Earnings Call Transcript - VTGN Q2 2023

Operator, Operator

Good day, and welcome to the VistaGen Second Quarter Fiscal Year 2023 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Flather, Vice President of Investor Relations. Please go ahead, sir.

Mark Flather, Vice President of Investor Relations

Thank you, Jenny. Hello, and welcome to VistaGen's conference call covering our second quarter of fiscal year 2023 financial results and business update. 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; and Jerry Dotson, our Chief Financial Officer. The format for this call will consist of prepared remarks from management, followed by a brief opportunity for questions from sell-side analysts. This call is being webcasted 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. The 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 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. Thank you for joining the call. As I've mentioned multiple times, VistaGen is highly focused on meeting the significant and increasing unmet mental health needs in communities worldwide. As I highlighted last quarter, with the US Surgeon General and other leaders emphasizing mental health and the current crisis, there is a crucial need to change the stigma surrounding mental illness, available treatments, and the overall direction of mental health care. There are diverse communities that require faster-acting treatments that do not carry unwanted side effects or risks of misuse, overuse, or addiction. Our team at VistaGen knows that patients, families, and communities rely on us. We remain committed to our mission and confident in our strategy as well as the potential of our pipeline to transform the treatment of anxiety and depression disorders, thereby enhancing mental health care one person at a time. Let's discuss our pipeline progress, starting with our PALISADE Phase 3 program for PH94B in social anxiety disorder. This includes our PALISADE-1 and PALISADE-2 double-blind placebo-controlled Phase 3 studies, as well as our PALISADE open-label study. Although the outcome of PALISADE-1 was a setback, extending our timeline for PH94B's market entry, it does not signify the end for PH94B in social anxiety disorder. In fact, setbacks, especially in neuropsychiatry, can lead to strong recoveries, and that’s where we believe PH94B stands today. We are analyzing the data from this study and have pinpointed several factors, particularly linked to the pandemic, that may have influenced the results, which differed from those observed in earlier clinical studies of PH94B in social anxiety disorder. We are making every effort to address these potential issues as we progress in developing PH94B for social anxiety disorder and other anxiety disorders by improving recruitment and screening efficiencies and ensuring strict adherence to our protocols. The second part of our PALISADE Phase 3 program focuses on our PALISADE-2 study. As previously mentioned, this study was paused last quarter for an interim analysis to be conducted by independent biostatisticians to evaluate whether we should proceed as planned or close the study. As we shared in September, following their analysis of the 140 subjects who completed the study, the independent biostatisticians recommended that we continue PALISADE-2 as planned, targeting an enrollment of 208 subjects. Therefore, we will proceed with that direction, equipped with their recommendations and insights to aid in our preparations for the restart of PALISADE-2. We are on track to resume that study shortly and anticipate delivering top-line results in 2023. The third key element of our PALISADE Phase 3 program is the PALISADE open-label study, which we initiated in October 2021 to evaluate the safety and tolerability of PH94B in adults with social anxiety disorder, administered as needed before anxiety-inducing social and performance situations in daily life, up to four times per day for a maximum of 12 months. Alongside assessing safety and tolerability, we also incorporated several efficacy objectives, including examining PH94B's potential for symptom reduction and improvement in the severity of social anxiety disorder, measured by the Liebowitz Social Anxiety Scale, which is the required efficacy endpoint by the FDA for all previous social anxiety disorder approvals. In August, we closed recruitment and enrollment for the PALISADE Open Label Study to conserve cash and to evaluate these critical safety and tolerability and LSAS data. As reported today, our preliminary review of nearly 400 subjects in the final data set for the PALISADE Open Label Study indicates significant functional improvement in anxiety-inducing social and performance circumstances in daily life, as measured by the LSAS. Regarding efficacy, we now possess two key data sets that support PH94B's ability to enhance LSAS scores: the PALISADE Open Label Study over one month and a published double-blind, placebo-controlled Phase 2 real-world crossover study after two weeks of use. These studies collectively demonstrate the potential for PH94B to significantly reduce social anxiety disorder symptoms and improve severity over time, as measured by the LSAS. We believe the measurements from LSAS over time are well-suited for a Phase 3 trial to demonstrate the efficacy and true impact of PH94B on patients' lives, as it assesses overall improvement in disease severity by capturing reductions in fear and anxiety along with avoidance of social and performance scenarios. This further strengthens our belief in PH94B's ability, when taken as needed in daily life, to deliver rapid-onset, meaningful, and sustained responses in patients with social anxiety disorder, all while maintaining a highly favorable safety and tolerability profile. We plan to meet with the FDA in the first quarter of 2023 to reach a consensus on the next steps for further developing PH94B in social anxiety disorder. Moving to our second target indication for PH94B, adjustment disorder with anxiety, we are advancing in our Phase 2a clinical trial for this condition. We've completed enrollment in this ongoing exploratory double-blind, placebo-controlled Phase 2a trial aimed at evaluating the efficacy, safety, and tolerability of PH94B as a potential treatment for adults with adjustment disorder with anxiety. The Phase 2a study includes multiple administration assessments of PH94B, which is given four times a day for 28 days. We anticipate announcing top-line results from this study in the first quarter of 2023. Additionally, we've made significant strides with our second pherine asset, PH10. In a small published exploratory, randomized, double-blind, placebo-controlled Phase 2a study of PH10 in major depressive disorder in Mexico, administered at a 6.4 microgram dose intranasally twice daily for eight weeks, PH10 showed a significant reduction in depressive symptoms as early as one week based on the 17-item Hamilton Depression Scale scores when compared to placebo. PH10 was well-tolerated and did not cause psychological side effects, dissociation, hallucinations, or any other safety concerns often associated with other rapid-onset therapies like ketamine. We submitted our US investigational New Drug Application to the FDA last quarter to enable us to commence a small and brief Phase 1 clinical study of PH10 in healthy volunteers in the US. Provided the FDA allows us to proceed, we aim to initiate that study before the end of this calendar year. This study is designed to facilitate our transition back into Phase 2b development of PH10 in the US, either independently or with a partner. Our goal is for PH10 to serve as a potential fast-acting stand-alone treatment for major depressive disorder. Recognizing the significant unmet need in the major depressive disorder space where current treatments may be undesirable or insufficient, the unique mechanism of action of PH10—as a fast-acting, non-systemic, and non-sedating treatment—could profoundly change the treatment landscape for major depressive disorder. Having this asset advancing in the US clinic is a crucial milestone on our journey to aid individuals struggling with depressive disorders. Finally, concerning AV-101 in combination with FDA-approved oral probenecid, our exploratory Phase 1b drug-drug interaction study of this combination is currently in progress. We expect to complete this study by the second quarter of 2023. Afterward, we will evaluate all the data generated for AV-101—both preclinical and clinical—and consider exploratory Phase 2a development of AV-101 in combination with probenecid, either independently or with a collaborator, as a potential oral treatment for CNS disorders involving the NMDA receptor. As we stand on the brink of having all three of our CNS drug candidates in active clinical trials, we feel positioned strongly—with a capable team, an innovative pipeline aimed at large and growing markets with great demand, and a mission that drives us to deliver better solutions aimed at enhancing mental health care and improving lives. This is an exciting time for our company. Despite market conditions, we believe we are well-prepared for 2023 and beyond. Now I will hand over to our CFO, Jerry Dotson, to summarize some highlights from our financial results for the second quarter.

