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Tuesday, February 14, 2017

Some Quick Thoughts On VistaGen

On February 13, 2017, VistaGen Therapeutics (NASDAQ: VTGN) provided a business and financial update following results of the quarter ending December 31, 2016. Below is a quick review of some of the recent happenings at the company, including a look at the financial position and some near-term catalysts for the shares.

Financial Update

VistaGen exited December 2016 with $5.6 million in cash and equivalents, which includes the $1.25 million upfront sublicensing fee received from Bluerock Therapeutics L.P. (note: VistaGen received the cash in January 2017 but I am including this as part of the reported financials so investors get a true sense of the current cash position). Recall that in December 2016, VistaGen announced the company has sublicensed certain rights to its proprietary human pluripotent stem cell (hPSC) technology platform to the newly-formed BlueRock Therapeutics, a joint venture between Bayer AG and Versant Ventures seeded with $225 million in new capital. The sublicensed technologies relate to the production of cardiac stem cells for the treatment of heart disease. Investors wishing to learn more about the transaction can see my article from December 2016.

The Bluerock sublicense fee was recorded as revenue by VistaGen during the fiscal third quarter. Net loss totaled $2.9 million, driven by $1.6 million in R&D and $2.3 million in G&A expenses. A significant portion of the G&A expense was non-cash related, which lead to an operating burn during the quarter totaling only $2.1 million. I expect the burn for the current quarter (calendar Q1 2017) to be slightly higher as the company is advancing towards U.S. IND approval of AV-101. Accordingly, I estimate the company will hold around $3.0 million on March 31, 2017. It is expected that the company will enter into a financing transaction during the second quarter to expand the runway well into 2018.

AV-101 Update

Management provided a brief update on the development timelines with AV-101 as well. The current Phase 2a trial being run by the U.S. National Institute of Mental Health (NIMH) is continuing under the direction of Dr. Carlos Zarate, Jr., Chief of the NIMH’s Experimental Therapeutics & Pathophysiology Branch and its Section on Neurobiology and Treatment of Mood and Anxiety Disorders. In this study, AV-101 is being investigated as a monotherapy in 20-25 subjects with treatment-resistant major depressive disorder (MDD). The study is fully funded by the government under a Cooperative Research and Development Agreement (CRADA) between VistaGen and the NIMH.

Results from the Phase 2a study are expected towards the end of 2017. This is later than originally expected by about six months, but investors should understand the timeline here is out of VistaGen's control. Despite the delay, the results remain a major potential driver for VistaGen's stock. Previous NIMH studies, including those conducted by Dr. Zarate, have focused on the antidepressant effects of low dose, intravenous ketamine, a NMDA receptor antagonist with a similar mechanism of action to AV-101, in patients with treatment-resistant MDD (1, 2). These NIMH studies, as well as those conducted by clinical research academic institutions, have demonstrated robust antidepressant effects in MDD patients within twenty-four hours of a single low dose of intravenous ketamine. VistaGen believes the orally-administered AV-101 may have potential to deliver ketamine-like fast-acting antidepressant effects without the serious psychoactive side effects.

Separate from the NIMH Phase 2a study, VistaGen is currently preparing to launch a 280-patient Phase 2b clinical study of AV-101 as a new adjunctive treatment for MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants such as SSRI, SNRI, or TCAs. Management anticipates commencement of this multi-center, multi-dose, double-blind, placebo- controlled efficacy and safety study of AV-101 by the end of the second quarter of 2017. The principal investigator (PI) is Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and Director, Division of Clinical Research, Massachusetts General Hospital (MGH) Research Institute.

Dr. Fava was the co-Principal Investigator with Dr. A. John Rush of the STAR*D study, the largest clinical trial conducted in depression to date, whose findings were published in the New England Journal of Medicine (NEJM) and the Journal of the American Medical Association (JAMA) (3). Dr. Fava was also the PI of Alkermes plc (NASDAQ: ALKS) successful Phase 2b trial with ALKS-5461 in patients with treatment-resistant MDD that positioned the company for recent success in Phase 3. The Alkermes 142-patient Phase 2b study used the same SPCD design protocol that VistaGen plans to use in its Phase 2b study. Top-line data from the Phase 2b study are expected by the end of 2018.

VistaStem Update

VistaStem Therapeutics, a wholly-owned subsidiary of VistaGen, has not been a primary focus for investors over the past few quarters; however, the transaction with Bluerock Therapeutics is eye-opening and could potentially lead to future sublicensing agreements that bring in non-dilutive cash similar to the $1.25 million recorded in December 2016.

VistaStem is focused on applying hPSC technology to discover, rescue, develop and commercialize proprietary small molecule new chemical entities (NCEs) with regenerative potential for CNS and other diseases. The company has developed CardioSafe 3D™, an in vitro cardiac bioassay system capable of predicting potential human heart toxicity of novel small molecules long before they are ever tested in animal and human studies. Although AV-101 remains the primary focus for VistaGen, management is still exploring potential commercial applications for CardioSafe 3D and other regenerative medicine applications.

As a reminder, VistaStem is a participant in the FDA's Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative. CiPA is an FDA-initiated program designed to change the landscape of nonclinical drug development by providing a more complete and accurate assessment of potential drug effects on cardiac risk through the use of stem cell-derived heart cells and in vitro ion channel data.

