Vistagen Therapeutics, Inc. (VTGN) Earnings Call Transcript & Summary

Greetings. Welcome to the VistaGen Therapeutics Third Quarter of Fiscal Year 2022 Results Conference Call. [Operator Instructions] I will now turn the conference over to your host, Mark Flather, Vice President of Investor Relations. Thank you. You may begin.

Thank you, John. Hello, and welcome to VistaGen's conference call covering our fiscal year 2022 third quarter financial results, recent accomplishments, and anticipated milestones. I'm Mark Flather, Vice President of Investor Relations at VistaGen. Thank you for joining us today, and welcome to our stockholders, analysts, and anyone taking an interest in VistaGen. Joining me today are Shawn Singh, our Chief Executive Officer; Jerry Dotson, our Chief Financial Officer; and Dr. Mark Smith, our Chief Medical Officer. Format for this call will consist of prepared remarks from management, followed by -- from management followed by a brief opportunity for questions. This call is being webcast and will be available for replay. The link to access the replay can be found in the Investor's IR calendar section of our website, vistogen.com. On today's call, we will make forward-looking statements regarding our business based on our current expectations and current information. Forward-looking statements speak only as of today, and except as required by law, we do not assume any duty to update in the future any forward-looking statements made today. Of course, forward-looking statements involve risks and uncertainties, and our actual results could differ materially from those anticipated by any forward-looking statements that we may make today. Additional information concerning risks and factors that could affect our business and financial results is included in our most recent quarterly report on Form 10-Q filed earlier today with the Securities and Exchange Commission, or SEC, and in future filings that we make with the SEC from time to time, all of which are or will be available on our website and the SEC's website. Now, I'd like to turn the call over to our Chief Executive Officer, Shawn Singh.

Thank you, Mark, and good afternoon, everyone. On behalf of our entire team at VistaGen, thank you for joining this call. We sincerely hope you and those who are important to you are doing well, both physically and mentally. Taking care of your mental health is essential at every stage of life. And as we enter into the third year of the COVID-19 pandemic, it's safe to say that at one point or another, everyone's mental well-being may have been impacted in some manner. And even before the pandemic, anxiety and depression disorders represented large and accretive global markets with unsatisfied medical needs. And now, perhaps more so than ever before, innovative treatments for anxiety and depression disorders are needed to improve the lives of millions of individuals around the world who are suffering from these mental health conditions. Our team is on task and is working tirelessly to develop much needed novel treatments with the potential to deliver rapid onset beliefs -- or relief without the negative side effects and safety concerns of current medications. Our third quarter results reflect notable progress across our pipeline and all other aspects of our business. During calendar '22, we anticipate key top line Phase III data readouts with exciting potential to transform major aspects of mental health care. Our PALISADE Phase III program is designed to further demonstrate the potential of PH94B as a rapid onset as needed, acute treatment of anxiety in adults with social anxiety disorder, or SAD. Our 2 ongoing Phase III studies in the program, PALISADE 1 and PALISADE 2, and our PALISADE long-term safety study are on track for top line data readout as previously anticipated. Specifically, PALAD1 is expected to deliver top line results midyear this year, and PALISADE 2 is expected to deliver top line results in the second half of this year. Should they be successful, we anticipate that these studies and a couple of smaller studies will anchor our U.S. new drug application for PH94BinSAD. In addition to the milestones we achieved in our PALISADE Phase III program during the recent quarter, we launched our Phase IIa clinical study of PH94B in adjustment disorder with anxiety and is the first study in our exploratory clinical evaluation program for PH94B in anxiety indications beyond SAD, with emotional stress and impaired functioning brought on by sudden change in health, safety, and economic, and social circumstances that many have experienced at heightened levels since the beginning of the pandemic, the need for an innovative therapy for adjustment disorder with anxiety has become increasingly apparent to our team and the clinicians in our ecosystem. We believe PH94B has the potential to offer relief to the growing number of individuals whose routine daily functioning has been impaired by the onset or exacerbation of adjustment disorder with anxiety. We anticipate top line results for this Phase IIa study in the second half of '22. Later this year, we also plan to initiate additional small exploratory clinical studies to assess PH94B's potential in populations suffering from anxiety disorders beyond both SAD and adjustment disorder, indications where we believe the current treatment alternatives are inadequate. Also during the quarter, we reported important new preclinical data on PH94B's potential mechanism of action or MOA. Data from a tissue distribution study in laboratory rats demonstrated that a single intranasal administration of radio-labeled PH94B was largely confined to the nasal passages with minimal or undetectable levels in most other tissues, including the CNS. More importantly, no appreciable activity was observed in the brain. We believe these results further highlight the fundamental difference in PH94B's MOA compared to that of all current anxiety therapies. When the data from this radiolabeled PH94B tissue distribution study is combined with that from previous in-vitro studies demonstrating that the MOA of PH94B does not involve direct activation of GABAA receptors. We see a growing body of evidence suggesting that PH94B has the potential to achieve rapid antianxiety effects without requiring systemic uptake or causing benzodiazepine like side effects or other safety concerns. Regarding our other clinical-stage drug candidates, we are preparing to initiate a Phase IIb clinical study of PH10 as a potential rapid onset stand-alone treatment in major depressive disorder in the second half of '22. We believe PH10 has potential across multiple depression disorders. Also during the quarter, we initiated a Phase Ib trial for our oral prodrug candidate, AV-101 in combination with an FDA-approved probenecid. This study follows 2 positive preclinical studies showing that the combination of AV-101 and probenecid substantially increased the brain concentration of the active metabolite of AV-101 targeted at reducing [ revin-blocking ]NMD receptor signaling. We believe AV-101 in combination with probenecid has the potential to be developed as an innovative treatment for several CNS conditions involving the NMD receptor. I would now like our CFO, Jerry Dotson, to summarize some of the highlights from our fiscal '22 third quarter financial results. Jerry?

