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On December 14, 2016, VistaGen Therapeutics (Nasdaq: VTGN) announced the company has sublicensed certain rights to its proprietary human pluripotent stem cell (hPSC) technology platform to BlueRock Therapeutics, a newly formed 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. Per terms of the agreement, BlueRock paid VistaGen a $1.25 million upfront payment, and VistaGen is eligible for future development milestones and royalties from BlueRock. 

The news was a nice positive surprise for shareholders of VistaGen. I was not expecting any announcement on VistaGen’s stem cell business so the fact that VistaGen was able to monetize these assets with upfront cash and continue to benefit from potentially sizable backend milestone payments and royalties from BlueRock is big positive. The Phase 2a clinical study with AV-101 at the U.S. NIMH continues on plan with data expected in the second quarter 2017. More importantly, VistaGen anticipates initiating its Phase 2b program with AV-101 as an adjunctive therapy for the treatment of major depressive disorder during the first half of 2017. 

A Positive Surprise From VistaGen 

VistaGen’s primary focus is on the clinical development of AV-101, a novel glycine B (GlyB) receptor antagonist that negatively modulates the NMDA receptor. AV-101 is an oral prodrug candidate that has demonstrated impressive antidepressant effects and safety in preclinical and Phase 1 studies and is currently in a Phase 2a study under the principal investigation of Dr. Carlos A. Zarate, MD, one of the nation's foremost experts in the field of depression, for the treatment of major depressive disorder. 

This Phase 2a study is taking place at the U.S. National Institute of Mental Health Clinical Center in Bethesda, MD. Data are expected in the second quarter of 2017. Although designed as a small monotherapy study with emphasis on biomarkers and other exploratory endpoints, I believe positive signals will trigger a major valuation inflection in the shares of VistaGen, even before results from the much larger, potentially pivotal AV-101 Phase 2b adjunctive treatment study, as the release of similar, early-stage positive Phase 2 depression data from Minerva Neurosciences in May 2016 and Sage Therapeutics in July 2016 added several hundred million in market value to those companies. I've stated in the past that VistaGen's orally available AV-101 looks like a superior candidate to Allergan's Phase 3 IV-administered rapastinel, an asset that Allergan acquired along with a backup candidate for $571 million upfront in 2015, with over $1 billion in potential backend economics.

AV-101 is currently the primary value-creating asset at VistaGen, so I'm quite pleased to see the company enter into a transaction that monetizes part of the stem cell platform in the BlueRock deal, while retaining key small molecule-related rights in the cardiac space, as well as additional stem cell technologies with regenerative medicine potential relating to blood, cartilage, and liver cells. VistaGen's stem cell technology platform, through its wholly-owned subsidiary, VistaStem Therapeutics, is based on proprietary and licensed technologies for controlling the differentiation of hPSCs and producing the multiple types of mature, non-transformed, functional, adult human cells to reproduce complex human biology and disease, assess the in vitro

 potential therapeutic benefits and safety risks of new chemical entities (NCEs), and for cellular therapy and regenerative medicine, including small molecules, proteins and antibodies with regenerative potential.

VistaGen management has been looking for development partners that can take certain aspects of the company's hPSC platform from the lab to the clinic and capitalize on the regenerative and therapeutic potential of the human cells derived from its proprietary hPSC differentiation protocols. For example, VistaGen’s 

 is a novel hPSC-derived cardiac toxicity in vitro assay tool designed to be used to screen for both direct cardiomyocyte cytotoxicity and arrhythmogenesis. VistaGen is utilizing CardioSafe 3D™ to participate in the FDA's Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative designed to change the landscape of preclinical drug development by providing a more complete and accurate assessment of potential drug effects on cardiac risk. (more on CiPA).

VistaGen believes its hPSC platform may be applicable to the development of other in vitro assays using blood, bone, cartilage, and liver cells, assays for drug discovery, drug rescue and, with respect to liver cells, predictive liver toxicology, a major unmet need in drug development given current industry dependence on often unreliable cadaver liver cell-based assays. 

A Very Nice Partner, Indeed

BlueRock is a  joint venture between Bayer AG and Versant Ventures. BlueRock is a regenerative medicine company that plans to develop best-in-class induced pluripotent stem cell (iPSC) therapies to target a range of diseases, including cardiovascular and neurodegenerative diseases. Bayer and Versant seeded BlueRock with $225 million, representing one of the largest-ever Series A financings for a biotech company. The funds are projected to give BlueRock at least four years of runway and will allow the new company to advance a number of programs into the clinic. It's highly encouraging that BlueRock's first transaction after its official formation was to license cardiac stem cell technology from VistaGen! 

The $1.25 million VistaGen received certainly isn't a windfall, but it's non-dilutive capital and exciting nevertheless because of the potential future upside. With $225 million committed by co-founders Bayer and Versant Ventures, it seems clear that BlueRock had its choice of technologies and partners worldwide. I’m encouraged by the fact that it chose VistaGen’s technologies and has partnered with some of the leading cell therapy minds around the globe, including leading academic and industry collaborators in the U.S., Canada, and Japan. 

One such collaboration is with the Toronto-based University Health Network (UHN) and its McEwen Centre for Regenerative Medicine, which is run by Dr. Gordon Keller, one of the world’s leading stem cell biologists. Dr. Keller is a scientific co-founder of BlueRock Therapeutics. VistaGen has previously collaborated with Dr. Keller, a member of its Scientific Advisory Board since its inception in 1998, and licensed technology discovered by Dr Keller from UHN. Other strategic partnerships for BlueRock are with Memorial Sloan Kettering and Dr. Shinya Yamanaka of Kyoto University, Nobel Prize winner and inventor of the induced pluripotent stem cell (iPSC) technology. Bayer and Versant have an excellent track record in advancing scientific breakthrough technologies in big ways. In December 2015, Bayer formed a joint venture called  with CRISPR Therapeutics AG, a gene editing company co-founded by Versant.

Final Thoughts

VistaGen exited the third quarter ending September 30, 2016, with $6.26 million in cash on the books. While the addition of $1.25 million is certainly not transformative from a financial standpoint, it is non-dilutive capital and does represent about one quarter's worth of additional operating burn for the company (operating burn is averaging $1.29 million for the first nine months of 2016). That said, the agreement provides some nice potential upside in terms of future milestones and royalties from BlueRock not previously included in my valuation model. It also provides VistaGen a roadmap to monetize other aspects of its hPSC platform for cell therapy and regenerative medicine applications, and importantly, keeps clinical development of AV-101 on track for major data read-outs and new trial initiations in 2017.