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

All right. So I got to read this first. So for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley reps -- sales reps. All right. All right, Shawn, it was good to see you today. I just want to start off with those who are not familiar with VistaGen's story and social anxiety disorder. Can you give us an overview of VistaGen and your PALISADE Phase III Program for social anxiety disorder?

Great. Yes, absolutely, Scott. Thanks for the chance to speak with you today. I'll be making forward-looking statements of normal disclaimers associated with it. VistaGen is a late-stage CNS-focused company with a Phase III program in development in social anxiety disorder. We have a second program, PH10, that's in Phase II development for major depressive disorder. So social anxiety disorder is a devastating disorder. It's a mental health condition that affects 10% of the country. And it is a situation where people fear and avoid situations where they're afraid of being judged, or embarrassed or humiliated. And it really locks up their life. It has debilitating opportunity costs across a whole range of scenarios. People don't pursue academic achievement. They don't pursue vocational advancement, relationships. And they really get stuck and it's often part of a match set with depression. So VistaGen's focus is on developing differentiated new-generation drugs, drugs with a totally different mechanism of action from what the current standard of care is. So really to radically improve the treatment options for those suffering from anxiety and depression disorders.

Great. And we know you recently released some top line results from your PALISADE-1 Phase III clinical trial for PH94B. Can you zoom out a bit and discuss the trial design of PALISADE-1 and PALISADE-2 and discussions you had with the FDA about it being in the early days of the COVID pandemic, and about the design and any alternative designs that you discussed?

So it's a lot to unpack. But the PALISADE Phase III program VistaGen is advancing is, again, for PH94B for the acute treatment of anxiety in adults with social anxiety disorder. So it consists of a number of different studies. PALISADE-1 and PALISADE-2 have the same study design. They're distinct studies in that they have different sites, different CRO involved and really a staggered start time. So PALISADE-1, we did just report that. Unfortunately, it didn't hit its primary endpoint which we often see in neuro-psych development. These are in indications where we have standard blood test to see efficacy, their objective endpoints and it often is the case and where you fail in one Phase III, you actually have additional success as you continue downstream. So PALISADE-1 is a 4-visit study design, where we -- in a laboratory setting, it's an artificial setting in a clinical environment, subjects are challenged to give a speech in front of a group of strangers. So the 4 visits consist of the first visit is a screening visit, where the Liebowitz Social Anxiety Scale, Dr. Michael Liebowitz is truly the Godfather, the Babe Ruth of social anxiety disorder. And Michael developed many years ago, while he was at Columbia, a scale to a clinical assessment tool for social anxiety disorder, the LSAS, or Liebowitz Social Anxiety Scale. So subjects are screened for a certain score on that to show that they have both performance and social anxiety disorder underpinnings to their indication. And after they -- if they have a 70 or higher on that, they're advanced to visit 2. And visit 2, it's a single-blind scenario and people are given a placebo, and then they're told 15 minutes later that they have to give a speech to a group of strangers, 5-minute speech. And what's used in that scenario is the subjective units of distressed scale, the SUDS. That's the endpoint for an acute treatment dynamic. And if they have a sufficient score on that sufficiently high, then they're advanced to visit 3 a week later, where that challenge is repeated, except subjects are randomized double blindly through a drug or placebo for that challenge. They give their speech, each minute during the speech, they're telling a reader how they feel on that scale. 75 for example, would be more than a little uncomfortable, while giving a speech, and then visit 4 simply a follow-up visit. And what we're looking for is a change in their SUDS score, drug versus placebo against their baseline score from visit 2. So we're looking for, again, a statistically significant change drug versus placebo against the baseline for each subject after visit 3. So it's a novel MOA. It's a novel endpoint, one that we reached consensus with the FDA back in the early part of the pandemic in June of 2020 on that study design. The alternative was -- and that was based on a highly statistically significant Phase II program that was run by Dr. Liebowitz, p=0.002 on the public speaking challenge. The other Phase II design that we had in front of the FDA back in June of 2020 was more of a real-world study, where people were in a 2-week crossover design, people were given the drug and told to go experience social performance situations in the real world over 2 weeks. And during the course of that study, they were using the drug acutely. That's the important part about PH94B. It's designed to be used acutely. But what we saw in that study, and we've seen in some other preliminary data we can talk about, is that people got better over -- week over week. And what ended up happening on the Liebowitz scale was we saw people avoiding less frequently the types of social and performance situations that really were real with anxiety for them in the past. And so that was a very encouraging study. That was the other alternative upfront of the FDA. The consensus reached, again, we're in the early days of the pandemic. We have just seen 92 million scripts of benzodiazepines in a recent report, the world is exceptionally anxious. So what the FDA wanted at that time was the most efficient way possible to assess efficacy of the drug. And their belief, and we went along with it, was that the Phase II study design that was the 4 visits public speaking challenge approach was the best fit at the time. So that's what we went forward with in PALISADE-1 and 2. And recently, we did an interim analysis on PALISADE-2, and we can talk about that if you like.