Thank you, Sean. As Sean mentioned, I'll highlight a few financial results from the third quarter of our fiscal year 2022. I would also encourage everyone to review our quarterly report on Form 10-Q filed with the SEC earlier this afternoon for additional details and disclosures. Our research and development expenses increased by $4.5 million from $3.5 million to $8 million for the third fiscal quarter ended December 31, 2020, and 2021, respectively. This increase results primarily from expenses related to preparing for and conducting our PALISADE Phase III program for PH94B in SAD, including the continuation of our PALISADE 1 and PALISADE 2 clinical trials as well as initiating our PALISADE long-term safety study and our Phase IIa study of PH94B for treatment of adjustment disorder with anxiety. These studies and the continuation of nonclinical and preclinical development and outsourced manufacturing activities for both PH94B and PH10 accounted for increased expenses of approximately $3.1 million during the quarter ended December 31, 2021, compared to the same quarter of the previous fiscal year. Salaries and benefits expense for the quarter ended December 31, 2021, increased by approximately $0.8 million versus expense for the comparable prior year quarter, primarily due to the addition of new senior management and other personnel across multiple R&D disciplines. Our general and administrative expenses increased to approximately $2.9 million for the quarter ended December 31, 2021, compared to approximately $2.1 million for the quarter ended December 31, 2020. That increase was primarily due to continuing initiatives related to phase appropriate PH94B prelaunch commercialization activities. Our net loss for the third quarter of fiscal 2022 ended December 31, 2021, was approximately $10.5 million versus a net loss of $5.3 million for the comparable quarter of fiscal year 2021. At December 31, 2021, the company had cash and cash equivalents of approximately $83.7 million. Again, please refer to our quarterly report on Form 10-Q that we filed earlier today for additional details and disclosures. I'll now turn the call back to Shawn.

Thanks, Jerry. So our experienced team is well positioned to advance our programs through important late-stage clinical and regulatory milestones and also navigate a responsible path towards the potential commercialization of PH94B. Our team is comprised of amazing individuals who not only possess vast knowledge and experience within our industry, but who also share our passion for social change and align with our corporate values. As we forge forward as change makers, we are confident and we are very excited about the potential for our CNS pipeline to make meaningful transformations in mental health care and improve the daily lives of those impacted by anxiety and depression disorders every day. On behalf of our entire team at VistaGen, again, thank you for your continued support.

Thank you, Shawn. This concludes our prepared remarks. Operator, we would now like to open up the call for questions.

[Operator Instructions] Our first question comes from the line of Andrew Tsai with Jefferies.

I hope you guys are doing well. First question is on the Phase III PALISADE program. I'm curious how are the rollovers to the open label, I guess, long-term safety portion, looking? What percentage of patients who have completed PALISADE are moving over? And maybe talk about whether -- how does that compare to your expectations? We'll start off with that.

