100)
|
(2,637)
|
(2,548)
|
(10,249)
|
|
|
|
|
|
|
|
|
Other expenses,
net:
|
|
|
|
|
|
|
Interest
expense, net
|
(2)
|
(1)
|
(1)
|
(1)
|
(5)
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
(1,966)
|
(3,101)
|
(2,638)
|
(2,549)
|
(10,254)
|
|
Income
taxes
|
(2)
|
-
|
-
|
-
|
(2)
|
|
Net
loss
|
(1,968)
|
(3,101)
|
(2,638)
|
(2,549)
|
(10,256)
|
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(540)
|
(241)
|
(238)
|
(238)
|
(1,257)
|
|
Deemed
dividend on Series B Preferred stock
|
(111)
|
-
|
-
|
-
|
(111)
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$(2,619)
|
$(3,342)
|
$(2,876)
|
$(2,787)
|
$(11,624)
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
$(0.51)
|
$(0.42)
|
$(0.34)
|
$(0.32)
|
$(1.54)
|
|
|
|
|
|
|
|
|
Weighted average
shares used in computing:
|
|
|
|
|
|
|
Basic and
diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
5,097,832
|
8,047,619
|
8,381,824
|
8,602,107
|
7,531,642
|
F-32
|
|
Three Months Ended
|
Total
|
|||
|
|
June 30,
2015
|
September 30,
2015
|
December 31,
2015
|
March 31,
2016
|
Fiscal Year
2016
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
$373
|
$1,656
|
$806
|
$1,097
|
$3,932
|
|
General and
administrative
|
1,448
|
3,731
|
1,336
|
7,404
|
13,919
|
|
Total
operating expenses
|
1,821
|
5,387
|
2,142
|
8,501
|
17,851
|
|
Loss from
operations
|
(1,821)
|
(5,387)
|
(2,142)
|
(8,501)
|
(17,851)
|
|
|
|
|
|
|
|
|
Other expenses,
net:
|
|
|
|
|
|
|
Interest
expense, net
|
(755)
|
(12)
|
(3)
|
(1)
|
(771)
|
|
Change in
warrant liabilities
|
(1,895)
|
-
|
-
|
-
|
(1,895)
|
|
Loss on
extinguishment of debt
|
(25,051)
|
(1,649)
|
-
|
-
|
(26,700)
|
|
Other
expense, net
|
-
|
-
|
(2)
|
-
|
(2)
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
(29,522)
|
(7,048)
|
(2,147)
|
(8,502)
|
(47,219)
|
|
Income
taxes
|
(2)
|
-
|
-
|
-
|
(2)
|
|
Net
loss
|
(29,524)
|
(7,048)
|
(2,147)
|
(8,502)
|
(47,221)
|
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(213)
|
(615)
|
(631)
|
(681)
|
(2,140)
|
|
Deemed
dividend on Series B Preferred stock
|
(256)
|
(887)
|
(669)
|
(246)
|
(2,058)
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$(29,993)
|
$(8,550)
|
$(3,447)
|
$(9,429)
|
$(51,419)
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$(19.23)
|
$(5.26)
|
$(1.95)
|
$(4.44)
|
$(29.08)
|
|
|
|
|
|
|
|
|
Weighted average
shares used in computing:
|
|
|
|
|
|
|
Basic and
diluted net loss per common share
|
1,559,483
|
1,624,371
|
1,765,641
|
2,123,936
|
1,767,957
|
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Dollars, except share amounts)
|
|
September 30,
|
March 31,
|
|
|
2017
|
2017
|
|
|
(Unaudited)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$1,764,400
|
$2,921,300
|
|
Prepaid
expenses and other current assets
|
563,300
|
456,600
|
|
Total
current assets
|
2,327,700
|
3,377,900
|
|
Property
and equipment, net
|
242,000
|
286,500
|
|
Security
deposits and other assets
|
47,800
|
47,800
|
|
Total
assets
|
$2,617,500
|
$3,712,200
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$1,151,000
|
$867,300
|
|
Accrued
expenses
|
625,600
|
443,000
|
|
Current
notes payable
|
105,200
|
54,800
|
|
Capital
lease obligations
|
2,500
|
2,400
|
|
Total
current liabilities
|
1,884,300
|
1,367,500
|
|
|
|
|
|
Non-current
liabilities:
|
|
|
|
Accrued
dividends on Series B Preferred Stock
|
2,081,400
|
1,577,800
|
|
Deferred
rent liability
|
312,700
|
139,200
|
|
Capital
lease obligations
|
10,700
|
11,900
|
|
Total
non-current liabilities
|
2,404,800
|
1,728,900
|
|
Total
liabilities
|
4,289,100
|
3,096,400
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
Preferred
stock, $0.001 par value; 10,000,000 shares authorized at September
30, 2017 and March 31, 2017:
|
|
|
|
Series
A Preferred, 500,000 shares authorized, issued and outstanding at
September 30, 2017 and March 31, 2017
|
500
|
500
|
|
Series
B Preferred; 4,000,000 shares authorized at September 30, 2017 and
March 31, 2017; 1,160,240 shares issued and outstanding at
September 30, 2017 and March 31, 2017
|
1,200
|
1,200
|
|
Series
C Preferred; 3,000,000 shares authorized at September 30, 2017 and
March 31, 2017; 2,318,012 shares issued and outstanding at
September 30, 2017 and March 31, 2017
|
2,300
|
2,300
|
|
Common
stock, $0.001 par value; 100,000,000 and 30,000,000 shares
authorized at September 30, 2017 and March 31, 2017, respectively;
11,764,639 and 8,974,386 shares issued and outstanding at September
30, 2017 and March 31, 2017, respectively
|
11,800
|
9,000
|
|
Additional
paid-in capital
|
151,541,700
|
146,569,600
|
|
Treasury
stock, at cost, 135,665 shares of common stock held at September
30, 2017 and March 31, 2017
|
(3,968,100)
|
(3,968,100)
|
|
Accumulated
deficit
|
(149,261,000)
|
(141,998,700)
|
|
Total
stockholders’ equity (deficit)
|
(1,671,600)
|
615,800
|
|
Total
liabilities and stockholders’ equity (deficit)
|
$2,617,500
|
$3,712,200
|
See
accompanying notes to Condensed Consolidated Financial
Statements.
F-34
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Unaudited)
(Amounts in dollars, except share amounts)
|
|
Three Months Ended September 30,
|
Six Months Ended September 30,
|
||
|
|
2017
|
2016
|
2017
|
2016
|
|
Operating
expenses:
|
|
|
|
|
|
Research
and development
|
$2,426,600
|
$1,606,100
|
$3,522,800
|
$2,431,800
|
|
General
and administrative
|
2,567,100
|
1,493,600
|
3,731,400
|
2,631,200
|
|
Total
operating expenses
|
4,993,700
|
3,099,700
|
7,254,200
|
5,063,000
|
|
Loss
from operations
|
(4,993,700)
|
(3,099,700)
|
(7,254,200)
|
(5,063,000)
|
|
Other
expenses, net:
|
|
|
|
|
|
Interest
expense, net
|
(3,300)
|
(1,400)
|
(5,700)
|
(2,800)
|
|
|
|
|
|
|
|
Loss
before income taxes
|
(4,997,000)
|
(3,101,100)
|
(7,259,900)
|
(5,065,800)
|
|
Income
taxes
|
-
|
-
|
(2,400)
|
(2,400)
|
|
Net
loss and comprehensive loss
|
(4,997,000)
|
(3,101,100)
|
(7,262,300)
|
(5,068,200)
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(256,300)
|
(241,000)
|
(503,600)
|
(780,800)
|
|
Deemed
dividend on Series B Preferred Units
|
-
|
-
|
-
|
(111,100)
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$(5,253,300)
|
$(3,342,100)
|
$(7,765,900)
|
$(5,960,100)
|
|
|
|
|
|
|
|
Basic
and diluted net loss attributable to common
|
|
|
|
|
|
stockholders
per common share
|
$(0.53)
|
$(0.42)
|
$(0.82)
|
$(0.91)
|
|
|
|
|
|
|
|
Weighted
average shares used in computing basic
|
|
|
|
|
|
and
diluted net loss attributable to common
|
|
|
|
|
|
stockholders
per common share
|
9,892,016
|
8,041,619
|
9,465,459
|
6,577,769
|
See
accompanying notes to Condensed Consolidated Financial
Statements.
