Vistagen Therapeutics, Inc.

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.

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 Sean Singh, our Chief Executive Officer, and Jerry Dodson, our Chief Financial Officer. The format for this call consists of prepared remarks from management, followed by a brief opportunity from 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 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 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.

Thank you, Mark, and good afternoon, everyone. Thank you for joining the call. As I've said many times, Visigyn remains laser-focused on addressing the significant and growing unmet mental health needs in communities across the globe. And as I discussed last quarter with the U.S. Surgeon General and other leaders throughout the ecosystem focused on mental health and the epidemic, the world needs a marked change in the stigma surrounding mental illness, available treatment options, and the overall trajectory of mental health care. Individuals across a diverse range of communities need faster-acting treatment options that are not associated with unwanted side effects or risks of misuse, overuse, or addiction. It's crystal clear to our team at Vistagen that patients are counting on us, families are counting on us, and communities are counting on us. So we're steadfast in our mission and we're confident in our strategy and the potential of our pipeline to shift the treatment paradigm for anxiety and depression disorders and improve the trajectory of mental health care, one mind at a time. So let's get into some of the detail about progress across our pipeline, starting with our Palisade Phase III program for PH94B in social anxiety disorder, or SAD. That's our Palisade 1 and Palisade 2 double-blind placebo-controlled phase 3 studies and our Palisade open-label study. While the outcome of Palisade 1 was a setback that will extend our timeline for bringing PH94B to market, it was by no means the end of the line for PH94B and SAD, quite to the contrary. Setbacks, especially in neuropsychiatry, can certainly set up comebacks, and that's where we believe we are at today with PH94B. We've been gathering and analyzing the data from this study and have identified a few areas, especially related to the impacts of the pandemic, that may have contributed to the results that were so different from what we've observed in previous clinical studies of PH94B in SAD, including the recently assessed Palisade open-label safety study, which we'll talk about later in the call. We're making every effort possible to minimize these potential issues as we advance further in the development of 94B in SAD and other anxiety disorders, including recruitment and screening efficiencies and rigorous protocol adherence. The second component of our Palisade Phase III program in SAD is our Palisade II study. As previously noted, this study was paused during the last quarter to allow for an interim analysis to be performed by independent biostatisticians and to determine whether it'd be prudent to continue with this study as originally planned or to close it. And as we announced in September after they conducted an unblinded interim analysis of the 140 subjects who had completed the study at the time, the independent biostatisticians recommended that we continue Palisade 2 as planned to our target enrollment of 208 subjects. So that's what we'll do. And we'll do that armed with the recommendation and the insights that have formed that inform our preparations for the restart of Palisade 2, and we're on track to restart that study in the near term and deliver top-line results in 2023. The third important component of our Palisade Phase 3 program is the Palisade Open Label Study, which we initiated in October of 2021 to evaluate the safety and tolerability of PH94B in adult subjects with SAD, taken as needed prior to acute anxiety-provoking social and performance situations in their daily life, up to four times per day and over a period of up to 12 months. In addition to assessing safety and tolerability, we also included several exploratory efficacy objectives, including assessment of PH94B's potential to achieve overall symptom reduction and improvement in the severity of SAD as measured by the Leibowitz Social Anxiety Scale. That's the efficacy endpoint required by the FDA for all of the prior SAD approvals. In August, and to conserve cash and also to assess these key safety tolerability and LSAS data, we closed recruitment and enrollment in that Palisade Open Label Study. And as we reported today, our preliminary analysis now of nearly 400 subjects in that final data set for the Palisade Open Label Study, we see that there was robust functional improvement in anxiety-provoking social and performance situations in the daily life of the subjects as measured by the LSAS, or the Leibowitz Social Anxiety Scale. So, as to efficacy, we now have two important data sets supporting PH94B's ability to improve LSAS scores, the Palisade Open Label Study over a period of one month and beyond, and a published double-blind, placebo-controlled Phase II real-world crossover study after two weeks of use. These two studies combined demonstrate the potential for PH94B to achieve robust overall reduction in the symptoms of SAD and improvement in the severity of SAD over time, as measured by the LSAS. So we believe the LSAS measurements over time may be very well suited for a Phase III trial to demonstrate the efficacy and the true impact of PH94B on patients' lives, given that it measures overall improvement in disease severity by capturing the reduction in fear and anxiety, as well as the avoidance of social and performance situations. These studies further reinforce our belief in the potential of PH94B when it's used acutely, as needed, in daily life to provide onset, rapid onset, clinically meaningful, and sustained response in SAD patients, all with a very favorable safety and tolerability profile. So we're planning to meet with the FDA during the first quarter of 23, and our objective for that meeting will be to reach a consensus with the FDA around a clearly defined next step plan for further development of PH94B and SAD. Moving to our second target indication for PH94B, adjustment disorder with anxiety, we're progressing in our phase 2A clinical trial in that indication. As noted earlier today, we've completed enrollment in this study which is ongoing. It's an exploratory, double-blind, placebo-controlled phase 2A clinical trial that's designed to evaluate, again, the efficacy, safety, and tolerability of 94B as a potential treatment of adults with adjustment disorder with anxiety. The study protocol in this phase 2A study involves multiple administration assessments of PH94B, which in the study, it's administered four times a day for 28 days. So we anticipate announcing top-line results from this study during the first quarter of calendar 23. We've also made very notable progress with our second faring asset, PH10. And you might recall that in a small, published, exploratory, randomized, double-blind, placebo-controlled Phase IIa study of PH10 in major depressive disorder, a study that was conducted in Mexico, At the 6.4 microgram dose that was administered intranasally twice a day for eight weeks, PH10 significantly reduced depressive symptoms as early as one week based on the 17-item Hamilton Depression Scale scores compared to placebo, P.022. So PH10 was also, as 94B is, very well tolerated, did not cause any psychological side effects, any dissociation or hallucinations or other safety concerns that you might find associated with other rapid onset therapies such as ketamine. So we recently submitted last quarter our U.S. investigational new drug application to the FDA to enable us to initiate a small and very brief phase one clinical study of PH10 in the U.S. in healthy volunteers. So should the FDA permit us to proceed, we plan to initiate that study before the end of this calendar year. And this study is intended to facilitate moving back into Phase 2 development, Phase 2B development this time, of PH10 in the U.S., and either on our own or with a collaborator. And our target is for PH10 to become a potential fast-acting standalone treatment for MDD. So similar to the robust anxiety market, we know there is a significant unmet need in the major depressive disorder universe where current treatments are just either undesirable or inadequate or both. And with the differentiated mechanism of action that we have designed into PH10, designed to be fast-acting, non-systemic, non-sedating, PH10 has potential to radically shift the treatment paradigm for MDD. Having this asset in the clinic in the U.S. is a very important milestone on our path to bringing PH10 to the many individuals who are suffering and battling with depression disorders. Finally, as to AV101, in combination with FDA-approved oral probenicid, our exploratory Phase 1b drug-drug interaction study of that combination is ongoing. We anticipate completing the study during the second calendar quarter of 2023. After that, we'll assess all the AV101 data that we have generated to date, preclinical and clinical, and consider exploratory phase 2a development of AV101 combination with probenicid either on our own or again with a collaborator as potential oral treatment for CNS disorders that involve the NMDA receptor. So as we stand at the threshold of having now all three of our CNS drug candidates in active clinical trials, we believe we're in a position of notable strength. A strong team, a strong and novel pipeline that's aimed at large and growing markets, with tremendous need and a strong mission that drives us to deliver better solutions, all intended to improve mental health care and improve lives. It's a very exciting time for our company, market conditions notwithstanding, and we believe that we are very well positioned for 2023 and beyond. Now, our CFO, Jerry Dotson, will summarize some of the highlights of our financial results for the second quarter. Jerry?