Thanks, Andrew. Great to talk to you. Good question. I think just say we're pleased with the way that we're seeing the rollover from PAL-1/PAL-2 into long-term safety, on track as we had expected, and we see it continuing that way.

Okay. And remind us one more time, just what the powering assumption for the PALISADEs are? And how should, besides efficacy, education in the PH94B arm change as we go from Phase II to Phase III, if at all? And feel free to talk about how placebo might change. But I believe you've mentioned how responses are pretty consistent in the past maybe, but can you just talk about that, remind us the powering assumptions as well?

Well, the sample size for PAL 1/PAL 2 was based on what we observed as the main difference between the average subs for the 94B and the placebo arms in Phase II, which was 12 points. So the various estimate that's used for the sample size calculation was increased, as you'd expect when you move from a smaller number of sites as in Phase II, to a larger number of sites as we have in Phase III, to allow for potentially higher expected variability when you go up to the higher number of sites. So we are -- we took that into account. And the way to do that is to increase the standard deviation from Phase II to Phase III, which we did by about 6 points, and that may or may not occur, but it was the right way to go and we, as you'd expect, also got a 90% power to detect the difference between the 2 independent groups under those assumptions.

And maybe the final question before I hop in the queue. Phase III timing of PALISADE 1, maybe talk about your confidence in generating data in mid-2022, given the COVID situation. We'd love just to hear about some color around how that's going. And are you ready to kind of talk about whether it's looking like closer to Q2 or Q3?

I think we're still expecting the top line data in mid-'22. So I think we're going to stick with that, Andrew. That's on target as previously anticipated in PALISADE-2 in the second half of '22. So we do get a lot of questions about COVID and the Omicron variant and how it's impacted enrollment in the ongoing trial. So we just -- we remain comfortable with the estimated time lines for top line data that I've just noted. And should somebody develop COVID during the trial period, there are procedures already in place that allow that individual to return to the trial when it's safe, resulting typically, if at all, in only a minor delay in their trial period. So although we're not able to predict the future of the pandemic and its potential impacts going forward, we believe that we're doing our best to minimize any potential disruptions in these studies, and we'll continue to monitor that situation very closely, obviously, always prioritizing health and safety of both the subjects in the studies and the site staff members.

Our next question comes from the line of Tim Lugo with William Blair.

This is Lachlan on for Tim. So I was wondering also on the same topic of PALISADE and COVID. Have you had to expand site numbers at all because of COVID disruptions or anything? And then secondly, do any of the sort of local restrictions like mask mandates change anything in the study? I mean, does it change if patients or site members or anything are masked or not during the trial?

So the trial site numbers remain constant. We haven't had any dramatic shift in what we laid out upfront. So that -- which isn't surprising. And then as to consistency, the local mandates are one thing, but the protocols that the sites have for safety that were implemented really early on in COVID in '20, still pretty much remain in place. So in our study, all the subjects and the audience members in the public speaking challenge are masked.

And do you -- is there any reason to think that could sort of change the experience of the public speaking challenge compared to the Phase 2?

Mark, you can address that, Mark Smith.

Yes, good question. Don't know for sure, but we've seen pretty high scores throughout this study. In other words, high scores that they're pretty stressed out by the procedure. So I don't think they're hiding behind their mask. But the most important thing is, whatever they do in the baseline visit is the same as the randomization visit. And so we keep things consistent for each individual patient. And I think that ensures some consistency. But in answer to your question, no, I don't think it's reducing the overall stress of the procedure. These patients are pretty stressed out by it.

Our next question comes from the line of Brian Skorney with Baird.

This is [ Lou Kerman ] on for Brian. First, for the social anxiety opportunity, just looking beyond the PALISADE program, I was wondering if you could remind us of the scope of the additional small studies still required and then granularity on the time lines for those? And then just also if you could talk a little bit about PH10 in MDD and provide any color around the Phase IIb study design at this point?

