Some Quick Thoughts On VistaGen

On February 13, 2017, VistaGen Therapeutics (Nasdaq: VTGN) provided a business and financial update following results of the quarter ending December 31, 2016. Below is a quick review of some of the recent happenings at the company, including a look at the financial position and some near-term catalysts for the shares.

Financial Update

VistaGen exited December 2016 with $5.6 million in cash and equivalents, which includes the $1.25 million upfront sublicensing fee received from Bluerock Therapeutics L.P. (note: VistaGen received the cash in January 2017 but I am including this as part of the reported financials so investors get a true sense of the current cash position). Recall that in December 2016, VistaGen announced the company has sublicensed certain rights to its proprietary human pluripotent stem cell (hPSC) technology platform to the newly-formed BlueRock Therapeutics, a joint venture between Bayer AG and Versant Ventures seeded with $225 million in new capital. The sublicensed technologies relate to the production of cardiac stem cells for the treatment of heart disease. Investors wishing to learn more about the transaction can see my article from December 2016.

The Bluerock sublicense fee was recorded as revenue by VistaGen during the fiscal third quarter. Net loss totaled $2.9 million, driven by $1.6 million in R&D and $2.3 million in G&A expenses. A significant portion of the G&A expense was non-cash related, which lead to an operating burn during the quarter totaling only $2.1 million. I expect the burn for the current quarter (calendar Q1 2017) to be slightly higher as the company is advancing towards U.S. IND approval of AV-101. Accordingly, I estimate the company will hold around $3.0 million on March 31, 2017. It is expected that the company will enter into a financing transaction during the second quarter to expand the runway well into 2018.

AV-101 Update

Management provided a brief update on the development timelines with AV-101 as well. The current Phase 2a trial being run by the U.S. National Institute of Mental Health (NIMH) is continuing under the direction of 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. In this study, AV-101 is being investigated as a monotherapy in 20-25 subjects with treatment-resistant major depressive disorder (MDD). The study is fully funded by the government under a Cooperative Research and Development Agreement (CRADA) between VistaGen and the NIMH.

Results from the Phase 2a study are expected towards the end of 2017. This is later than originally expected by about six months, but investors should understand the timeline here is out of VistaGen's control. Despite the delay, the results remain a major potential driver for VistaGen's stock. Previous NIMH studies, including those conducted by Dr. Zarate, have focused on the antidepressant effects of low dose, intravenous ketamine, a NMDA receptor antagonist with a similar mechanism of action to AV-101, in patients with treatment-resistant MDD (1, 2). These NIMH studies, as well as those conducted by clinical research academic institutions, have demonstrated robust antidepressant effects in MDD patients within twenty-four hours of a single low dose of intravenous ketamine. VistaGen believes the orally-administered AV-101 may have potential to deliver ketamine-like fast-acting antidepressant effects without the serious psychoactive side effects.

Separate from the NIMH Phase 2a study, VistaGen is currently preparing to launch a 280-patient Phase 2b clinical study of AV-101 as a new adjunctive treatment for MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants such as SSRI, SNRI, or TCAs. Management anticipates commencement of this multi-center, multi-dose, double-blind, placebo- controlled efficacy and safety study of AV-101 by the end of the second quarter of 2017. The principal investigator (PI) is Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and Director, Division of Clinical Research, Massachusetts General Hospital (MGH) Research Institute.

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 the New England Journal of Medicine (NEJM) and the Journal of the American Medical Association (JAMA) (3). Dr. Fava was also the PI of Alkermes plc (Nasdaq: ALKSsuccessful Phase 2b trial with ALKS-5461 in patients with treatment-resistant MDD that positioned the company for recent success in Phase 3. The Alkermes 142-patient Phase 2b study used the same SPCD design protocol that VistaGen plans to use in its Phase 2b study. Top-line data from the Phase 2b study are expected by the end of 2018.

VistaStem Update

VistaStem Therapeutics, a wholly-owned subsidiary of VistaGen, has not been a primary focus for investors over the past few quarters; however, the transaction with Bluerock Therapeutics is eye-opening and could potentially lead to future sublicensing agreements that bring in non-dilutive cash similar to the $1.25 million recorded in December 2016.

VistaStem is focused on applying hPSC technology to discover, rescue, develop and commercialize proprietary small molecule new chemical entities (NCEs) with regenerative potential for CNS and other diseases. The company has developed CardioSafe 3D™, an in vitro cardiac bioassay system capable of predicting potential human heart toxicity of novel small molecules long before they are ever tested in animal and human studies. Although AV-101 remains the primary focus for VistaGen, management is still exploring potential commercial applications for CardioSafe 3D and other regenerative medicine applications.

As a reminder, VistaStem is a participant in the FDA's Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative. CiPA is an FDA-initiated program designed to change the landscape of nonclinical drug development by providing a more complete and accurate assessment of potential drug effects on cardiac risk through the use of stem cell-derived heart cells and in vitro ion channel data.

Organovo Holdings (Nasdaq: ONVO) is pursuing a similar strategy with its ExVive™ 3D human liver and kidney tissue products and the company has a $315 million market value. The primary goal for VistaGen management is to advance these potential technologies through collaboration with third-parties, hopefully unlocking the tremendous value in these in vitro bioassay systems and providing non-dilutive funding to advance AV-101. For instance, if the market were to value VistaStem's CardioSafe 3D at only one-tenth that of Organovo's ExVive 3D, VistaGen's stock would double. I think there is tremendous value in VistaStem hidden for investors in VistaGen shares.

Near-Term Milestones 

U.S. FDA clearance of the company’s Investigational New Drug application (IND) is expected in the next several weeks. This is consistent with management's guidance to start the Phase 2b study in the second quarter 2017. Once the IND is approved, commencement of the Phase 2b study should follow immediately thereafter. Top-line results from the NIMH Phase 2a study are expected late 2017.

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Disclosure: BioNap is party to a services agreement with the company that is the subject of this report pursuant to which BioNap is paid twenty-five hundred dollars per month by the company in ...

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