Thank you, Sean. As Sean mentioned, I'm just 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 Sean noted previously, our timeline to expected FDA that FDA approval and commercialization of PH94B in SAD has been extended. And as a result, the accounting standards require that we update our estimates for revenue recognition that are tied to those milestones. So, we recorded an adjustment to revenue in the quarter ended September 30th, 2022, that was necessary based on the revised forecast of our future development timetable for PH94B. Again, I would ask that you refer to the form 10Q filed earlier today for much 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 30th, 2021 and 2022, respectively. This increase is primarily due to the expense related to conducting our Palisade Phase 3 program for PH94B. As Sean has already described, that program includes Palisade 1, Palisade 2, and the Palisade Open Label Study. We also conducted the PH94B phase 2A study in adjustment disorder with anxiety and other nonclinical 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 30th. 2022 compared to approximately $3.2 million for the quarter ended September 30th, 2021. The primary components of that increase include expanded investor and public relations and corporate awareness initiatives and the expense of some other professional services that we incurred during the period. Our net loss attributable to common stockholders for the quarter ended September 30th, 2022 was approximately $17.5 million versus a net loss of approximately $13.2 million for the quarter ended September 30th, 2021. At September 30th, 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 resulting from the conclusion of clinical trials, as Sean has discussed earlier, along with the deferral of some pre-commercialization activities, we expect to see lower burn rates over the next few quarters. In light of our cash conservation efforts, and 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 would recommend that you refer to our quarterly report on Form 10-Q filed earlier today for additional details and disclosures. I'll turn the call back to you now.