F-35
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Dollars)
|
|
Six Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$(7,262,300)
|
$(5,068,200)
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization
|
46,200
|
26,000
|
|
Stock-based
compensation
|
697,600
|
306,700
|
|
Expense
related to modification of warrants, including exchange of
warrants
|
|
|
|
for
common stock
|
279,700
|
57,400
|
|
Amortization
of deferred rent
|
173,500
|
(18,100)
|
|
Fair
value of common stock granted for services
|
1,392,000
|
217,000
|
|
Fair
value of Series B Preferred stock granted for services
|
-
|
375,000
|
|
Fair
value of warrants granted for services
|
-
|
227,500
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Prepaid
expenses and other current assets
|
197,000
|
40,400
|
|
Accounts
payable and accrued expenses, including accrued
interest
|
466,400
|
(36,800)
|
|
Net
cash used in operating activities
|
(4,009,900)
|
(3,873,100)
|
|
|
|
|
|
Cash
flows from property and investing activities:
|
|
|
|
Purchases
of equipment
|
(1,600)
|
(7,700)
|
|
Net
cash used in investing activities
|
(1,600)
|
(7,700)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Net
proceeds from issuance of common stock and warrants, including
Units
|
2,947,700
|
9,537,100
|
|
Net
proceeds from issuance of Series B Preferred Units
|
-
|
278,000
|
|
Repayment
of capital lease obligations
|
(1,200)
|
(500)
|
|
Repayment
of notes payable
|
(91,900)
|
(105,200)
|
|
Net
cash provided by financing activities
|
2,854,600
|
9,709,400
|
|
Net
increase (decrease) in cash and cash equivalents
|
(1,156,900)
|
5,828,600
|
|
Cash
and cash equivalents at beginning of period
|
2,921,300
|
428,500
|
|
Cash
and cash equivalents at end of period
|
$1,764,400
|
$6,257,100
|
|
|
|
|
|
Supplemental
disclosure of noncash activities:
|
|
|
|
Insurance
premiums settled by issuing note payable
|
$142,400
|
$117,500
|
|
Accrued
dividends on Series B Preferred
|
$503,600
|
$780,800
|
F-36
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Overview
VistaGen Therapeutics, Inc. (NASDAQ: VTGN), a
Nevada corporation, is a clinical-stage biopharmaceutical company
focused on developing new generation medicines for depression and
other central nervous system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase
2 clinical development in the United States, initially as a new
generation adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally differentiated from all FDA-approved antidepressants,
as well as all atypical antipsychotics, such as aripiprazole, often
used adjunctively to augment them. We believe AV-101 also has
potential as a non-opioid treatment alternative for neuropathic
pain, as well as several additional CNS indications
where
modulation of the NMDA receptors, activation of AMPA pathways
and/or key active metabolites of AV-101 may achieve therapeutic
benefit, including
Parkinson’s disease levodopa -induced dyskinesia
(PD
LID), epilepsy and
Huntington’s disease.
Clinical studies conducted at the U.S. National
Institute of Mental Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by 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, have focused on the antidepressant effects of ketamine
hydrochloride injection (ketamine), an ion-channel blocking NMDA receptor
antagonist approved by the FDA as an anesthetic, in MDD patients
with inadequate therapeutic responses to multiple standard
antidepressants. These NIMH studies, as well as clinical research
at Yale University and other academic institutions, have
demonstrated ketamine’s robust antidepressant effects in
treatment-resistant MDD patients within twenty-four hours of a
single sub-anesthetic dose administered by intravenous
(IV) infusion.
We believe AV-101 may have potential to deliver
ketamine-like antidepressant effects without the need for IV
administration and ketamine’s psychological and other
negative side effects. As published in the October 2015 issue of
the peer-reviewed Journal of Pharmacology and
Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
both inhibiting the GlyB site of the NMDA receptor and activating
the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and
Development Agreement (CRADA) with the NIMH, the NIMH is currently funding,
and Dr. Zarate, as Principal Investigator, and his team are
currently conducting, a small Phase 2 clinical study of AV-101 as a
monotherapy in adult subjects with treatment-resistant MDD
(the NIMH AV-101 MDD Phase 2
Monotherapy Study). In October
2017, we received FDA authorization to launch our 180-patient Phase
2 multi-center, multi-dose, double blind, placebo-controlled
efficacy and safety study of AV-101 as a new generation adjunctive
treatment of MDD in adult patients with an inadequate therapeutic
response to standard, FDA-approved antidepressants
(the AV-101 MDD Phase 2 Adjunctive
Treatment Study). Subject to obtaining sufficient
financing, we intend to launch the AV-101 MDD Phase 2 Adjunctive
Treatment Study in the first quarter of 2018, with Dr. Maurizio
Fava, Professor of Psychiatry at Harvard Medical School and
Director, Division of Clinical Research, Massachusetts General
Hospital (MGH) Research Institute, as Principal
Investigator. Dr. Fava was the co-Principal Investigator
with Dr. A. John Rush of the STAR*D study, the largest clinical
trial conducted in depression to date, whose findings were
published in journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We expect to complete this study by the end of
2018, with top line results available in the first quarter of
2019.
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology to discover, rescue, develop and
commercialize (i) proprietary new chemical entities
(NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-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
pipeline. To advance potential RM applications of our cardiac
stem cell technology, in December 2016, we exclusively sublicensed
to BlueRock Therapeutics LP, a next generation RM company
established by Bayer AG 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 our exclusive sublicense agreement with BlueRock
Therapeutics, we may pursue additional RM collaborations or
licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue
engineering.
F-37
Subsidiaries
As noted above, 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, 2017 has been derived from our audited
consolidated financial statements at that date but does not include
all disclosures required by U.S. GAAP. The operating results
for the three and six months ended September 30, 2107 are not
necessarily indicative of the operating results to be expected for
our fiscal year ending March 31, 2018, or for any other future
interim or other period.
The accompanying unaudited Condensed Consolidated
Financial Statements and notes to Condensed Consolidated Financial
Statements should be read in conjunction with our audited
Consolidated Financial Statements for our fiscal year ended March
31, 2017 contained in our Annual Report on Form 10-K, as filed with
the Securities and Exchange Commission (SEC) on June 29, 2017.
The accompanying unaudited Condensed Consolidated
Financial Statements have been prepared assuming we will continue
as a going concern. As a 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 $149.3 million accumulated
from inception (May 1998) through September 30, 2017. We expect
losses and negative cash flows from operations to continue for the
foreseeable future as we engage in further development of AV-101,
initially as an adjunctive treatment for MDD, and subsequently as a
new treatment alternative for other CNS-related conditions, as well
as exploring and potentially executing drug rescue and development
opportunities using CardioSafe 3D, and potential RM programs related to
VistaStem’s technology platform.
From our inception through September 30, 2017, 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 $47.6 million, as well as from an
aggregate of approximately $17.6 million of government research
grant awards, strategic collaboration payments, intellectual
property sublicensing and other revenues. We have also issued
equity securities with an approximate value at issuance of $32.3
million in non-cash settlements of certain liabilities, including
liabilities for professional services rendered to us or as
compensation for such services. Additionally, pursuant to our
February 2015 Cooperative Research and Development Agreement
(CRADA) with the NIH, substantial ongoing Phase 2 clinical
development activities relating to AV-101 as a potential new
generation antidepressant are being sponsored in full, at no cost
to us other than supplying clinical trial material, by the NIMH
under the direction of Dr. Carlos Zarate Jr. as Principal
Investigator.
At
September 30, 2017, we had a cash and cash equivalents balance of
$1.76 million. This amount was not sufficient to enable us to fund
our planned operations, including expected cash expenditures of
approximately $12 million for the twelve months following the
issuance of these financial statements, including expenditures
required to launch and satisfy a portion of the projected expenses
associated with our proposed AV-101 MDD Phase 2 Adjunctive
Treatment Study.
Our limited cash position at September 30, 2017
considered with our recurring and anticipated losses and negative
cash flows from operations make it probable, in the absence of
additional financing, that we will not be able to meet our
obligations as they come due within one year from the date of this
Report, raising substantial doubt that we can continue as a going
concern. However, to alleviate that doubt, we plan, as we have
numerous times in the past, to raise additional financing when and
as needed, primarily through the sale of our equity securities in
one or more private placements to accredited investors or public
offerings. In September 2017, we completed a firm commitment
underwritten public offering pursuant to which we offered and sold
shares of our common stock and warrants to two of our existing
institutional investors, resulting in gross proceeds of
approximately $2.4 million under our Registration Statement on Form
S-3 (Registration No. 333-215671) (the S-3 Registration
Statement) that had been
previously declared effective by the Securities and Exchange
Commission (the Commission) to cover potential future sales of our equity
securities in one or more public offerings from time to time. (See
Note 7, Capital
Stock, for additional
information regarding the September 2017 Public Offering.)
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.