Sure. Yes, I think we can get to that a little later. But with regards to kind of just the initial design as well, can you discuss a little bit more about conducting the study during the height of the pandemic and how that really affected like the design and the implementation?

Yes, that's a great question. And there are a lot of things, obviously, in the early innings of the pandemic, we didn't know that we certainly know now. We, as a drug development universe across all colleagues in the space. And just in clinical development, generally, I think the unforeseen scenario that resulted was really this Great Resignation. We saw a lot of turnover, not just at companies, but also at CROs, at clinical sites. So really, the entire vertical associated with drug development happened at CMOs as well, really all aspects of the supply chain. So that part, especially when you have a novel study design with a novel MOA and a novel endpoint, that can bring confusion and challenges into perfect execution of a study. There are certain states that were red states, some blue states, some had masks, some didn't. So there were certain things that we're taking a very, very close look at why we think that PALISADE-2 didn't hit its endpoint. Certainly, COVID is a factor, a significant factor.

Yes. And PALISADE-1, correct?

Of 1, yes. 2 started much later than 1, a lot deeper into the pandemic. So not as much of that early trying to adjust for new SOPs at sites and dealing with regulations and masks and people being absent, and you couldn't have in-person investigator meetings back then. So it was definitely different than the typical paradigm for drug development in general, but specifically neuropsych drug development.

Okay. And you briefly touched on the preliminary data. Can you -- you know the encouraging preliminary data from your PALISADE open-label study of PH94B. What are the potential implications of this data and for conducting a long-term study for PH94B involving multiple administration assessments rather than a single administration design, PALISADE-1 and 2?

Among the many hallmarks of PH94B, why we think it's got potential to be really a once-in-a-generation drug candidate for this neuropsychiatric disorder that affects millions of people is the way it's designed. So it's designed to work rapidly. It's also not systemic. We've done radiolabeled studies to show the drug doesn't have to act directly on CNS neurons. We also know it doesn't potentiate GABA, which is a key component for risk of abuse and abuse potential with benzodiazepines. So sort of a rapid onset, benzo without the baggage kind of scenario. And -- so it's important to remember the way that we think the drug is designed to work acutely, but also to provide cumulative improvement in functionality and reduced avoidance over time. And so the fact that we have a drug that works on what are called nasal chemosensory receptors that are neurons that are in the nose, that project back to the part of the brain associated with fear and anxiety, the amygdala, is really the novelty. That's the differentiator. This is nonsystemic, nonaddictive. A key finding that we heard back from the FDA was they didn't see at the time we presented the totality of data on the drug, they didn't see any potential for abuse liability, which is very important, obviously, in this neuropsych space. And -- but there was a comment at this time, right? So one of the things that we're encouraged by is we've now seen multiple hundred more subjects in the context of that open-label safety study in PAL-1, PAL-2, is that we're not seeing any evidence of abuse liability that would cause that conclusion to be changed. So that's very important. So now you have a rapid-onset drug that we think, can be used multiple times a day as needed. It's intended for acute treatment, right? So as these situations with social anxiety disorder arise, they're often episodic. It's not an all day, every day. It's one day, you have a fear that you have to sit in the classroom. Another day, you have a fear that you're going to have a meeting with your boss, or your presentation to colleagues, go on a date, eat alone in the food court. I mean there's go on in Uber instead of a subway to go over lots of different situations. So they need -- people need something that works fast and that can be used multiple times with different situations in a particular day, but also where there might be some suggestion that the more you use it, the more success you have in embracing situations that typically have been fearful. We all need a little bit of anxiety. But when that anxiety takes over and controls you and that persists, that's an anxiety disorder. So what we need is for people to be confident and have success, because success builds on success. What the open-label safety preliminary data have suggested to us so far, and this is after really 3 months of use, is that people got better after 1 month, a little bit better than that after 2 months, and a little bit better than that after 3 months. So if we can achieve something where we ultimately have a label or the drug can be used acutely as needed, but over a period of time, there's evidence that it can get -- people can get better and knock down those fears totally, that's the ideal. That changes lives.

