VistaGen Therapeutics Inc (VTGN)

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Well worth reading....
https://seekingalpha.com/article/4131163-vistagen-risky-anti-depression-play?page=2
“VistaGen: Risky Anti-Depression Play

Dec. 11, 2017 4:04 PM ET|21 comments| About: VistaGen Therapeutics, Inc. (VTGN)
Kenneth Pittman
Kenneth Pittman
Long only, value, biotech, healthcare

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Summary

VistaGen is a clinical stage biotech with one antidepressant drug (AV-101) in its pipeline.

The mechanism of action of AV-101 is unique and there are only two somewhat similar drugs in development.

VistaGen's subsidiary, VistaStem, has generated little revenue despite several partnerships.

While AV-101 may have promise, VistaGen is a highly risky investment.

VistaGen History and AV-101

VistaGen (VTGN) started in 1998 as a company devoted to stem cell technology for "drug rescue and cell therapy." It remained private for many years. Then, in 2011, it became a public company by merging with Excaliber Enterprises, which was listed on OTCBB at the time. Excaliber was a company formed in 2005 to market gift baskets to various groups. Excaliber ceased regular operations in 2007. When the companies merged in 2011, VistaGen stockholders represented 90% of the combined company. VistaGen eventually moved to the Nasdaq on May 11, 2016. It opened at $4.50 per share and sunk to $4.11 on the first day of trading. Unfortunately, VistaGen has never closed above its IPO price. It did have one day in September 2016 where it was briefly above $4.50 and had intraday highs of $4.50 on two other occasions the following month. Since that time, it has fallen rather steadily and recently traded in a range of $0.69-1.02 per share before a spike last week (discussed further below).

VistaGen initially focused on its stem cell technology as well as in-vitro assays for testing potential cardiac toxicity of new drug compounds. However, in its November 2014 Quarterly Report, it shifted its focus to a clinical compound called AV-101. AV-101 is a prodrug of the active metabolite, 7-chlorokynurenic acid. AV-101 is a selective antagonist of the Glycine-B site of the NMDA Receptor. While there are at least two partial agonists of the glycine site in development, AV-101 appears to be the only antagonist currently being tested. VistaGen has an excellent video on its site explaining the unique properties of AV-101.

VistaGen currently has 2 studies for AV-101. The first of these is funded and run by the NIMH. It is a monotherapy study and topline results are expected in the first half of 2018. The second study will begin in 1Q 2018 and is expected to be completed by the end of 2018. This study (which VistaGen is funding) is for AV-101 as adjunctive treatment for treatment resistant depression (TRD). Interestingly, VistaGen states that its focus is on adjunctive treatment even on the webpage about its monotherapy study. The company also referred to the NIMH monotherapy study as a "small study" in its last quarterly report. One could certainly be concerned that management is setting the stage for results from the monotherapy study to not be statistically significant. While a trend towards significance (without statistical significance) would not directly harm further development, it would scare investors and management would likely reassure them by stating that adjunctive treatment is its goal (rather than monotherapy). Alternatively, if the monotherapy study were positive, then I would expect VistaGen to emphasize both monotherapy and adjunctive therapy in the future (and the stock would likely respond very positively).

Several other drug companies are also interested in the NMDA Receptor as a target for depression treatment due to the relative success of ketamine as an antidepressant. I have previously covered two other candidates in this area, rapastinel by Allergan (AGN) and esketamine by Johnson & Johnson (JNJ). The article on Allergan also discusses the market for antidepressants, which is currently dominated by generics (over 96% market share). I expect to cover several more NMDA Receptor modulators in the near future as I profile other companies involved in the treatment of depression (you can follow me to get notifications as I do this).

VistaGen's Subsidiary, VistaStem

VistaGen has now put its stem cell and in-vitro assay technologies into a subsidiary called VistaStem. Its in-vistro cardiac cell system is referred to as CardioSafe 3D. It is part of a FDA initiative designed to test the cardiac risks of a drug while it is still in the preclinical stages. VistaGen has a goal of having this system replace the hERG assay required by the FDA Guildelines for preclinical testing. VistaGen states that its technology is superior to the hERG assay because it assesses more ion channels, the interaction of regulators with the channels, and other forms of cytoxicity.

VistaStem has been able to generate one partnership of note with the stem cell technology. This technology is related to controlling the differentiation of human pluripotent stem cells. VistaStem licensed its technology to BlueRock Therapeutics for the development of cardiac stem cells to treat heart disease. VistaStem received $1.25 million upfront for this and has the potential of additional payments and royalties in the future. Unfortunately, this is the only revenue that VistaStem's technologies have generated since 2012. This is despite many listed partnerships on its website.