Jerry Dotson, CFO

Thank you, Shawn. As Shawn mentioned, I'm going to highlight a few of the financial results from the second quarter of our fiscal year 2023. I would also encourage everyone to review our quarterly report on Form 10-Q, which we filed with the SEC earlier this afternoon for additional details and disclosures. As Shawn noted previously, our timeline for expected FDA approval and commercialization of PH94B in SAD has been extended. As a result, the accounting standards require that we update our estimates for revenue recognition tied to those milestones. We recorded an adjustment to revenue in the quarter ended September 30, 2022, that was necessary based on the revised forecast of our future development timetable for PH94B. Again, I ask you to refer to the Form 10-Q filed earlier today for more detailed information on that subject. Our research and development expense increased by $2.9 million from $10 million to $12.9 million for the quarter ended September 30, 2022. This increase is primarily due to the expense related to conducting our PALISADE Phase 3 program for PH-94B, which includes PALISADE-1, PALISADE-2, and the PALISADE open-label study. We also conducted the PH-94B Phase 2a study in adjustment disorder with anxiety and other non-clinical development regulatory and outsourced manufacturing activities related to both PH94B and PH10. Our general and administrative expenses increased to approximately $3.7 million for the quarter ended September 30, 2022, compared to approximately $3.2 million for the quarter ended September 30, 2021. The primary components of that increase include expanded investor and public relations and corporate awareness initiatives as well as expenses for some other professional services we incurred during the period. Our net loss attributable to common stockholders for the quarter ended September 30, 2022, was approximately $17.5 million versus a net loss of approximately $13.2 million for the quarter ended September 30, 2021. As of September 30, 2022, the company had cash and cash equivalents of approximately $35.3 million. As a result of the expected reduction in research and development costs from the conclusion of clinical trials, along with the deferral of some pre-commercialization activities that Shawn discussed earlier, we expect to see lower burn rates over the next few quarters. In light of our cash conservation efforts, while we maintain optimistic assumptions for future data readouts, we believe our current cash should extend through a series of potential key milestones and data readouts in 2023. Again, I recommend that you refer to our quarterly report on Form 10-Q filed earlier today for additional details and disclosures. Shawn, I’ll turn the call back to you now.

