Earnings Call Transcript - VTGN Q3 2022

Operator, Operator

Greetings and welcome to VistaGen Therapeutics’ Third Quarter of Fiscal Year 2022 Results Conference Call. Please note that this conference is being recorded. I will now turn the conference over to your host Mark Flather, Vice President of Investor Relations. Thank you. You may begin.

Mark Flather, Vice President of Investor Relations

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 am 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. The format for this call will consist of prepared remarks 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 Investors’ IR calendar section of our website, vistagen.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 statement 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.

Shawn Singh, CEO

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 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. Even before the pandemic, anxiety and depression disorders represented large and accretive global markets with unsatisfied medical needs. Perhaps now more 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 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 year 2022, we anticipate key top-line Phase 3 data readouts with exciting potential to transform major aspects of mental healthcare. Our PALISADE Phase 3 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 two ongoing Phase 3 studies in the program, PALISADE-1 and PALISADE-2, and our PALISADE long-term safety study are on track, with top-line data readout as previously anticipated. Specifically, PALISADE-1 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 PH94B in SAD. In addition to the milestones we achieved in our PALISADE Phase 3 program during the recent quarter, we launched our Phase 2a clinical study of PH94B in adjustment disorder with anxiety as the first study in our exploratory clinical evaluation program for PH94B and anxiety indications beyond SAD. With emotional stress and impaired functioning brought on by sudden changes 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 2a study in the second half of 2022. 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 radiolabeled 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 GABA A receptors, we see a growing body of evidence suggesting that PH94B has the potential to achieve rapid anti-anxiety 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 2b clinical study of PH10 as a potential rapid onset standalone treatment in major depressive disorder. In the second half of 2022, we believe PH10 is potential across multiple depression disorders. Also during the quarter, we initiated a Phase 1b trial for oral pro drug candidate AV-101 in combination with an FDA-approved probenecid. The study follows two 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 rather than blocking NMDA 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 NMDA receptor. I would now like our CFO, Jerry Dotson, to summarize some of the highlights from our fiscal 2022 third quarter financial results. Jerry?

Jerry Dotson, CFO

Thank you, Shawn. As Shawn mentioned, I will 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 3 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 2a study of PH94B for treatment of adjustment disorder with anxiety. These studies and the continuation of non-clinical 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 pre-launch 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 will now turn the call back to Shawn.

Shawn Singh, CEO

Thanks, Jerry. 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 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 everyday. On behalf of our entire team at VistaGen, again, thank you for your continued support.

Mark Flather, Vice President of Investor Relations

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

Operator, Operator

Thank you. Our first question comes from Andrew Tsai with Jefferies. You may proceed with your question.

Andrew Tsai, Analyst

Thanks and good afternoon. Hope you guys are doing well. First question is on the Phase 3 PALISADE program, I am curious how are the rollovers to the open label 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 will start off with that. Thanks.

Mark Smith, Chief Medical Officer

Thanks, Andrew. Great to talk to you. Good question. I can just say we are pleased with the way that we are 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.

Andrew Tsai, Analyst

Yes. And remind us one more time; just what the powering assumption for PALISADEs are and how should, besides efficacy reduction in the PH94B arm, change as we go from Phase 2 to Phase 3, if at all? And feel free to talk about how placebo might change, but I believe you mentioned how responses are pretty consistent in the past maybe, but can you just talk about that? Remind us the powering assumptions as well?

Mark Smith, Chief Medical Officer

Well, the sample size for PAL-1, PAL-2 was based on what we observed as the main difference between the average scores for the 94B and the placebo arms in Phase 2, which was 12 points. The sample size calculation was increased, as you would expect when you move from a smaller number of sites as in Phase 2 to a larger number of sites as we have in Phase 3 to allow for potentially higher expected variability when you go up to the higher number of sites. So, we took that into account, and the way you do that is to increase the standard deviation from Phase 2 to Phase 3, which we did by about 6 points and that may or may not occur, but it was the right way to go. We also maintained a 90% power to detect the difference between the two independent groups under those assumptions.

Andrew Tsai, Analyst

Yes, thanks. And maybe the final question before I hop in the queue, Phase 3 timing of PALISADE-1 maybe talk about your confidence in generating data in mid-2022 given the COVID situation, I would love just to hear about some color around how that’s going and is it – are you ready to kind of talk about whether it’s looking like closer to Q2 or Q3? Yes, I will stop there. Thanks.

Mark Smith, Chief Medical Officer

I think we are still expecting the top-line data in mid-2022. So I think we are going to stick with that, Andrew. That’s on target as previously anticipated, and PALISADE-2 in the second half of 2022. We do get a lot of questions about COVID and the Omicron variant and how it’s impacted enrollment during the ongoing trial. We remain comfortable with the estimated timelines for top-line data that I have just noted. Should someone 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, only in a minor delay in their trial period. Although we are not able to predict the future of the pandemic and its potential impacts going forward, we believe that we are doing our best to minimize any potential disruptions in these studies and we will continue to monitor that situation very closely, prioritizing the health and safety of both the subjects and the studies and the site staff members.

Andrew Tsai, Analyst

Great. Thanks a lot for taking my questions.

Mark Smith, Chief Medical Officer

You bet.

Operator, Operator

Our next question comes from the line of Tim Lugo with William Blair. You may proceed with your question.

Lachlan Hanbury-Brown, Analyst

Hey, guys. This is Lachlan on for Tim. Thanks for taking the question. 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 secondly, do any of the sort of more 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?

Shawn Singh, CEO

Yes. So, the trial site numbers remain constant, haven’t had any dramatic shift in what we laid out upfront, which isn’t surprising. As for consistency, local mandates are one thing, but the protocols that the sites have for safety that were implemented early on in COVID in 2020 still remain in place. In our study, all subjects and audience members in the public speaking challenge are masked.