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

Thank you, Sean. This concludes our prepared remarks. Operator, we would like now to open up the call to questions from analysts. Thanks.

Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. And if you're using speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

And that is star 1 for questions. And we will hear first from Andrew Tsai of Jefferies.

Oh, thanks. Sorry, I hopped on from another call, so apologies if you've answered this already. So this, you know, I guess this interim analysis, did they happen to look at the, did they look at the phase three, 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.

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.

So that would include the subjects. The objective of that... Go ahead.

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

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. And so that is clearly what we got as feedback was obviously it wasn't futile, so there had to have been a trend. What degree of trend? We don't know. We don't have access to the data. We didn't then. We don't now. So it's an independent, third-party, global biostatistician team that looked at it. So as a result of that recommendation, it made sense, obviously, to continue.

Perfect. And so then the natural question would be, how can the second phase 3B seemingly be looking pretty different from what happened with PAL-1? How do we reconcile this?

Well, there's a lot of things that are different, especially the macro universe associated with the pandemic. I mean, a lot of the issues associated with what we've looked at and the potential corrective actions associated with it do tie in to some degree to the pandemic. And where we are today versus where we are during a lot of that PAL-1 trial is significantly different in the population. Absenteeism is different. Site turnover is different. The ability to get insights and train and enforce rigorous protocol adherence, those kinds of things also to really counter against some of the potential unforeseen biological challenges that emerge 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. So there are things that can be done to ensure that people have active and fully regenerate if they ever had COVID or to ensure that they have the ability to smell. So there's quick olfactory tests. There's other things that we can assess up front now that really weren't as much in play as before. But the other thing is, too, there's different sites. This is a distinct same protocol, but it's a different set of sites involved in the study and certainly conducted at a different time. So We're doing everything we can do in terms of corrected actions that can be implemented in the PAL-SAID 2 phase 3 trial before we restart it. And we're being very careful and methodical and systematic in the way that we assess any of the potential root causes of PAL-1 and apply the lessons learned from that effort into the restart of PAL-SAID 2. So I really like where we stand. I think we've done incredibly good work. We've got some good measures in place. and looking forward to restarting the study.

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

Yeah, we think so. What you're alluding to is if people were to inhale the drug, put it too far up their nose, and not spray it directly at the mid-septum that the drug would go into the respiratory system and not have the intended effect. The other potential situation is if 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. So there are things that can be done, certainly things that no way would the But importantly, it's the case that every company, as you well know, has the risk of ensuring that training and that protocols are rigorously adhered to and that site visits are all done timely and regularly. And without a lot of the barriers that were associated with the pandemic early on especially, it's a lot easier to do that these days. While there's still COVID protective SOPs in place at sites, there definitely has been a lot smoother rhythm in the ability to train subjects, to train raters, to train investigators overall. And when you're working with a novel MOA, it's a novel indication in many cases because you haven't seen anything approved in a couple of decades. It does take that extra effort, and we want to make sure that we've redoubled all efforts that coordinate with our CRO, with the CITES, And the reeducation and retraining process after the pause has been very and will be very well focused on every best practice we can conceive to make that a smooth restart and completion of the study. Thanks.