F-38
Additionally, in September 2017, to facilitate
potential future issuances and sales of our equity securities for
ordinary corporate finance and general corporate purposes and as
recommended by our Board of Directors (Board), our stockholders approved an amendment to our
Restated and Amended Articles of Incorporation to increase the
number of shares of common stock available for issuance thereunder
from 30 million shares to 100 million shares, an amount our Board
determined is customary and appropriate for a
NASDAQ-listed, clinical-stage biopharmaceutical
company. Following that approval, in October 2017, we filed a
Registration Statement on Form S-1 (Registration No. 333-221009)
(the S-1
Registration Statement)
pursuant to which we anticipate completing an offering of our
equity securities with proceeds sufficient to enable the launch and
completion of the AV-101 MDD Phase 2 Adjunctive Treatment Study and
fund our internal operations for at least the next twelve months.
There can be no assurance, however, that we will achieve
effectiveness of the S-1 Registration Statement or successfully
complete an offering thereunder.
In
addition to the sale of our equity securities, we may also seek to
enter research and development collaborations that could generate
revenue or provide substantial funding for development of AV-101
and additional product candidates. We may also seek additional
government grant awards or agreements similar to our current CRADA
with the NIMH, which provides for the NIMH to fully fund the NIMH
AV-101 MDD Phase 2 Monotherapy 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. In a manner similar to the BlueRock
Agreement, we may also pursue similar arrangements with
third-parties covering other of our intellectual property. Although
we may seek additional collaborations with the U.S. government or
other third-parties that could generate revenue and/or non-dilutive
funding for development of AV-101 and other product candidates and
technologies, 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 AV-101, initially as an adjunctive treatment
for MDD, and for other potential CNS conditions, as well as various
potential 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 and opportunities related to 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 financing will
be available 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 later in 2017
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 $1.25 million of
sublicense revenue recorded in the quarter ended December 31, 2016
under the BlueRock Agreement, 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 of our scientific personnel and direct project costs.
External research and development expenses consist primarily of
costs associated with nonclinical and clinical development of
AV-101, now in Phase 2 clinical development, initially for MDD,
stem cell technology-related research and development costs, and
costs related to the filing, maintenance and prosecution of patents
and patent applications, technology licenses and protection of
other intellectual property. All such costs are charged to expense
as incurred.
Stock-Based Compensation
We
recognize compensation cost for all stock-based awards to employees
or consultants based on the grant date fair value of the award.
Non-cash stock-based compensation expense is recognized over the
period during which the employee or consultant is required to
perform services in exchange for the award, which generally
represents the scheduled vesting period. We have no awards with
market or performance conditions. For equity awards to
non-employees, we re-measure the fair value of the awards as they
vest and the resulting change in value is recognized as an expense
during the period over which the services are
performed.
F-39
The
table below summarizes stock-based compensation expense included in
the accompanying Condensed Consolidated Statements of Operations
and Comprehensive Loss for the three and six months ended September
30, 2017 and 2016.
|
|
Three Months Ended
|
Six Months Ended
|
||
|
|
September 30,
|
September 30,
|
||
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
|
Research
and development expense:
|
|
|
|
|
|
Stock
option grants
|
$136,900
|
$82,000
|
$328,300
|
$126,000
|
|
|
136,900
|
82,000
|
328,300
|
126,000
|
|
General
and administrative expense:
|
|
|
|
|
|
Stock
option grants
|
193,700
|
116,800
|
369,300
|
180,700
|
|
|
193,700
|
116,800
|
369,300
|
180,700
|
|
Total
stock-based compensation expense
|
$330,600
|
$198,800
|
$697,600
|
$306,700
|
In April 2017, our Board approved the grant of
options to purchase an aggregate of 880,000 shares of our common
stock at an exercise price of $1.96 per share to the independent
members of our Board, our officers and our employees. In September
2017, our stockholders approved an amendment to our 2016 Amended
and Restated Stock Incentive Plan (the 2016 Plan) to increase the number of shares issuable
thereunder from 3.0 million shares to 10.0 million shares.
Following that approval, our Board authorized the grant of options
to purchase an aggregate of 770,000 shares of our common stock at
an exercise price of $1.56 per share to the independent members of
our Board, our officers, employees and certain consultants. We
valued the options granted in April 2017 and September 2017 using
the Black-Scholes Option Pricing Model and the following weighted
average assumptions:
|
Assumption:
|
April 2017
|
September 2017
|
|
Market
price per share at grant date
|
$1.96
|
$1.56
|
|
Exercise
price per share
|
$1.96
|
$1.56
|
|
Risk-free
interest rate
|
2.02%
|
1.99%
|
|
Contractual
or estimated term in years
|
6.48
|
6.70
|
|
Volatility
|
83.24%
|
92.29%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
Shares
|
880,000
|
770,000
|
|
|
|
|
|
Fair Value per share
|
$1.42
|
$1.20
|
In
June 2016, our Board approved the grant of options to purchase an
aggregate of 655,000 shares of our common stock at an exercise
price of $3.49 per share to the independent members of our Board
and to our officers, including our then-newly-hired Chief Medical
Officer. In September 2016, the Board approved the grant of an
option to purchase 125,000 shares of our common stock at an
exercise price of $4.27 per share to another then-newly-hired
officer. We valued the options granted in June 2016 and September
2016 using the Black-Scholes Option Pricing Model and the following
weighted average assumptions:
|
Assumption:
|
June 2016
|
September 2016
|
|
Market
price per share at grant date
|
$3.49
|
$4.27
|
|
Exercise
price per share
|
$3.49
|
$4.27
|
|
Risk-free
interest rate
|
1.34%
|
1.29%
|
|
Contractual
or estimated term in years
|
6.68
|
6.25
|
|
Volatility
|
81.69%
|
83.26%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
Shares
|
655,000
|
125,000
|
|
|
|
|
|
Fair Value per share
|
$2.50
|
$3.05
|
At
September 30, 2017, there were stock options outstanding to
purchase 3,279,871 shares of our common stock at a weighted average
exercise price of $3.23 per share.
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.
F-40
Income
(Loss) per Common Share
Basic net
income (loss) per share of
common stock excludes the effect of dilution and is computed by
dividing net income (loss) by
the weighted-average number of shares of common stock outstanding
for the period. Diluted net income
(loss) 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.
As a result of our net loss for the periods
presented, potentially dilutive securities were excluded
from the computation of net loss per share, as their effect would
be antidilutive. For the three and six-month periods ended
September 30, 2017 and 2016, the accrual for dividends on our
Series B 10% Convertible Preferred Stock (Series B Preferred) and, in 2016, the
deemed dividend attributable to our sale and issuance of Series B
Preferred Units, each consisting of one share of Series B Preferred
and a five-year warrant to purchase one share of our common stock
for $7.00, represent deductions from our net loss to arrive at net
loss attributable to common stockholders for those
periods.
Potentially
dilutive securities excluded in determining diluted net loss
attributable to common stockholders per common share are as
follows:
|
|
As of September 30,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
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
|
3,279,871
|
1,100,643
|
|
|
|
|
|
Outstanding
warrants to purchase common stock
|
6,965,151
|
4,678,414
|
|
|
|
|
|
Total
|
14,473,274
|
10,007,309
|
|
____________
|
|
|
(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 at fair value at September 30, 2017 or March 31,
2017.
Recent Accounting Pronouncements
Except as described
below, there have been no recent accounting pronouncements or
changes in accounting pronouncements during the six months ended
September 30, 2017, as compared to the recent accounting
pronouncements described in our Form 10-K for the fiscal year ended
March 31, 2017, that are of significance or potential significance
to us.
F-41
In July 2017, the
Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2017-11,
“Earnings Per Share (Topic 260); Distinguishing Liabilities
from Equity (Topic 480); Derivatives and Hedging (Topic 815): Part
I: Accounting for Certain Financial Instruments with Down Round
Features; Part II: Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception” (ASU 2017-11). Part I of this ASU
provides that an entity will no longer have to consider “down
round” features (i.e., a provision in an equity-linked
financial instrument, such as a free-standing warrant, or an
embedded feature, such as a conversion option in a convertible
instrument, that reduces the exercise price of such instrument if
the entity subsequently sells stock for a lower price or issues an
equity-linked instrument with a lower exercise price) when
determining whether certain equity-linked financial instruments or
embedded features are indexed to its own stock. The definition of a
down round feature in ASU 2017-11 excludes standard antidilution
provisions related to changes in an entity’s capital
structure. Accounting Standards Codification Topic 815-40,
“Derivatives and Hedging–Contracts in Entity’s
Own Equity” (ASC
815-40) requires that a freestanding equity-linked financial
instrument be indexed to the issuer’s own stock to be
classified as equity. An equity-linked embedded feature that meets
the definition of a derivative may avoid bifurcation and derivative
accounting if it is indexed to the issuer’s own stock. Under
the terms of prior guidance, a freestanding financial instrument or
embedded feature was not considered indexed to the issuer’s
own stock if it had a down round provision. Consequently, the
freestanding financial instrument was classified as a liability (or
asset), and if it met the definition of a derivative, was measured
at fair value with changes in fair value recorded through earnings.