Lachlan Hanbury-Brown, Analyst

Okay, great. Thanks. And is there any reason to think that could change the experience of the public speaking challenge compared to the Phase 2?

Shawn Singh, CEO

Mark, you can address that? Mark Smith?

Mark Smith, Chief Medical Officer

Yes, good question, don’t know for sure. However, we have seen pretty high scores throughout this study, and other high scores suggest that they are pretty stressed out by the procedure. I don’t think they are hiding behind their masks, but the most important thing is that whatever they do in the baseline visit is the same as the randomization visit. We maintain consistency for each individual patient. Therefore, I don’t think it’s reducing the overall stress of the procedure; these patients remain pretty stressed out by it.

Lachlan Hanbury-Brown, Analyst

Awesome. Thank you.

Operator, Operator

Our next question comes from the line of Brian Skorney with Baird. You may proceed with your question.

Luke Herrmann, Analyst

Hi, this is Luke Herrmann on for Brian. Thanks for taking our questions. 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 timelines for those? And then just also if you could talk a little bit about PH10 and MDB and provide any color on the Phase 2b study design at this point? Thanks.

Shawn Singh, CEO

Thanks for your questions, Luke. So, a couple of things. The other NDA enabling studies beyond long-term safety and the two PALISADE studies, PALISADE-1 and PALISADE-2, include a small dose response study that the FDA wants us to conduct with two different dose levels that we haven’t assessed; approximately 90 subjects, 45 in each dose level of 0.8 and 6.4 micrograms. Remember, we are dosing in microgram levels. There is also a dosing interval study that we are still working on with the agency around what exactly they want to see, but again, it’s a small study with probably two dozen subjects, and it won’t take long to complete, probably within the quarter that we initiate it. These studies will be initiated in the second half of 2022. As for PH10, our focus is on major depressive disorder. We are focused on what the world needs today, which are rapid onset decisions, whether something is going to work or not work, and considerable differentiation in side effects and safety profiles given the alternatives providing rapid onset effects. We have held several meetings with KOLs and our internal team, and we are solidifying the design that we want to go forward with. We will provide guidance on that as we get closer to the study launch.

Luke Herrmann, Analyst

Alright. Thank you so much.

Shawn Singh, CEO

Our focus is indeed on using PH10 as a standalone agent for major depressive disorder, one that we believe can be introduced very early into the treatment paradigm, possibly even frontline or at a minimum second line. We are confident in the characteristics of PH10 that we have seen, and the prior POC study gives us a lot of confidence that the direction we are headed is the right way as the depression market evolves over the coming years.

Operator, Operator

Our next question comes from Jason McCarthy with Maxim Group. You may proceed with your question.

Joanne Lee, Analyst

Hi, good afternoon. This is Joanne Lee on the call for Jason McCarthy. Thanks for taking the questions. Congrats on all the progress in the quarter, glad to hear that the PALISADE program is on track to be out this year. On to the partnership side with AffaMed, I would just want 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 related to the company’s intent to launch a global policy trial and if we should anticipate further partnering opportunities outside of the US. Thank you.

Shawn Singh, CEO

Alright. Thanks for the question. The partnership with AffaMed covers China, South Korea, and Southeast Asia. We are pleased to report steady progress in advancing PH94B closer to the start of a global clinical trial, which we will call PALISADE global, to include China and other territories. We plan for that trial to be held in five different territories, with China being one of those five. We expect to launch that study sometime in the second half of 2022. We will provide further guidance as we receive the necessary regulatory clearance to greenlight the study. Although it's not a necessary study for our NDA enabling program in the U.S., it is important for our ex-U.S. partnering activities. We also anticipate additional partnering opportunities beyond those territories in due course later this year.

Joanne Lee, Analyst

Great. That was helpful. Thank you so much.

Operator, Operator

Our next question comes from the line of Andrew Tsai with Jefferies. You may proceed with your question.

Andrew Tsai, Analyst

Okay. Thanks. Two follow-ups, and then I will leave it at that. Just because PALISADE 1 and 2 are staggered a little, let’s just say the first Phase 3 was positive. How would that affect the second Phase 3? There may be some expectation bias. How do you guys think about that? How do you control for that?

Shawn Singh, CEO

Well, you can’t be 100% sure – you will see this in disclosure documents, it’s the way it works. One study is one study and in the second study, ideally, you want to see the same results achieved to replicate the design. We just have to continue to forge forward in the study the same way we had in the previous study up to the point of data. So there isn’t a significant shift or course change. I’m not saying that there won’t be different awareness, but this study is designed to be able to call out anything extraordinary. But I think it’s going to be a challenge. We will see how it goes. Mark, do you have anything further you want to add to that?

Mark Smith, Chief Medical Officer

Yes. I mean, they are identical studies. So, 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 for a while longer or even end it earlier. So, that’s the main thing that could change. But the protocols themselves are virtually identical.

Andrew Tsai, Analyst

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

Shawn Singh, CEO

Thanks, Andrew. As you might have seen, we just reported that our cash position at December 31, 2021, was $83.7 million. Our current cash position is sufficient to advance the CNS pipeline through the very exciting stream of potential milestones that we laid out for this calendar year. Specifically, the top-line data readouts for PALISADE-1, PALISADE-2, and the adjustment disorder study in Phase 2a. We expect the burn to continue around current levels, and we will closely monitor and reassess this after PALISADE-1 reads out. That readout will of course impact the direction of cash spent beyond that.

Andrew Tsai, Analyst

Thanks.

Operator, Operator

At this time, there are no further questions.

Mark Flather, Vice President of Investor Relations

Thank you, John. If you have any additional questions, please do not hesitate to get in touch with us at IR@vistagen.com 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.