Shawn Singh, CEO

Great. Thanks, Jerry. Our core mission remains the same: to improve mental health and the well-being of people worldwide. As we continue to advance the next phases of our corporate development, we're confident in our strategy and in the potential of our pipeline to deliver relief to patients suffering from anxiety, depression, and other CNS-related disorders. By doing so, we can also deliver extraordinary value for our stockholders. On behalf of the entire VistaGen team, I want to thank you for the privilege and the opportunity to make a difference—one mind at a time.

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 to questions from analysts. Thanks.

Operator, Operator

And we will hear first from Andrew Tsai of Jefferies.

Andrew Tsai, Analyst

Thanks. Sorry, I hopped on from another call. Apologies if you've answered this already. So just, I guess, this interim analysis—did they happen to look at—the Phase 3? And did they look at the actual efficacy on SUDS, or was it just the inputs to the powering assumptions? That's my first question.

Shawn Singh, CEO

Hey, Andrew, great to talk to you. They looked at all the unblinded data available for the 140 subjects that had completed PAL-2 up to the point where we paused it because that would include. The objective of that—yes, go ahead.

Andrew Tsai, Analyst

I'm sorry to cut you off, but go ahead.

Shawn Singh, CEO

Well, I was just going to say, as we've talked about, the objective of that analysis, first and foremost, was to assess whether it was futile for us to continue the study or whether it was prudent to continue the study. That is clearly what we got feedback on—obviously, it wasn't futile, so there had to have been a trend. What degree of trend? We don't know. We didn't have access to the data. We didn't then, and we don't know. It was an independent third-party global biostatistician team that looked at it. So, as a result of that recommendation, it makes sense, obviously, to continue.

Andrew Tsai, Analyst

Okay. And so then the natural question would be how can the second Phase 3 seemingly be looking pretty different from what happened at PAL-1? How do we reconcile that?

Shawn Singh, CEO

Well, there are a lot of things that are different, especially the macro universe associated with the pandemic. A lot of the issues we've looked at and then the potential corrective actions do tie into some degree to the pandemic. Where we are today versus where we were during a lot of that PAL-1 trial is significantly different in the population. Our absenteeism is different, site turnover is different, the ability to get insights and train and enforce rigorous protocol adherence. Those kinds of things can really counter against some of the potential unforeseen biological challenges that emerged through data, external data, not our data, during the course of the two studies, especially as it relates to the nasal epithelial cells that are associated with the chemosensory receptors where we drop 94B directly onto. There are things that can be done to ensure that people have fully regenerated cells if they ever had COVID or to ensure that they have the ability to smell. So, there are quick factory tests, and other things we can assess upfront now that weren't as much in play before. But the other thing is too—there are different sites involved in the study, and certainly conducted at a different time. So we're doing everything we can in terms of corrective actions that can be implemented in the PALISADE 2 Phase 3 trial before restarting. We're being very careful, methodical, and systematic in the way we assess any of the potential root causes from PAL-1 and apply the lessons learned into the restart of PALISADE 2. I really like where we stand. I think we've done incredibly good work, and we've got some good measures in place and looking forward to restarting the study.

Andrew Tsai, Analyst

Perfect. So, is it fair to assume at this juncture, are you guys leaning to the failure policy on being more of an execution operational thing, and you kind of singled it out to maybe the route of administration and maybe different types of patients enrolled during COVID? I guess the root of my question is, how can we know for sure that administrations can be done properly going forward? And what these changes you make in PALISADE 2—would the FDA be on board with that in terms of ensuring patients are properly administering this? Thanks.