One very last question is going back to the interim. You know, I'm just trying to determine how much weight we can give to this interim finding, you know, if could it be possibly kind of a quote unquote a false read and pardon my choice of words, you know, is it pretty compelling of a finding such that you would start another phase three potentially, I guess. Yeah, thanks.

Look, the key of that analysis was to determine, you know, what's the disciplined way forward. It would have been reckless to simply say on the result of Palisade 1, okay, let's just keep going no matter what. It also wouldn't have been disciplined to simply stop the study, especially in the event that there was a trend, and we prematurely removed the opportunity for that to be one of the anchors of an NDA. So we did the interim analysis with third parties that had full access to the data, and relying on their professional expertise and the way that we submitted the and the FDA agreed upon that analysis to be done. And, of course, we have to remain blinded to all of it because of operational bias issues that FDA was always worried about. They came up with exactly what we've reported, and that certainly is sufficient enough to warrant 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 at least have a trend towards success, it makes sense to keep going in that study. So that was the basis that we considered, and that was the reason that we decided to move forward with that. Now, 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. So what we want with the FDA, why we're meeting with them, is to generate optionality. If PALSAID 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, that's yet another track. So with multiple different options forward, And one of the things that's so encouraging about what we've seen in the open-label study and the crossover study is that with the LSAS, which is the endpoint the FDA is constantly used for approval of the prior drugs, we're seeing some substantial improvements. And in the way that we think the drug will be used in the real world, by clinicians, by patients, and that's an important part of this. So it could be that we marry up a different Phase III design against what could be the outcome of PALS-A2 or any combination of those outcomes that I discussed. So we'll see. We're very much looking forward to meeting with the FDA. What we're very happy to see also is the things that we've said before about abuse liability, and we had that press release that said, you know, comma, at this time. Well, we've got several hundred more subjects now under assessment that give us further confidence about that as well. So It's got a very favorable safety profile, and now we're seeing the ability for it to make a difference in people. What really matters in SAD, you want people to gain confidence to engage in the things that previously stressed them out and that were anxiety-provoking and fear-provoking situations because it's that renewed confidence to engage in those situations with less dread and and less anxiety, that's what the LSAS shows, and that's what we want to achieve for the world with this drug. So it's an exciting time, and I think, you know, while we are certainly not happy with the outcome of Palcid 1, it definitely brought some teaching to the table, and combining that with the rest of what we know about 94B, it's a tremendously exciting moment.

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

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

Thanks for the question. And just following up on the next meeting with the agency, how long do you think before you get that meeting scheduled? And then, you know, obviously starting Pal 2 is a great, you know, is a great... It's a great outcome. When can we expect top line once that's restarted? And then also, you know, with the LSAS, obviously it's not as immediate of a measurement like the SUD. Are you going to talk to the FDA about the next study potentially being more of a real-world study, not a laboratory study?

Yeah, great questions, Tim. Great to talk to you. Thank you for that. So in terms of getting in front of the FDA, there's a 75-day track to get in front of them. Sometime in the middle of the second quarter is where we're earmarking at the moment to get in front of them. Now, FDA doesn't have to give you that. They can always push it back a little bit, but that's roughly where we're expecting to land with the request and the background package we'll submit. Taking your third question certainly will include the totality of of data that we've been seeing recently around LSAS as the endpoint. FDA is very familiar with that, as you know. That's the three antidepressants approved. That's the endpoint that supported the approval. So it's a little different than SUDS because there had not been anything yet approved on the basis of SUDS. But what we see with this drug, again, is designed to be used acutely. But when it's used multiple times and we get multiple assessments, we see the kind of improvement in social functioning that really is exciting. And it's what the world needs. It's what patients need in this particular indication. So it will be certainly part of the discussion. And the outcome decision tree that I laid out relating to Palisade 2 will also be a factor. But we want to get in front of them sooner than later, and we may even start a Phase 3 before – before the results of PAL-C2 are out. So we can give further guidance on PAL-C2 when we restart. But ideally, it could be a little bit after the holidays. It's not always a great idea to start neuropsych studies in the holiday season, but we may do it a little bit before the holidays, the Christmas holidays, if not right around the beginning of the year. And then after that, we'll give you some guidance as to further guidance in the first part of the year around top-line results.