Yes, the CT and non-abuse liability is very encouraging and look forward for a great path forward to that. Additionally, can you -- you touched on the interim independent review that was done. Can you provide more detail on the independent interim analysis that was conducted for PALISADE-2? And how has it informed your next step for Phase III development of PH94B?

Great question. So it's very important to have discipline in the judgment that you have to assign to decisions in our business, especially. And we came out of PALISADE-1, and that result was completely inconsistent with what we saw in Phase II, both in the real-world study and in the public speaking challenge that also had a social interaction challenge in Phase II. And so the question was, well, what do we do now with PALISADE-2? Because it was ongoing and it's -- it's the same study design, but it's not a full replica. Again, because there's different sites. There are different CRO involved. And so it's a different environment. And at a different time of the pandemic importantly. So we didn't want to just stop the study because if you stop it, and there is a trend or it looks like it's promising and now you've disabled yourself from using that as a potential pillar of your NDA downstream. The other side is you don't just want to kick it down the road and hope against hope that it's going to be positive. So an interim analysis allowed us to understand whether it was futile to continue with the study. And so the futility assessment came back and said, no, it was not futile. So there's hopefully some signal as a result of that, that says we're carrying it forward. We're confident that the study has a chance to achieve stat sig. No guarantee that it will. No CEO should ever tell you, he or she thinks the study is going to be a certain way. But we're encouraged. We're encouraged by the preliminary data from the open-label study, which is right now. We're encouraged by the robustness of the Phase II studies that were done, both the real world and the laboratory-based setting. So -- and we're encouraged that we're in a bit of a different season of COVID. Things have leveled out quite a bit. I think the mask requirements are consistently not in place in most -- in the jurisdictions where we have sites. So -- there are also some lessons that we think we can apply to the back end of PALISADE-2 to enhance the potential there.

That sounds really encouraging. Can you -- so another -- with regards to your pipeline, can you provide an update regarding your Phase II study of PH9B (sic) [PH94B] and adjustment disorder and your Phase I program in major depressive disorder?

So our pipeline consists of 3 drug candidates: PH94B for anxiety-related disorders. The lead is 94B for social anxiety disorders we discussed. At the outset of the pandemic, it became crystal clear that there are a lot of people struggling with anxiety in ways they never had in their life before. And the onset was usually associated with some sort of trauma typically related to the pandemic, economic, social, professional and civil unrest was crazy high back then. Can't say it isn't now. But it was the case then the adjustment disorder, which is defined as some sort of trauma that causes persistent state of anxiety or depression, something that's happened recently. And so we decided to assess based on the other Phase II study that we had done with 94B in SAD, where people got better a little bit over time with multiple assessments. We wanted to explore the drug's performance in a scenario where, although it wasn't in Phase III, given the consensus with FDA for the single assessment -- single administration assessment in PALISADE-1 and 2, the adjustment disorder design allowed us to investigate in a different population where subjects take the drug 4 times a day over 28 days. And the endpoint in that study is very conventional HAM-A endpoint. So -- that study is ongoing. We hope to have data for that. It's -- again, we're looking for a signal in a study like that, a strong signal ideally. And hopefully, we'll see that sometime near the end of the year, first part in the first quarter of '23. But again, we believe the drug can perform acutely, but we also believe it could perform well across multiple administrations and assessments over a longer period of time.

Okay. That's great to hear...