Thanks for questions, Lou. So a couple of things. The other NDA-enabling studies beyond long-term safety and the 2 PALISADE studies, PALISADE-1, 2. There's a small dose response study the FDA wants us to do that has 2 different dose levels that we haven't assessed. So that's only about 90 subjects, 45 in each dose level, 0.8 and 6.4 micrograms. Remember, we're dosing in microgram levels. And then there is a dosing interval study, which we're still working with the agency around what exactly they want to see. But again, pretty small study, very short handful of subjects, maybe 2 dozen tops that won't take too long to complete, probably within the quarter that we initiated. So those are studies that we will be initiating in the second half of '22. As to PH10, what we've been doing with that, and I don't really want to go into it yet, but obviously, the focus is on major depressive disorder. And the focus is on what the world needs today, which are rapid onset decisions on whether something is going to work or not work. And a considerable differentiation in side effect and safety profiles, given the alternatives that are delivering rapid onset effects. So we've had several meetings with KOLs and in our internal team, and we're huddled around the design that we think we want to go forward with, and we'll give guidance on that as we get a little closer to the study launch. Our focus for sure is using PH10 as a stand-alone agent for major depressive disorder, one that we think can be inserted very early upfront into the treatment paradigm, possibly even frontline, but at a minimum, second line. And we think the characteristics of PH10 that we've seen in the study that was done, the POC study, gives us a lot of confidence that the direction we're headed is the right way to go as we see things evolving in the depression market over the coming years.

[Operator Instructions] Our next question comes from the line of Jason McCarthy with Maxim Group.

This is Joanne Lee on the call for Jason McCarthy. Congrats on all the progress in the quarter. Glad to hear that the PALISADE program is on track to read out this year. On the partnership side, with AffaMed, I just wanted to see if you could provide some color on the progress of that partnership in China. And as a follow-up, maybe if you could provide any details on whether the company intends to launch a global PALISADE trial. And if we should anticipate further partnering opportunities outside the U.S.?

Thanks for the question. So the partnership with AffaMed is covers China, South Korea, and Southeast Asia. And we're very pleased. We've been making very steady progress in advancing 94B closer to the start of a global clinical trial, which we'll call PALISADE Global to include China and the other territories. So we will -- our plan at the moment are for that trial to be held in 5 different territories with China being 1 of those 5, and we'd expect that we have an opportunity to launch that study sometime in the second half of '22. So we'll give further guidance as we get the kind of regulatory clearance that we need in order for that study to be greenlighted and launched sometime in the second half of this year. It's not a necessary study for our NDA-enabling program in the U.S. Of course, it's important for our ex-U.S. partnering activities. And we'd expect to have additional partnering opportunities beyond those territories in due course later this year.

Our next question comes from the line of Andrew Tsai with Jefferies.

Two follow-ups, and then I'll leave it to that is just because PALISADE's 1 and 2 are staggered a little. So let's just say if the first Phase III was positive, how would that affect the second Phase III because maybe there's some expectation bias. So how do you guys think about that? How do you control for that?

Well, you know how it goes. You can't be -- you'll see it in disclosure documents. It's the way it works. One study is one study. In the second study, ideally, you want to see the same results achieved. It's a replicate design. We just have to continue to forge forward in the study the same way we had in that study up to the point of data. So there really isn't a shift change or a course change. I'm not saying that there won't be different awareness. But the study is designed to be able to call out anything that seems to be extraordinary, but I think it's -- it would be a champion challenge. So we'll see how it goes. Mark, do you have anything further you want to add to that?

Yes. I mean they are identical studies. So I mean those procedures and all are not going to change regardless of what happens in the first one. But it is possible, I suppose, if our statistical calculations are off, we could continue that study a while longer or end it earlier. But that's the main thing that could change. But the protocols themselves are virtually identical.

And second question, maybe talk about the pace of cash burn over the next 12 months? That would be very helpful.

So well, you just might have seen we just last reported cash position at 12/31/21 was $83.7 million, as Jerry noted. So our current cash position is sufficient to advance the CNS pipeline through the very exciting stream of potential milestones that we laid out this calendar year, so namely the top line data readout of PALISADE 1 and PALISADE 2. And also the adjustment disorder study in Phase IIa. So we expect the burn to continue around current levels, and we'll closely monitor and reassess this after PALISADE 1 reads out. That readout will, of course, impact the direction of cash spend beyond that.

At this time, there are no further questions.

Thank you, John. If you have any additional questions, please do not hesitate to get in touch with us at [email protected], or you can call any of the phone numbers listed on our press release issued today. Thank you for tuning in, and we appreciate everyone's attention and support. We look forward to keeping you current on our continuing progress. This concludes our call. Have a great day, and you may all disconnect now.