Organovo Holdings (NASDAQ: ONVO) is pursuing a similar strategy with its ExVive™ 3D human liver and kidney tissue products and the company has a $315 million market value. The primary goal for VistaGen management is to advance these potential technologies through collaboration with third-parties, hopefully unlocking the tremendous value in these in vitro bioassay systems and providing non-dilutive funding to advance AV-101. For instance, if the market were to value VistaStem's CardioSafe 3D at only one-tenth that of Organovo's ExVive 3D, VistaGen's stock would double. I think there is tremendous value in VistaStem hidden for investors in VistaGen shares.

Near-Term Milestones

U.S. FDA clearance of the company’s Investigational New Drug application (IND) is expected in the next several weeks. This is consistent with management's guidance to start the Phase 2b study in the second quarter 2017. Once the IND is approved, commencement of the Phase 2b study should follow immediately thereafter. Top-line results from the NIMH Phase 2a study are expected late 2017.

One interesting piece of news we learned is that the company plans to seek FDA Fast Track designation for AV-101 as an adjunctive treatment for MDD. Once the application is filed, the FDA has an estimated 60-day turn around for the application. This could potentially lead to a nice catalyst for the shares around the middle of the year, as the Fast Track application will likely be submitted to the agency shortly after IND approval. U.S. FDA Fast Track designation expedites the review of drugs to treat serious conditions and fill an unmet medical need. If granted, VistaGen will be eligible for more frequent meetings and written communication with FDA to discuss the development plan and ensure collection of appropriate data needed to support AV-101 approval. AV-101 may also be eligible for Priority Review, which further expedites the approval process. 

In looking at the potential for Fast Track designation, AV-101 certainly addresses a large, unmet medical need. According to the U.S. CDC's, 7.6% of the U.S. population over the age of 12 years suffer from depression (4). That equates to approximately 18 million individuals. The Anxiety and Depression Association of America (ADAA) pegs the direct costs of the disease at $42 billion per year (5). Results of the aforementioned 4,000-patient NIMH STAR*D trial showed high failure rates for conventional antidepressants (6). Over a third of all MDD patients fails to show a response to SSRI/SNRI/TCA molecules and are classified as having treatment-resistant MDD. The numbers work out to a target of around 4-6 million patients in the U.S. each year. Based on the utility of drugs like ketamine, the hypothesis of AV-101 certainly holds merit and could be a blockbuster drug with as little as 5% market share.


Development of AV-101 remains on track. Data from the NIMH-sponsored Phase 2a study are expected around the end of 2017. In the meantime, the company is preparing an IND application and anticipates initiating a large, potentially pivotal Phase 2b study in the second quarter 2017. Management is also preparing to file for Fast Track designation, an award that will greatly expedite the approval process for the company. A financing is expected in the next few months that will secure funds for the Phase 2b program. Given the company's NASDAQ-listing, stage in development, and huge potential valuation inflection subsequent to catalysts expected in the second half of the year, I'm thinking that this transaction will be of significant interest to quality, healthcare / CNS-focused institutional investors.

Finally, there seems tremendous value hidden in the shares in the form of VistaStem and CardioSafe 3D, a product that looks similar to Organovo's ExVive 3D, only targeting cardiac cells instead of liver or kidney cells. According to research from EvaluatePharma, CDER, and the Tufts Center for Drug Discovery, one-third of all drugs in clinical studies are discontinued due to cardiovascular toxicity vs. 26% for hepatoxicity (7). The market looks to be assigning near zero value to VistaStem even after the exciting transaction with Bluerock in December 2016. Organovo commands a $315 million market value with immaterial revenues generated in 2016. I look forward to seeing what transactions VistaGen can enter into in 2017 to extract value from VistaStem for shareholders.


Please see important information about BioNap, Inc. and our relationship with names in this article in our Disclaimer
BioNap is long shares of VTGN.


  1. hey Jason
    thanks. VTGN stock has is sitting at 52-week low. Probably because perceived lack of catalyst and impending need for financing. With a market cap of $30M what will be the terms of the financing, how dilutive do you think they will be? are you concerned by this? Also, any updates on RMLD? it seems mgmt is keen of doing a deal with LevoCap. Any idea of how that kind of deal could look like for RLMD?
    Thanks for your research!

    1. Hey Ric,

      I think you've hit on the key issue right now. Investors are selling because they don't want to own ahead of the financing. But here's the thing, VTGN isn't going to go out and do a massively dilutive offering. They are going to raise enough to get them into 2018 and past the P2a data. I'm guessing $5-10M. And, after they raise, then it's all catalysts from there, like the IND approval, P2b start, Fast Track, P2a data, maybe another VistaStem deal, etc... I'm also expecting some good news on the IP front soon. So, the only reason to sell right now is the financing. Once that done, it's a great buy. So, the financing maybe painful, but I think the shares are a great buy after it's completed. Selling now is trying to time the market. I'm terrible at that!

      Yes, I'd love to see RLMD do a deal for LevoCap-ER, even if it is small, it will help their situation bigtime.

  2. I appreciate your analysis of a company with great potential in the MDD space. I'm a little concerned about their finances. The CEO at the Biotech Showcase said they would need $25 million to complete the 2b trial so at the moment we are looking at substantial dilution unless they pull a deal out of the bag


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