In terms of PH10, sorry. So PH10 is a second asset, and that's focused on depression disorders. They're chemically distinct molecules, but they have a totally different objective, right? So PH94B is intended to repress fear and anxiety via the amygdala, whereas PH10 is intended to increase and generate antidepressant effects. But both are nasal sprays that are formulated to act rapidly via cells in the nose, using the nose as a portal to the parts of the brain that we think are associated with these mental health conditions. PH10 has already been through one successful Phase IIa proof-of-concept study, and it was statistically significant at 6.4 micrograms. So we're looking to -- we have to bring that to under a new U.S. IND, which we hope to be submitting here before the end of the quarter, maybe beginning of next quarter. We'll do a short Phase I given some manufacturing enhancements that we've undertaken. And then ideally, the plan is in '23, subject to further funding to get -- or partnering to put that drug back into Phase IIb development as a stand-alone, rapid-onset treatment for major depressive disorder. Again, not systemic. Haven't seen evidence of sedation. It doesn't potentiate GABA. So we're looking for what's the hallmark of this pipeline, our rapid onset, nonsystemic, incredibly well-tolerated and safe drug candidates for these really challenging and debilitating mental health disorders, anxiety and depression related. There's potential there for postpartum anxiety, for treatment-resistant depression. But the main focus is as a stand-alone entity for major depressive disorder.

And with regard to kind of just like overall pipeline and everything we've kind of discussed today, a big kind of factor in that is your discussions with the FDA. And have there been any updates or new discussions with them that you'd like to share regarding kind of Palisades and your adjustment disorder program and your depressive disorder program?

I'll tell you, the FDA has been impressive. Even back all the way when we started these discussions in the early part of '20, there are human beings that work there. They realize the world we're in. They certainly understand the prevalence of anxiety and depression disorders across all demographics. I was recently on a panel with the Surgeon General, and we focused on mental health among youth. It's a profound problem. And there have not been meaningful development, certainly not in anxiety, anything that is showing promise to -- that's been approved to treat these disorders in a different way, to alter the treatment paradigm, to have drugs that are able to deliver relief rapidly, not like old school antidepressants over weeks and months, not generate a potential for risk abuse, misuse, overuse, addiction. One of the really hopeful signals from FDA was shortly after our meeting with them, we met with them in June of 2020. And in September of 2020, they came out with what's called a drug safety communication about benzodiazepines, benzos. And that was important because it reflected FDA's awareness that we really do have a benzo epidemic. We really do have incredibly high increasing rates. Pre-pandemic SAD was about 18 million in the U.S. Now it's over 25 million in a couple of years. So unfortunately, these rates are going in the wrong direction. And to see that the FDA has a willingness to interact with us, to help us with guidance, to help us reach consensus on studies before we invest time and capital in those studies, we always want to know that they're going to matter at the end of the day. So we plan to get back in front of the FDA sometime in the first quarter. We'll continue to discuss with them the path forward for Phase III development of PH94B and social anxiety disorder. We'll also be discussing with them Phase IIb development of PH10 for major depressive disorder. So I've got to commend them for sure because they have been very communicative, which is really what you can ask for. There's a process you have to go through to get meetings and -- but there's a lot of good hard work. We have a very experienced team. We have people who have been developing drugs in CNS neuropsych for decades and commercializing them. So products in the totality of the team that we've got. So I'm confident that we'll continue that with FDA, that we'll continue a robust dialogue, that we won't have to go forward with mystery that what we'll study and invest in will matter. So I'm very encouraged by that.

Well, it does sound encouraging. And with that, I think we'll wrap up for today, and I want to thank you for coming in and chatting about pipeline and your programs and telling your story. I appreciate it.

I really appreciate it, Scott. I mean we are -- we believe, firmly in the potential of these drugs. We've seen them work in human patients throughout multiple Phase II studies. We know what the world needs. We believe they definitely have once-in-a-generation potential to really radically change this treatment paradigm for these disorders, where people are really looking for alternatives, looking for safe, fast-acting, effective ways to bring their life to the version of themselves that they really want. And that's important to all of us at VistaGen. That's the mission. We're committed to it, and we believe we've got some very strong assets and great relationships like with your firm to help make that happen. So we remain steadfast in our commitment to the changing things.

All right. Well, thank you, Shawn.

You bet.