Similarly, an embedded feature was bifurcated and separately
accounted for as a derivative if it met all other criteria for
bifurcation under ASC 815-40. The bifurcated embedded feature was
also measured at fair value through earnings. Under the provisions
of ASU 2017-11, an entity that presents earnings per share
(EPS) under Accounting
Standards Codification Topic 260, “Earnings Per Share”
will recognize the effect of a down round feature in a freestanding
equity-classified financial instrument only when it is triggered.
The effect of triggering such a feature will be recognized as a
dividend and a reduction to income available to common shareholders
in basic EPS. The new guidance requires new disclosures for
financial instruments with down round features and other terms that
change conversion or exercise prices. Part I of ASU 2017-11 is
effective for fiscal years beginning after December 15, 2018, and
interim periods therein, however early adoption is permitted. We
early-adopted ASU 2017-11 effective for the quarter ended September
30, 2017 and applied its guidance to certain of the warrants issued
in the September 2017 Public Offering, as described more completely
in Note 7, Capital Stock.
No retrospective adjustments to our financial statements were
required as a result of our adoption of ASU 2017-11.
In February 2016,
the FASB issued ASU No. 2016-2, “Leases.” This ASU
requires substantially all leases, including operating leases, to
be recognized by lessees on their balance sheet as a right-of-use
asset and corresponding lease liability. This ASU is effective for
our interim and annual reporting periods beginning April 1, 2019
and early adoption is permitted. We are currently evaluating the
impact that the adoption of this ASU will have on our financial
statements.
In March 2016, the
FASB issued ASU No. 2016-09, “Improvements to Employee
Share-Based Payment Accounting,” which simplified several
aspects of the accounting for share-based payments, including
immediate recognition of all excess tax benefits and deficiencies
in the income statement, changing the threshold to qualify for
equity classification up to the employees’ maximum statutory
tax rates, allowing an entity-wide accounting policy election to
either estimate the number of awards that are expected to vest or
account for forfeitures as they occur, and clarifying the
classification on the statement of cash flows for the excess tax
benefit and employee taxes paid when an employer withholds shares
for tax-withholding purposes. This ASU became effective for our
interim and annual reporting periods beginning April 1, 2017, and
the adoption of this standard did not have a material impact on our
financial statements. Pursuant to our adoption of this standard, we
elected to account for the impact of option forfeitures as they
occur.
Note 4. Prepaid Expenses and Other Current
Assets
Prepaid
expenses and other current assets are composed of the following at
September 30, 2017 and March 31, 2017:
|
|
September 30,
|
March 31,
|
|
|
2017
|
2017
|
|
|
|
|
|
Insurance
|
$130,800
|
$85,800
|
|
AV-101
materials and services
|
357,000
|
352,800
|
|
Public
offering expenses
|
30,900
|
11,600
|
|
All
other
|
44,600
|
6,400
|
|
|
$563,300
|
$456,600
|
Note 5. Accrued Expenses
Accrued
expenses are composed of the following at September 30, 2017 and
March 31, 2017:
|
|
September 30,
|
March 31,
|
|
|
2017
|
2017
|
|
|
|
|
|
Accrued
professional services
|
$61,300
|
$37,000
|
|
Accrued
AV-101 development and related expenses
|
102,400
|
402,400
|
|
Accrued
compensation
|
451,900
|
-
|
|
All
other
|
10,000
|
3,600
|
|
|
$625,600
|
$443,000
|
F-42
Note 6. Notes Payable
The
following table summarizes our unsecured promissory notes at
September 30, 2017 and March 31, 2017.
|
|
September 30, 2017
|
March 31, 2017
|
||||
|
|
Principal
|
Accrued
|
|
Principal
|
Accrued
|
|
|
|
Balance
|
Interest
|
Total
|
Balance
|
Interest
|
Total
|
|
|
|
|
|
|
|
|
|
7.95%
and 8.25% Notes payable to insurance
|
|
|
|
|
|
|
|
premium
financing company (current)
|
$105,200
|
$-
|
$105,200
|
$54,800
|
$-
|
$54,800
|
|
|
|
|
|
|
|
|
|
Total
notes payable to unrelated parties
|
$105,200
|
$-
|
$105,200
|
$54,800
|
$-
|
$54,800
|
|
less:
current portion
|
(105,200)
|
-
|
(105,200)
|
(54,800)
|
-
|
(54,800)
|
|
Net
non-current portion
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
In
May 2017, we executed a 7.95% promissory note in the principal
amount of $142,400 in connection with insurance policy premiums.
The note is payable in monthly installments of $14,800, including
principal and interest, through March 2018, and had a remaining
outstanding balance of $86,600 at September 30, 2017. In February
2017, we executed a promissory note in the principal amount of
$60,700 in connection with other insurance policy premiums. That
note is payable in monthly installments of $6,300, including
principal and interest, and had an outstanding balance of $18,600
at September 30, 2017.
Note 7. Capital Stock
At our Annual
Meeting of Stockholders on September 15, 2017, as approved by and
recommended to our stockholders by our Board, our stockholders
approved an amendment to our Restated and Amended Articles of
Incorporation to increase the authorized number of shares of common
stock that the Company may issue from 30.0 million shares to 100.0
million shares. The amendment became effective on September 15,
2017, upon our filing of a certificate of amendment with the
Secretary of State of the state of Nevada.
Common Stock and Warrants
Issued in Firm
Commitment Underwritten Public
Offering
On September 6, 2017, we completed a firm
commitment underwritten public offering pursuant to which we
offered and sold shares of our common stock and warrants to two of
our existing institutional investors, resulting in gross proceeds
of approximately $2.4 million (the September 2017 Public
Offering). We issued an
aggregate of 1,371,430 shares of our common stock, Series A1
Warrants to purchase up to 1,388,931 shares of common stock and
Series A2 Warrants to purchase up to 503,641 of common stock
(collectively, the Warrants), each exercisable for $1.82 per share in the
September 2017 Public Offering. The Series A1 Warrants will be
exercisable by the investors for a five-year period commencing on
March 7, 2018, and the Series A2 Warrants are exercisable at any
time through September 6, 2022. The common stock and the shares of
common stock underlying the Warrants issued in the September 2017
Public Offering were offered, issued and sold pursuant to our S-3
Registration Statement that had previously been declared
effective by the Securities and Exchange Commission (the
Commission) to cover this
and potential future sales of our equity securities in one or more
public offerings from time to time. We
received net proceeds of approximately $2.0 million from the
September 2017 Public Offering, after deducting underwriter’s
commission and other expenses related to the
offering.
The 1,388,931 Series A1 Warrants issued in the
September 2017 Public Offering have no anti-dilution or other
exercise price or share reset features, except as is customary with
respect to a change in our capital structure in the event of a
stock split or dividend, and, accordingly, we have accounted for
them as equity warrants. The 503,641 Series A2 Warrants contain
anti-dilution protection provisions that will take effect upon the
issuance of any common stock, securities convertible into common
stock or certain other issuances at a price below the then-current
(currently $1.82 per share) exercise price of the Series A2
Warrants, with certain exceptions; provided, however, that such
anti-dilution protection will terminate automatically on the
trading day following the date on which we have raised at least
$20.0 million in aggregate gross proceeds through one or more
issuances of common stock or equity-linked securities. The
anti-dilution protection provisions in the Series A2 Warrants
constitute a down round feature subject to the guidance in ASU
2017-11. Since the Series A2 Warrants contain no other provisions
which require their treatment as liability warrants rather than
equity warrants, including the exercise price or share reset features, except as
is customary with respect to a change in our capital structure in
the event of a stock split or dividend and which are also present
in the Series A1 Warrants, we have also accounted for the Series A2
Warrants as equity warrants.
Common Stock and Warrants Issued in Private Placements
During the quarter
ended June 30, 2017, in self-placed private placement transactions,
we accepted subscription agreements from individual accredited
investors, pursuant to which we sold to such investors units, at a
weighted average purchase price of $2.00 per unit, consisting of an
aggregate of 437,751 unregistered shares of our common stock and
warrants, exercisable through April 30, 2021, to purchase an
aggregate of 218,875 unregistered shares of our common stock at a
weighted average exercise price of $3.99 per share. 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 six months and one day following
the date of issuance. We received aggregate cash proceeds of
$873,300 in connection with these self-placed private placement
transactions, and the entire amount of the proceeds was credited to
stockholders’ equity.