The Finances of VistaGen are Concerning

VistaGen has struggled to find partnerships and other means of creating revenue. The company had some success with grant funding early on, but the partnership listed above is its only revenue since 2014. Meanwhile, it has had significant development expenses. Revenue versus expenses are summarized in the table below (money values in millions of dollars):

Year Revenue Expenses Net Loss Main Revenue Source(s)
2011 2.07 11.55 9.48 Grants - StemCell (24%) and AV-101 (69%)
2012 1.34 13.55 12.21 Grants - StemCell (6%) and AV-101 (87%)
2013 0.20 13.09 12.89 Grants - AV-101 (94%)
2014 0 2.97 2.97 None
2015 0 13.89 13.89 None
2016 0 47.22 47.22 None
2017 1.25 11.51 10.26 Partnership - BlueRock Therapeutics
2018 0 7.26 7.26 None
*2018 Data is for 6 Months of Fiscal Year through Sept. 2017

As with many biotechs, VistaGen has managed to survive by serial dilution of shareholders. Unfortunately, the pace of pipeline progression has not generally kept up with the need for additional funds and thus the offering price at each dilution has been progressively lower. The most recent completed offering in September 2017 (at $1.75/share) generated $2 million in cash for the company. VistaGen began the process for another offering in October 2017, but did not complete that offering as the share price sank under $1 per share over the course of that month. The share price could not close over $1 per share in November.

On December 6th, the company announced one of several recent patents related to AV-101. The stock responded by jumping as high as $2.65 (up 188%) over the course of the day before closing at $1.80 (up 96%). The following day, Sage Therapeutics (SAGE) announced positive Phase 2 results for its antidepressant (with a different mechanism) and saw over a 70% increase. VistaGen again climbed as high as $2.65 before closing at $2.03. Somewhat predictably, VistaGen refiled for a stock offering on December 7th and the price fell back to $1.82 on the 8th. Of note, the potential offering is for as many as 8.3 million shares. The previous total of outstanding shares going into this offering was 11.7 million. It is quite possible (if not likely) that VistaGen will be unable to sell this many shares unless the price is significantly lower. However, if it is successful at selling these at/near the $1.75-1.80 range, then it would be a significant step forward. Not only would it represent some stability in the offering price (relative to the September offering), but it would also generate enough cash to last closer to one year. This is compared to the cash from the last offering that did not even last a full quarter. A full year of available cash would last the company until the first Phase 2 results for AV-101.

Conclusions

VistaGen is a high-risk, high reward investment at this time. With a market cap of only $21 million, VistaGen is valued significantly lower than it would be with a successful Phase 2 study. For comparison, Naurex (who created rapastinel) was sold to Allergan for $560 million. Naurex did have several advantages that VistaGen does not have. This included having a second compound in the pipeline and having rapastinel as Phase-3 ready. While rapastinel is not positioned to be the first approved drug in its class (more likely to be esketamine by J&J), rapastinel is ahead of AV-101. That said, if VistaGen is able to have a positive Phase 2 study (especially the monotherapy study), then there is significant price upside. There is also some potential that a larger biotech could see AV-101 as a valuable asset and purchase the company just for it.

However, VistaGen comes with significant risks. First, the monotherapy study could fail or at least not reach statistical significance. Significant failure of that study would make it difficult for VistaGen to continue to raise funds for continuation of its adjunctive study. Sale of assets could become necessary in that scenario. Even with fair results (trend towards significance without meeting it), there could be downside. In addition, the recently filed stock offering could significantly lower share price and/or fail to generate enough funds to make it through the results of the monotherapy study. Further dilution could be necessary. Currently, the company is likely to dilute with any positive stock move. This will likely cap upside if this continues as investors would be inclined to "sell the news" and then buy the dilution.

I generally steer clear of companies that have so much riding on one compound. Therefore, I would not personally buy VistaGen stock at this time. However, for those with a large portfolio, a small speculative position in VistaGen is reasonable. This is particularly reasonable as part of an "antidepressant portfolio" that includes larger positions in companies like JNJ, AGN, and SAGE.

Author's Note: Thank you for reading my article. Please follow me for additional articles covering the biotech space with emphasis on Neuroscience. As always, I will disclose below which drug companies I have mentioned in the article for which I am the recipient of direct marketing. My articles include my personal opinions and are neither financial nor medical advice. They are solely intended to show my perspective and due diligence on a given subject. Please consult with the proper professional if you are looking for specific advice for your situation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: As a physician, I receive direct marketing from many companies which generally consists of marketing lunches provided to myself and my staff. I have received product samples from Allergan for my patients. I have also received marketing lunches from both Allergan and J&J in the past (although none recently). I expect that any newly approved antidepressants would be marketed to me in the future. I have never been paid by a pharmaceutical company for speaking, writing, or any other similar action.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.”

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