Jerry Dotson, CFO

Yeah. We think so. What you're alluding to is if people were to inhale the drug, putting it too far off their nose and not spraying directly at the mid-septum, the drug would go into the respiratory system and not have the intended effect. Another potential situation is that they don't have the cells as a result of having had COVID and not have those cells regenerate by the time they get into the study and whether or not they have any sense of smell. There are certainly things that can be done. Those are things we believe the FDA would not object to. However, it's the case that every company, as you all know, has the risk of ensuring that training and protocols are rigorously adhered to and that site visits are done timely and regularly. Without a lot of barriers associated with the pandemic early on, it's a lot easier to do that these days. While there are still COVID protective SOPs at sites, there's definitely been a smoother rhythm in the ability to train subjects, raters, and investigators overall. When you're working with a novel MOA, it takes that extra effort, and we want to ensure that we've redoubled all efforts coordinating with our CRO at the sites and the re-education and retraining process after the pause has been very well focused on the best practices we can conceive to make it a smooth restart and completion of the study.

Andrew Tsai, Analyst

Thanks. One very last question is going back to the interim. I'm just trying to determine how much weight we can give to this interim finding. Could it possibly be a false read? And is it compelling to the degree that you would consider starting another Phase 3 potentially? I guess, thanks.

Shawn Singh, CEO

Look, the key of that analysis was to determine what's the disciplined way forward. It would have been reckless to say on the result of PALISADE-2, okay, let's just keep going no matter what. It also wouldn't have been disciplined to stop the study, especially if there was a trend, and we prematurely remove the opportunity for that to be one of the anchors of an NDA. We did the interim analysis with third parties that had full access to the data. Relying on their expertise and the way that we submitted and the FDA agreed upon that analysis to be done, we have to remain blinded to all of it because of issues that FDA always worried about. They came up with exactly what we've reported, and that certainly is sufficient enough to warrant it. It's a relatively modest additional spend to complete the study, and we are on track to get that done. When you don't have a study that's futile and you have a study that must have at least a trend towards success, it makes sense to keep going. That was the basis that we considered and the reason we've decided to move forward. Does that mean that every future study of PH94B and SAD is to be the exact same design with a single assessment? Very provocative in clinic public speaking challenge—no, it doesn't. We'll consider it. What we want with the FDA, why we're meeting with them, is to generate optionality. If PALISADE-2 is positive, that puts us on one track. If it's a trend with a potentially significant effect size, that's another track. If it's not successful, with potentially significant effect size—that's another track. We have multiple different options forward. We're very happy to see that the things we've said before about abuse liability suggested, especially with several hundred more subjects now under assessment; we've got further confidence about that too. It’s got a very favorable safety profile, and now we're seeing the ability for it to make a difference in people and what really matters in SAD. You want people to gain confidence to engage in situations that previously stressed them out and were anxiety-provoking, because that renewed confidence to engage in those situations with less dread and anxiety—that's what the LSAS shows. That's what we want to achieve with this drug. It's an exciting time. While we are certainly not happy with the outcome of PALISADE-1, it brought some teachings to the table and combined with the rest of what we know about PH94B, it’s a tremendously exciting moment.

Andrew Tsai, Analyst

Great. Okay. All right. Fingers crossed and hope things turn back around to the positive, of course.

Operator, Operator

And we'll go next to Tim Lugo with William Blair.

Tim Lugo, Analyst

Thanks for the question. Just following up on not meeting with the agency. How long do you think before you get that meeting scheduled? Also, starting CAL-1, it's a great outcome. When can we expect top-line results once that's restarted? Also, with the LSAS, it's not as immediate of a measurement. Are you going to talk to the FDA about the next study potentially being more of a real-world study, not a laboratory study?