F-43
In August 2017, in
a self-placed private placement transaction, we sold to an
accredited investor units consisting of 28,572 shares of our
unregistered common stock and warrants exercisable through April
30, 2021 to purchase 28,572 unregistered shares of our common stock
at an exercise price of $4.00 per share. The purchaser of the units
has 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 six months and one day following the date
of issuance. We received cash proceeds of $50,000 from this sale of
our securities, and the entire amount of the proceeds was credited
to stockholders’ equity.
Issuance of Common Stock to Professional Services
Providers
During the quarter ended June 30, 2017, we
issued 25,000 shares of our unregistered common stock having a fair
value on the date of issuance of $49,800 as partial compensation to
an investor relations service provider.
During the quarter
ended September 30, 2017, our Board of Directors (Board) approved the issuance of an
aggregate of 927,500 unregistered shares of our common stock, of
which 477,500 shares were issued from our 2016 Amended and Restated
Stock Incentive Plan, for various professional services, including
contract research, legal, investor relations and financial advisory
services. The common stock issued had an aggregate fair value of
$1,503,600 on the dates issued, of which all but $161,300 has been
recognized as noncash expense during the quarter ended September
30, 2017. The un-expensed portion at September 30, 2017 is being
recognized in expense ratably through July 2019 in accordance with
the terms of work orders for certain contract research services to
be provided through that period.
Modification of Warrants Issued in Private Placements
In
September 2017, the Board authorized the modification of
outstanding warrants issued in private placement transactions
between March 2017 and June 2017 to reduce the exercise prices and
increase the number of shares for which the warrants were
exercisable. We calculated the fair value of the warrant
immediately before and after the modification using the Black
Scholes Option Pricing Model and the weighted average assumptions
indicated in the table below. We recognized the additional fair
value, $279,700, 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 ended September 30, 2017.
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$1.54
|
$1.54
|
|
Exercise
price per share
|
$3.99
|
$2.00
|
|
Risk-free
interest rate
|
1.62%
|
1.62%
|
|
Remaining
contractual term in years
|
3.62
|
3.62
|
|
Volatility
|
95.5%
|
95.5%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Number
of warrant shares
|
247,500
|
495,001
|
|
Weighted average fair value per share
|
$0.71
|
$0.92
|
F-44
Warrants Outstanding
Following
the warrant issuances in the September 2017 Public Offering and in
the self-placed private placement transactions and the warrant
modifications described above, at September 30, 2017, we had
outstanding warrants to purchase shares of our common stock at a
weighted average exercise price of $4.77 per share as
follows:
|
Exercise Price
|
Expiration
|
Warrants Outstanding at
September 30,
|
|
per Share
|
Date
|
2017
|
|
|
|
|
|
$1.82
|
9/6/2022
to 3/7/2023
|
1,892,572
|
|
$2.00
|
4/30/2021
|
495,001
|
|
$3.51
|
12/31/2021
|
50,000
|
|
$4.00
|
4/30/2021
|
28,572
|
|
$4.50
|
9/26/2019
|
25,000
|
|
$5.30
|
5/16/2021
|
2,705,883
|
|
$6.00
|
9/26/2019
to 11/30/2019
|
97,750
|
|
$7.00
|
12/11/2018
to 3/3/2023
|
1,346,931
|
|
$8.00
|
3/25/2021
|
185,000
|
|
$10.00
|
11/15/2017
to 1/11/2020
|
24,394
|
|
$20.00
|
9/15/2019
|
110,448
|
|
$30.00
|
11/20/2017
|
3,600
|
|
|
6,965,151
|
|
With
the exception of 2,705,883 shares of common stock underlying the
warrants exercisable at $5.30 per share issued in our May 2016
public offering and 1,892,572 shares of common stock underlying the
warrants exercisable at $1.82 per share issued in our September
2017 Public Offering, all of the common shares issuable upon
exercise of our outstanding warrants are unregistered.
Note 8. 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) recently engaged by us 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 and other potential CNS
indications. CBV is among our largest institutional stockholders at
September 30, 2017, holding approximately 7.8% of our outstanding
common stock. In October 2012, we issued certain unsecured
promissory notes in the aggregate principal amount of approximately
$1.3 million to CBV and CRL (the Cato Notes) as payment in full for all contract research and
development services and regulatory advice previously rendered
to us by CRL for nonclinical and Phase 1 development of AV-101. In
June 2015, the Cato Notes and additional amounts payable to CRL for
CRO services related to AV-101 were extinguished in exchange for
our issuance of an aggregate of 328,571 shares of Series B
Preferred stock to CBV, which shares of Series B Preferred stock
were automatically converted in accordance with their terms into an
equal number of registered shares of our common stock as a result
of our May 2016 public offering.
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, including AV-101, 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 May 2007 master services agreement with
CRL, we incurred expenses of $484,000 and $27,800 during the
quarters ended September 30, 2017 and 2016, respectively, and
$612,200 and $78,200 in the six-month periods ended September 30,
2017 and 2016, respectively. During the quarter ended September 30,
2017, we issued an aggregate of 300,000 unregistered shares of our
common stock to CRL under the terms of certain work orders for
current and future CRO services relating to our development of
AV-101 for MDD, the fair value of which represented approximately
$364,000 of the reported CRO expense for the quarter then ended. We
anticipate periodic expenses for CRO services from CRL related to
nonclinical and clinical development of, and regulatory affairs
related to, AV-101 and other potential product candidates will
increase in future periods.
Note 9. Subsequent Events
We have evaluated
subsequent events through November 9, 2017 and have identified the
following matters requiring disclosure:
Issuance of Common Stock to Professional Services
Providers
In
October 2017, we issued an aggregate of 70,000 shares of our
unregistered common stock having an aggregate fair value of $83,800
to certain professional service providers.
8,333,333 Shares of Common
Stock
Warrants to Purchase up to 8,333,333
Shares of Common Stock
_______________________________
Prospectus
_______________________________
Sole Book-Running Manager
Oppenheimer & Co.
Chardan
,
2017
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution
The following table presents the costs and
expenses in connection with the issuance and distribution of the
securities to be registered. No underwriting discounts
and commissions shall be payable by us in connection with the
resale of common stock being registered. Except as otherwise noted,
we will pay all of these amounts. All amounts are estimates except
the SEC registration fee and the FINRA filing
fee.
|
SEC
Registration Fee
|
$3,735
|
|
FINRA
Filing Fee
|
5,000
|
|
Legal
Fees and Expenses
|
250,000
|
|
Accounting
Fees and Expenses
|
52,500
|
|
Transfer
Agent and Registrar Fees and Expenses
|
5,000
|
|
Printing
Expenses
|
2,500
|
|
Miscellaneous
expenses
|
21,265
|
|
Total
|
$340,000
|
Item 14. Indemnification of Directors and
Officers
Limitations of liability and indemnification
Our amended and restated bylaws provide that we
will indemnify our directors, officers and employees to the fullest
extent permitted by the Nevada Revised Statutes
(NRS).
If
the NRS are amended to authorize corporate action further
eliminating or limiting the personal liability of a director, then
the liability of our directors will be eliminated or limited to the
fullest extent permitted by the NRS, as so amended. Our articles of
incorporation do not eliminate a director’s duty of care and,
in appropriate circumstances, equitable remedies, such as
injunctive or other forms of non-monetary relief, will remain
available under the NRS. This provision also does not affect a
director’s responsibilities under any other laws, such as the
federal securities laws or other state or federal laws. Under our
bylaws, we are empowered to enter into indemnification agreements
with our directors, officers and employees to purchase insurance on
behalf of any person whom we are required or permitted to
indemnify.
In
addition to the indemnification required in our bylaws, we have
entered into indemnification agreements with each of the
individuals serving on our board of directors. These agreements
provide for the indemnification of our directors to the fullest
extent permitted by law. We believe that these bylaw provisions and
indemnification agreements are necessary to attract and retain
qualified persons as directors, officers and employees. We also
maintain directors’ and officers’ liability
insurance.
The
limitation of liability and indemnification provisions in our
bylaws may discourage stockholders from bringing a lawsuit against
our directors and officers for breach of their fiduciary duties.
They may also reduce the likelihood of derivative litigation
against directors and officers, even though an action, if
successful, might benefit us and our stockholders. Further, a
stockholder’s investment may be adversely affected to the
extent that we pay the costs of settlement and damage awards
against directors and officers pursuant to these indemnification
provisions.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and certain employees
pursuant to the foregoing provisions, or otherwise, we have been
advised that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act, and is,
therefore, unenforceable.
There
is no pending litigation or proceeding naming any of our directors
or officers as to which indemnification is being sought, nor are we
aware of any pending or threatened litigation that may result in
claims for indemnification.