Okay, that's great. Thanks for that. Did you have to take an alpha spend given the Palisade 2 interim look? Is that statistically, did you have to take a spend on that?

No. Fair enough. Thank you so much.

We will move next to Brian Scorney with Baird.

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

Yeah. Hey, Luke, thanks for the question. So, the answer is yeah. I mean, one thing to remember is, you know, when J&J had the approval of esketamine after handful of failures in phase three. Ultimately, the NDA was supported by two different types of phase three studies. One was a conventional parallel design, one was a randomized withdrawal study. So there is precedent at FDA for different types of studies with different primary endpoints to support an approval. And again here, especially given the safety profile we've seen so far, it just opens up potential for dialogues for really some non-traditional maybe nontraditional, but maybe becoming more commonplace approaches by the Division of Psychiatric Products to embrace different NDE-enabling Phase III programs. So, again, the SUDS is great because it allows the acute assessment, but the LSAS is also great because it shows how it affects people in their daily lives over multiple administrations. So, One of the reasons that we did the Palisade studies, Palisade 1 as we did and now Palisade 2, is we were at a point in the world in June of 2020 when we got that consensus from FDA that it was not in the FDA's preference nor ours to put people out into the world when the world was shelter in place to expose them to stressors in uncontrolled environments. So the having the Leibowitz study at the three sites in phase two with highly statistically significant outcome with the laboratory-based study, it was easy to go that direction at that time in the world. But now with the heavily vaccinated world, and I mean, what we've seen in the open label is not an issue with COVID at all over multiple months where people are exposed and dealing with the stressors of their daily life. So I think it's a nice combination to show, again, drug works acutely, but the more you use it, the better you get because you're more confident and you engage in the kinds of situations that are really the sum total of your opportunity cost in your life. So we'll definitely be discussing that with the agency. Great. And if I could just ask one more question.

Did I hit both?

Oh, sorry. I know I forgot the other question.

What was the other one? Oh, the other one was any other advocacy endpoints from the overall study, but LSAS, yeah.

Yeah, that's a great point. I'm sorry I get too carried away about the potential of the drug. The answer is yeah. We will have, in the first quarter, there will be some additional assessments, especially on, like, CGII and PGIC. Those are... really what we've seen is that they're consistent with the kinds of responses that we've seen at one month, at two months, at three months. I mean, just terrific reductions in the LSAS as to severity and as to fear, anxiety, and avoidance frequency. So those will be included, too, as we put out the other LSAS components.

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

That's an exploratory study, so we have to keep that part 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... more like, say, GAD, although not exactly, but more like that because it's more of an all-day, everyday feeling rather than an episodic situation like you see typically with SAD. So the HEMA was the conventional scale that was used for antidepressants approved for GAD. It's associated with benzos that are used for that indication. So we thought it was the most appropriate and so did the FDA, the common endpoint for this type of indication, although there haven't been a lot of studies in adjustment disorder. So, you know, something along the lines of what those drugs had to see in terms of a difference between your placebo group and your treatment group, a couple of points, a few points, wasn't much that you needed in order to get those drugs approved in similar indications. Again, not adjustment disorder, but we took teaching from, literature in several other indications where HAM-A was involved to land on using that as the primary endpoint. Great.

Thanks. I'll hop back in queue. Thanks, Luke.

And with no other questions in queue, I would now like to turn the call back to Mark Blather.

Excellent. Thanks, Jenny. If you have any additional questions, please do not hesitate to get in touch with us by emailing ir at vistagen.com or contacting the individuals listed in our press release issued today. We also 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.

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