Shawn Singh, CEO

Yes. Great questions, Tim. Great to talk to you. Thank you for that. In terms of getting in front of the FDA, there’s a 75-day track to get in front of them. So, sometime in the middle of the second quarter is where we're expecting to land. The FDA can always push it back a little, but that's roughly where we expect to land with the request and the background package we'll submit. Regarding your third question, we'll certainly include the data we've been seeing recently around LSAS as the endpoint. FDA is very familiar with that. As you know, that's the endpoint supporting approval for three antidepressants. It’s a little different than SAD because nothing has been approved on that basis yet. What we see with this drug is designed to be used acutely, but when it's used multiple times, and we get multiple assessments, we see improvement in social functioning. That’s what patients need in this particular indication. It will certainly be part of the discussion. The outcome decision tree I laid out relating to PALISADE-2 will also be a factor. We want to get in front of them sooner than later; we may even start a Phase II before the results of PALISADE-2.

Tim Lugo, Analyst

Okay. That’s great. Thanks for that. And could you take an alpha spin, given the PALISADE-2 data? Statistically, did you have to take a stand on that?

Shawn Singh, CEO

No.

Tim Lugo, Analyst

Fair enough. Thank you very much.

Operator, Operator

We will move next to Brian Skorney with Baird.

Unidentified Analyst, Analyst

Hey, this is Luke on for Brian. Thanks for taking the questions. For SAD, is there a potential the data from both the Liebowitz scale and SUD could eventually support a filing? In the open-label study, were there any other efficacy endpoints you measured that you might consider presenting in the first quarter?

Shawn Singh, CEO

Yes. Hey Luke. Thanks for the question. The answer is yes. One thing to remember is when J&J had the approval of esketamine after a handful of failures in Phase 3, the NDA was supported by different types of Phase 3 studies. One was a conventional parallel design, while the other was a randomized withdrawal study. There is precedent at the FDA for different types of studies with different primary endpoints supporting approval. Again, with SAD allowing acute assessment while LSAS shows how it affects people in their daily lives over multiple administrations. One reason we did the PALISADE studies, especially PALISADE-1 and now PALISADE-2, is we got consensus from the FDA to do it this way during the pandemic. Now, with the vaccinated world we've introduced, what we’ve seen in the open-label is no issue at all with COVID over several months of patients' daily lives. I think it’s nice to show the drug works acutely but improves more with usage as patients gain confidence. We’ll be discussing that with the agency.

Unidentified Analyst, Analyst

Great. And if I could ask one…

Shawn Singh, CEO

Sorry, I forgot the other question. What was the other one?

Unidentified Analyst, Analyst

The other one was, any other efficacy endpoints from the study besides LSAS?

Shawn Singh, CEO

Yes, that’s a great point. Sorry, I get too carried away about the potential of the drug. The answer is yes. We will have additional assessments—especially on CGI-I and PGIC. They're consistent with the kinds of responses we've seen at one month, two months, or three months, showing terrific reductions in LSAS severity, fear, anxiety, and avoidance frequency. Those will be included as we put out the other LSAS components.

Unidentified Analyst, Analyst

Great. Then just one more on adjustment disorder. Can you talk about the decision to use the Hamilton scale as the primary endpoint and provide some color on the degree of impact you're looking for?

Shawn Singh, CEO

That's an exploratory study. So, we have to keep that in mind. It's a small study, and the HAM-A is a more appropriate endpoint for that type of disorder. It's a lot more like GAD—although not exactly—but more like that because it's more of an all-day, everyday feeling rather than an episodic situation typical of SAD. The HAM-A was the conventional scale used for antidepressants approved for GAD. It's associated with benzodiazepines used for that indication. We thought it was the most appropriate endpoint, and we consulted the FDA. The common endpoint for this indication had to see a difference between the placebo and treatment groups. A couple of points—few points weren't much that you needed to get those drugs approved in other similar indications—again, not just in disorder. We took teaching from literature in several other indications where HAM-A was involved to choose that as the primary endpoint.

Unidentified Analyst, Analyst

Great. Thanks. I’ll hop back in the queue.

Shawn Singh, CEO

Thanks, Luke.

Operator, Operator

With no other questions in the queue, I would now like to turn the call back to Mark Flather.

Mark Flather, Vice President of Investor Relations

Excellent. Thanks, Jenny. If you have any additional questions, please do not hesitate to get in touch with us by emailing ir@vistagen.com or contacting the individuals listed in our press release issued today. We encourage you to sign up for our website to stay connected with the latest news from VistaGen. Thank you for tuning in, and we appreciate everybody's attention and support. We look forward to keeping you current on our continuing progress. This concludes our call. Have a great day. You may all disconnect now.

Operator, Operator

And again, that concludes today's call. We thank you for your participation. And again, you may now disconnect.