The
form of Underwriting Agreement, attached as Exhibit 1.1 hereto,
provides for indemnification by the underwriters of us and our
officers who sign this Registration Statement and directors for
specified liabilities, including matters arising under the
Securities Act.
Item 15. Recent Sales of Unregistered Securities.
We have issued the following securities in private
placement transactions which were not registered under the
Securities Act of 1933, as amended (Securities
Act) and that have not been
previously reported in a Quarterly Report on Form 10-Q or a Current
Report on Form 8-K:
Additional Issuances to Spring 2017 Private Placement
Investors
In September 2017, we reduced the exercise price
of all warrants issued in private placement transactions completed
between April 1 and June 27, 2017 (the Spring 2017 Private
Placement) from $4.00 to $2.00
per share. We also issued to each of the Spring 2017 Private
Placement investors, each of who were accredited investors,
additional warrants to purchase an aggregate total of 247,501
shares of common stock, with an exercise price of $2.00 per
share.
Issuance of Securities to Professional Service
Providers
In
September 2017, we issued an aggregate total of 477,500 shares of
unregistered common stock, having an aggregate fair value of
$744,100, to certain professional service providers, and an
aggregate total of 150,000 shares of unregistered common stock,
having an aggregate fair value of $234,000, pursuant to certain
financial advisory agreements, including a financial advisory
agreement with Oppenheimer & Co., Inc., to whom we issued
75,000 shares. In October 2017, we issued an aggregate total of
20,000 shares of unregistered shares of common stock with a fair
value of $32,800 to certain professional service
providers.
Issuance of Shares in Private Placement
In November 2017,
in a self-placed private placement transaction, we sold to an
accredited investor units consisting of (i) 150,000 shares of our
unregistered common stock and (ii) warrants exercisable through
November 30, 2021 to purchase 150,000 unregistered shares of our
common stock at an exercise price of $2.00 per share. The warrants
are not exercisable until six months and one day following the date
of issuance. We received cash proceeds of $50,000 from this sale of
our securities.
Proceeds from each of the offerings were used for general corporate
purposes. All of the above sales were made in reliance
on Section 4(a)(2) of the Securities Act as transactions by
and issuer not involving any public offering, Regulation D of the
Securities Act, and/or Section 3(a)(9) under the Securities Act. In
all such transactions, certain inquiries were made by the Company
to establish that such sales qualified for such exemption from the
registration requirements. In particular, the Company confirmed
that, with respect to the exemption claimed under Section 4(a)(2)
of the Securities Act, that (i) all offers of sales and sales were
made by personal contact from officers and directors of the Company
or other persons closely associated with the Company, (ii) each
investor made representations that he, she or it was an accredited
investor as defined in Rule 501 of Regulation D under the
Securities Act (and the Company had no reason to believe that such
representations were incorrect), (iii) each purchaser gave
assurance of investment intent, and (iv) offers and sales within
any offering were made only to a limited number of
persons.
Item 16. Exhibits and Financial Statement
Schedules
(a) Exhibits. The exhibits are incorporated by
reference to the Exhibit Index attached hereto and a part hereof by
reference.
(b) Financial
Statements. See page
110 for an index of the financial statements and financial
statement schedules included in the Registration
Statement.
Item 17. Undertakings
The
undersigned registrant hereby undertakes:
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The
undersigned registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
these securities at that time shall be deemed to be the
initial bona fide offering.
II-2
SIGNATURES
Pursuant
to the requirements of the Securities Act of l933, the registrant
has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of South San Francisco, California on the 7th day of
December, 2017.
|
|
VistaGen Therapeutics, Inc.
|
|
|
|
|
|
By: /s/ Shawn
K. Singh,
JD
|
|
|
Shawn
K. Singh, JD
|
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Act of l933, this
Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
|
Signature
|
|
Title
|
Date
|
|
|
|
|
|
|
/s/
*
Shawn K. Singh, JD
|
|
Chief
Executive Officer, and Director
(Principal Executive Officer)
|
December 7, 2017
|
|
|
|
|
|
|
/s/
*
Jerrold D. Dotson
|
|
Vice
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
December 7, 2017
|
|
|
|
|
|
|
/s/
*
H. Ralph Snodgrass, Ph.D.
|
|
President,
Chief Scientific Officer and Director
|
December 7, 2017
|
|
|
|
|
|
|
/s/
*
Jon S. Saxe |
|
Chairman
of the Board of Directors
|
December 7, 2017
|
|
|
|
|
|
|
/s/
*
Brian J. Underdown, Ph.D.
|
|
Director
|
December 7, 2017
|
|
|
|
|
|
|
/s/
*
Jerry B. Gin, Ph.D.
|
|
Director
|
December 7, 2017
|
|
|
|
* By: /s/ Shawn K.
Singh
Attorney-in-fact
|
II-3
Exhibit
Index
|
Exhibit
No.
|
Description
|
|
Form
of Underwriting Agreement.
|
|
|
2.1*
|
Agreement
and Plan of Merger by and among Excaliber Enterprises, Ltd.,
VistaGen Therapeutics, Inc. and Excaliber Merger Subsidiary,
Inc.
|
|
3.1*
|
Articles
of Incorporation, dated October 6, 2005.
|
|
3.2
|
Certificate
of Amendment filed with the Nevada Secretary of State on December
6, 2011, incorporated by reference from Exhibit 3.3 to the
Company’s Annual Report on Form 10-K, filed July 2,
2012.
|
|
3.3
|
Amended
and Restated Bylaws as of February 5, 2014, incorporated by
reference from the Company’s Report on Form 8-K filed on
February 7, 2014.
|
|
3.4
|
Articles
of Merger filed with the Nevada Secretary of State on May 24, 2011,
incorporated by reference from Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on May 31, 2011.
|
|
3.5
|
Certificate
of Designations Series A Preferred, incorporated by reference from
Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on December 23, 2011.
|
|
3.6
|
Certificate
of Change filed with the Nevada Secretary of State on August 11,
2014 incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on August 14,
2014.
|
|
3.7
|
Certificate
of Designation of the Relative Rights and Preferences of the Series
B 10% Convertible Preferred Stock of VistaGen Therapeutics, Inc.,
filed with the Nevada Secretary of State on May 7, 2015,
incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on May 13,
2015.
|
|
3.8
|
Certificate
of Amendment to the Articles of Incorporation of VistaGen
Therapeutics, Inc., dated August 24, 2015, incorporated by
reference from Exhibit 3.1 to the Company’s Current Report on
Form 8-K filed on August 25, 2015.
|
|
3.9
|
Certificate
of Designation of the Relative Rights and Preferences of the Series
C Convertible Preferred Stock of VistaGen Therapeutics, Inc., dated
January 25, 2016, incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on January 29,
2016.
|
|
3.10
|
Restated Articles of Incorporation of VistaGen
Therapeutics, Inc., dated August 16, 2016, incorporated by
reference from Exhibit 3.1 to the Company’s Current Report on
Form 8-K, filed on August 17,
2016.
|
|
3.11
|
Second
Amended and Restated Bylaws of VistaGen Therapeutics, Inc., dated
August 16, 2016, incorporated by reference from Exhibit 3.2 to the
Company’s Current Report on Form 8-K, filed on August 16,
2016.
|
|
Certificate
of Amendment to the Restated and Amended Articles of Incorporation
of VistaGen Therapeutics, Inc., dated September 15, 2017;
incorporated by reference form Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed on September 20,
2017.
|
|
|
Form of Warrant.
|
|
|
Opinion of Disclosure Law Group, a
Professional
Corporation
|
|
|
10.1*
|
VistaGen’s
1999 Stock Incentive Plan.
|
|
10.5*
|
VistaGen’s
2008 Stock Incentive Plan.
|
|
10.20*
|
Strategic
Development Services Agreement, dated February 26, 2007, by
and between VistaGen and Cato Research Ltd.
|
|
10.22*
|
License
Agreement by and between Mount Sinai School of Medicine of New York
University and the Company, dated October 1, 2004.
|
|
10.23*
|
Non-Exclusive
License Agreement, dated December 5, 2008, by and between
VistaGen and Wisconsin Alumni Research Foundation, as amended by
that certain Wisconsin Materials Addendum, dated February 2,
2009.
|
|
10.24*
|
Sponsored
Research Collaboration Agreement, dated September 18, 2007, between
VistaGen and University Health Network, as amended by that certain
Amendment No. 1 and Amendment No. 2, dated April 19, 2010
and December 15, 2010, respectively.
|
|
10.26*
|
License
Agreement, dated October 24, 2001, by and between the University of
Maryland, Baltimore, Cornell Research Foundation and Artemis
Neuroscience, Inc.
|
|
10.31*
|
Unsecured
Promissory Note dated April 28, 2011 issued by VistaGen to
Desjardins Securities.
|
|
10.32*
|
Unsecured
Promissory Note dated April 28, 2011 issued by VistaGen to McCarthy
Tetrault LLP.
|
|
10.34*
|
Promissory
Note dated February 25, 2010 issued by VistaGen to The Regents of
the University of California.
|
|
10.40*
|
Employment Agreement, by and between, VistaGen and Shawn K. Singh,
dated April 28, 2010, as amended May 9, 2011.
|
|
10.41*
|
Employment Agreement, by and between, VistaGen and H. Ralph
Snodgrass, PhD, dated April 28, 2010, as amended May 9,
2011.
|
|
10.46
|
Notice of Award by National Institutes of Health, Small Business
Innovation Research Program, to VistaGen Therapeutics, Inc. for
project, Clinical Development of 4-CI-KYN to Treat Pain dated June
22, 2009, with revisions dated July 19, 2010 and August 9, 2011,
incorporated by reference from Exhibit 10.46 to the Company’s
Current Report on Form 8-K/A filed on December 20,
2011.
|
|
10.47
|
Notice of Grant Award by California Institute of Regenerative
Medicine and VistaGen Therapeutics, Inc. for
Project: Development of an hES Cell-Based Assay System
for Hepatocyte Differentiation Studies and Predictive Toxicology
Drug Screening, dated April 1, 2009, incorporated by reference from
Exhibit 10.47 to the Company’s Current Report on Form 8-K/A
filed on December 20, 2011.
|
|
10.48
|
Amendment No. 4, dated October 24, 2011, to Sponsored Research
Collaboration Agreement between VistaGen and University Health
Network, incorporated by reference from Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on November 30,
2011.
|
|
10.49
|
License Agreement No. 1, dated as of October 24, 2011 between
University Health Network and VistaGen Therapeutics, Inc.,
incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on November 30, 2011.
|
|
10.50
|
Strategic Medicinal Chemistry Services Agreement, dated as of
December 6, 2011, between Synterys, Inc. and VistaGen Therapeutics,
Inc., incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on December 7,
2011.
|
|
10.51
|
Common Stock Exchange Agreement, dated as of December 22, 2011
between Platinum Long Term Growth VII, LLC and VistaGen
Therapeutics, Inc., incorporated by reference from Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on December
23, 2011.
|
|
10.52
|
Note and Warrant Exchange Agreement, dated as of December 28, 2011
between Platinum Long Term Growth VII, LLC and VistaGen
Therapeutics, Inc., incorporated by reference from Exhibit 10.1 to
the Current Report on Form 8-K filed on January 4,
2012.
|
|
Form of Warrant to Purchase Common Stock, dated as of February 28,
2012, incorporated by reference from Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on March 2,
2012.
|
|
|
10.57
|
License Agreement No. 2, dated as of March 19, 2012 between
University Health Network and VistaGen Therapeutics, Inc.,
incorporated by reference from Exhibit 10.57 to the Company’s
Annual Report on Form 10-K filed on July 2, 2012.
|
|
10.58
|
Exchange Agreement dated as of June 29, 2012 between Platinum Long
Term Growth VII, LLC and VistaGen Therapeutics. Inc., incorporated
by reference from Exhibit 10.58 to the Company’s Annual
Report on Form 10-K filed on July 2, 2012.
|
|
10.63
|
Unsecured Promissory Note in the face amount of $1,000,000 issued
to Morrison & Foerster LLP on August 31, 2012 (Replacement Note
A), incorporated by reference from Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on September 6,
2012.
|
|
10.64
|
Unsecured Promissory Note in the face amount of $1,379,376 issued
to Morrison & Foerster LLP on August 31, 2012 (Replacement Note
B), incorporated by reference from Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed on September 6,
2012.
|
|
10.65
|
Stock Purchase Warrant issued to Morrison & Foerster LLP on
August 31, 2012 to purchase 1,379,376 shares of the Company’s
common stock (New Morrison & Foerster Warrant), incorporated by
reference from Exhibit 10.5 to the Company’s Current Report
on Form 8-K filed on September 6, 2012.
|
|
10.66
|
Warrant to Purchase Common Stock issued to Morrison & Foerster
LLP on August 31, 2012 to purchase 425,000 shares of the
Company’s common stock (Amended Morrison & Foerster
Warrant), incorporated by reference from Exhibit 10.6 to the
Company’s Current Report on Form 8-K filed on September 6,
2012.
|
|
10.67
|
Note Exchange and Purchase Agreement dated as of October 11, 2012
by and between VistaGen Therapeutics, Inc. and Platinum Long Term
Growth VII, LLP, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on October 16,
2012.
|
|
10.68
|
Form of Senior Secured Convertible Promissory Note issued to
Platinum Long Term Growth VII, LLP under the Note Exchange and
Purchase Agreement, incorporated by reference from Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed on October 16,
2012.
|
|
10.69
|
Form of Warrant to Purchase Shares of Common Stock issued to
Platinum Long Term Growth VII, LLP under the Note Exchange and
Purchase Agreement, incorporated by reference from Exhibit 10.3 to
the Company’s Current Report on Form 8-K filed on October 16,
2012.
|
|
10.70
|
Amended and Restated Security Agreement as of October 11, 2012
between VistaGen Therapeutics, Inc. and Platinum Long Term Growth
VII, LLP, incorporated by reference from Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed on October 16,
2012.
|
|
10.71
|
Intellectual Property Security and Stock Pledge Agreement as of
October 11, 2012 between VistaGen California and Platinum Long Term
Growth VII, LLP, incorporated by reference from Exhibit 10.5
to the Company’s Current Report on Form 8-K filed on
October 16, 2012.
|
|
10.72
|
Negative Covenant Agreement dated October 11, 2012 between VistaGen
California, Artemis Neuroscience, Inc. and Platinum Long Term
Growth VII, LLP, incorporated by reference from Exhibit 10.6 to the
Company’s Current Report on Form 8-K filed on October 16,
2012.
|
|
10.73
|
Amendment to Note Exchange and Purchase Agreement as of November
14, 2012 between VistaGen Therapeutics Inc. and Platinum Long Term
Growth VII, LLP, incorporated by reference from Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on
November 20, 2012.
|
|
10.75
|
Amendment No. 2 to Note Exchange and Purchase Agreement as of
January 31, 2013 between VistaGen Therapeutics Inc. and Platinum
Long Term Growth VII, LLP, incorporated by reference from Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q
filed on February 14, 2013.
|
|
10.76
|
Amendment No. 3 to Note Exchange and Purchase Agreement as of
February 22, 2013 between VistaGen Therapeutics Inc. and Platinum
Long Term Growth VII, LLP, incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K filed
on February 28, 2013.
|
|
10.77
|
Form of Warrant to Purchase Common Stock issued to independent
members of the Company’s Board of Directors and its executive
officers on March 3, 2013, incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on
March 6, 2013.
|
|
10.80
|
Note Conversion Agreement as of April 4, 2013 between VistaGen
Therapeutics Inc. and Platinum Long Term Growth VII, LLP,
incorporated by reference from Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed on April 10, 2013.
|
|
10.83
|
Lease between Bayside Area Development, LLC and VistaGen
Therapeutics, Inc. (California) dated April 24, 2013, incorporated
by reference from Exhibit 10.83 to the Company’s Annual
Report on Form 10-K filed July 18, 2013.
|
|
10.84
|
Indemnification Agreement effective May 20, 2013 between the
Company and Jon S. Saxe, incorporated by reference
from Exhibit 10.84 to the Company’s Annual Report on
Form 10-K filed on July 18, 2013.
|
|
10.85
|
Indemnification Agreement effective May 20, 2013 between the
Company and Shawn K. Singh, incorporated by reference from Exhibit
10.85 to the Company’s Annual Report on Form 10-K filed on
July 18, 2013.
|
|
10.86
|
Indemnification Agreement effective May 20, 2013 between the
Company and H. Ralph Snodgrass, incorporated by reference from
Exhibit 10.86 to the Company’s Annual Report on Form
10-K filed on July 18, 2013.
|
|
10.87
|
Indemnification Agreement effective May 20, 2013 between the
Company and Brian J. Underdown, incorporated by reference from
Exhibit 10.87 to the Company’s Annual Report on Form
10-K filed on July 18, 2013.
|
|
10.88
|
Indemnification Agreement effective May 20, 2013 between the
Company and Jerrold D. Dotson, incorporated by reference from
Exhibit 10.88 to the Company’s Annual Report on Form
10-K filed on July 18, 2013.
|
|
10.89
|
Amendment and Waiver effective May 24, 2013 between the Company and
Platinum Long Term Growth VII, LLC, incorporated by reference from
Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on June 3, 2013.
|
|
10.90
|
Amendment No 2 to Securities Purchase Agreement dated June 27, 2013
between the Company, Autilion AG and Bergamo Acquisition Corp. PTE
LTD, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on June 28,
2013.
|
|
10.91
|
Senior Secured Convertible Promissory Note, dated July 26, 2013
issued to Platinum Long Term Growth VII, LLP, incorporated by
reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on August 2, 2013.
|
|
10.92
|
Common Stock Warrant, dated July 26, 2013 issued to Platinum Long
Term Growth VII, LLP, incorporated by reference from Exhibit 10.2
to the Company’s Current Report on Form 8-K filed on August
2, 2013.
|
|
10.93
|
Form of Subscription Agreement between the
Company and investors in the Fall 2013 Unit Private Placement,
incorporated by reference from Exhibit 10.93 to the Company’s
Annual Report on Form 10-K filed on June 25, 2014.
|
|
10.94
|
Form of Convertible Promissory Note between
the Company and investors in the Fall 2013 Unit Private Placement,
incorporated by reference from Exhibit 10.94 to the Company’s
Annual Report on Form 10-K filed on June 25, 2014.
|
|
10.95
|
Form of Common Stock Purchase Warrant
between the Company and investors in the Fall 2013 Unit Private
Placement, incorporated by reference from Exhibit 10.95 to the
Company’s Annual Report on Form 10-K filed on
June 25,
2014.
|
|
10.96
|
Form of Amendment to Convertible Promissory Note and Warrant
between the Company and investors in the Fall 2013 Unit Private
Placement, effective May 31, 2014, incorporated by reference from
Exhibit 10.96 to the Company’s Annual Report on Form 10-K
filed on June 24, 2014.
|
|
10.97
|
Form of Unit Subscription Agreement between the Company and
investors in the Spring 2014 Unit Private Placement dated April 1,
2014, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on April 8,
2014.
|
|
10.98
|
Form of Subordinate Convertible Promissory Note between the Company
and investors in the Spring 2014 Unit Private Placement dated April
1, 2014, incorporated by reference from Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on April 8,
2014.
|
|
10.99
|
Form of Common Stock Purchase Warrant between the Company and
investors in the Spring 2014 Unit Private Placement dated April 1,
2014, incorporated by reference from Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on April 8,
2014.
|
|
10.100
|
Common Stock Purchase Warrant between the Company and Platinum Long
Term Growth Fund VII dated May 14, 2014, incorporated by reference
from Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on May 19, 2014.
|
|
10.101
|
Subordinate Convertible Promissory Note between the Company and
Platinum Long Term Growth Fund VII dated May 14, 2014, incorporated
by reference from Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on May 19, 2014.
|
|
10.102
|
Form of Promissory Note and Form of Warrant
issued by the Company to Icahn School of Business at Mount Sinai
effective April 10, 2014 in satisfaction of technology license
maintenance fees and reimbursable patent costs, incorporated by
reference from Exhibit 10.102 to the Company’s Annual Report
on Form 10-K filed on June 25, 2014.
|
|
10.103
|
Amendment No. 3 to Sponsored Research
Collaboration Agreement, dated April 25, 2011, by and between
VistaGen and University Health Network, incorporated by reference
from Exhibit 10.103 to the Company’s Annual Report on Form
10-K filed on June 25,
2014.
|
|
10.104
|
Amendment No. 5 to Sponsored Research
Collaboration Agreement, dated October 10, 2012, by and between
VistaGen and University Health Network, incorporated by reference
from Exhibit 10.104 to the Company’s Annual Report on Form
10-K filed on June 25,
2014.
|
|
10.105
|
Amended and Restated Note Conversion Agreement and Warrant
Amendment, by and between VistaGen Therapeutics, Inc. and Platinum
Long Term Growth VII, LLC, dated July 18, 2014, incorporated by
reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on July 22, 2014.
|
|
10.106
|
Amendment No. 1 to Amended and Restated Note Conversion Agreement
and Warrant Amendment, by and between VistaGen Therapeutics, Inc.
and Platinum Long Term Growth VII, LLC, dated September 2, 2014,
incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on September 4, 2014.
|
|
10.107
|
Amendment No. 2 to Amended and Restated Note Conversion Agreement
and Warrant Amendment, by and between VistaGen Therapeutics, Inc.
and Platinum Long Term Growth VII, LLC, dated September 30, 2014,
incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on October 3, 2014.
|
|
10.108
|
Agreement, by and between VistaGen Therapeutics, Inc. and Platinum
Long Term Growth VII, LLC, dated May 5, 2015, incorporated by
reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on May 13, 2015.
|
|
10.109
|
Acknowledgement and Agreement, by and between VistaGen
Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated
May 12, 2015, incorporated by reference from Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on May 13,
2015.
|
|
10.110
|
Form of Securities Purchase Agreement by and between VistaGen
Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated
May 12, 2015, incorporated by reference from Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on May 13,
2015.
|
|
10.111
|
Exchange Agreement, by and between VistaGen Therapeutics, Inc., and
Platinum Long Term Growth VII, LLC and Montsant Partners, LLC,
dated January 25, 2016, incorporated by reference from Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on January
29, 2016.
|
|
10.112
|
Indemnification Agreement effective April 8, 2016 between the
Company and Jerry B. Gin, incorporated by reference from Exhibit
10.112 to the Company’s Annual Report on Form 10-K filed on
June 24, 2016.
|
|
10.113
|
Underwriting Agreement, by and between Chardan Capital Markets, LLC
and WallachBeth Capital, LLC, as representatives of the several
underwriters, and VistaGen Therapeutics, Inc., dated May 10, 2016,
incorporated by reference from Exhibit 1.1 to the Company’s
Current Report on Form 8-K filed on May 16, 2016.
|
|
10.114
|
Warrant Agency Agreement, by and between Computershare, Inc. and
VistaGen Therapeutics, Inc., dated May 16, 2016, incorporated by
reference from Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed on May 16, 2016.
|
|
10.115
|
Form of Warrant; incorporated by reference from Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on May 16,
2016.
|
|
10.116
|
Second Amendment to Employment Agreement by and between VistaGen
Therapeutics, Inc. and Shawn K. Singh, dated June 22, 2016,
incorporated by reference from Exhibit 10.116 to the
Company’s Annual Report on Form 10-K filed on June 24,
2016.
|
|
10.117
|
Second Amendment to Employment Agreement by and between VistaGen
Therapeutics, Inc. and H. Ralph Snodgrass, Ph.D., dated June 22,
2016, incorporated by reference from Exhibit 10.117 to the
Company’s Annual Report on Form 10-K filed on June 24,
2016.
|
|
10.118
|
Second Amendment
to Lease between Bayside Area Development and the Company,
effective November 10, 2016, incorporated by reference from Exhibit
10.1 to the Company’s Quarterly report on Form 10-Q filed on
November 15, 2016.
|
|
10.119
|
Indemnification
Agreement effective November 10, 2016 between the Company and Mark
A. Smith, incorporated by reference from Exhibit 10.2 to the
Company’s Quarterly report on Form 10-Q filed on November 15,
2016.
|
|
10.120+
|
Exclusive License
and Sublicense Agreement by and between VistaGen Therapeutics, Inc.
and Apollo Biologics LP, effective December 9, 2016, incorporated
by reference from Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q filed on May 11, 2017.
|
|
10.121+
|
Patent License
Amendment Agreement between VistaGen Therapeutics Inc. and
University Health Network effective December 9, 2016, incorporated
by reference from Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q/A filed on May 1, 2017.
|
|
Amended and
Restated 2016 Stock Incentive Plan, incorporated by reference from
Exhibit 10.122 to the Company’s Annual Report on Form 10-K
filed on June 29, 2017.
|
|
|
Underwriting
Agreement, dated as of August 31, 2017, by and between VistaGen
Therapeutics, Inc. and Oppenheimer & Co. Inc., incorporated by
reference from Exhibit 1.1 to the Company’s Current Report on
Form 8-K filed on August 31, 2017.
|
|
|
Form of Series A1
Warrant, incorporated by
reference from Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed on August 31, 2017.
|
|
|
Form
of Series A2 Warrant, incorporated by reference from Exhibit 4.2 to
the Company’s Current Report on Form 8-K filed on August 31,
2017.
|
|
|
21.1*
|
List of Subsidiaries.
|
|
Consent of Disclosure Law Group.
|
|
|
Consent of OUM & Co., LLP, independent registered public
accounting firm (filed herewith).
|
|
|
Power of Attorney (included on signature page to the registration
statement on Form S-1, filed on October 18, 2017).
|
_______________
* Incorporated
by reference from the like-numbered exhibit filed with our Current
Report on Form 8-K on May 16, 2011.
+
Confidential treatment has been granted for certain confidential
portions of this agreement.
II-4