Greetings, and welcome to VistaGen Therapeutic Second Quarter of Fiscal Year 2022 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mark Flather, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Doug. Hello and welcome to VistaGen's conference call covering its fiscal year 2022 second quarter financial results and recent accomplishments. I am Mark Flather, Vice President of Investor Relations at VistaGen. Thank you for joining us today and welcome to our shareholders, 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 consists of prepared remarks from management, followed by an opportunity for questions. To ask a question during the Q&A portion of this call be sure to hit start followed by the one key at anytime to be placed into the queue. This call is being webcast and will be available for replay. The link 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 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 the future filings that we make with the SEC from time to time, all of which are at or will be available on our website and the SEC's website. Now, with the formalities out of the way, I'd like to turn the call over to our Chief Executive Officer, Shawn Singh.

Thank you, Mark. Good afternoon everyone. On behalf of our entire team at VistaGen thank you for joining this call today. We sincerely hope you are all safe, healthy, and doing well. The current mental health treatment paradigm requires new, faster acting medicines, medicines without the negative side effects and safety concerns that are often associated with currently approved options. As the prevalence of anxiety and depression disorders has grown considerably over the last 20 months, both in the U.S. and across the globe, the unmet need has become more acute than ever. During the second quarter of our fiscal 2022, we continued our strong performance and continued to build momentum across all aspects of our business. As we head toward the end 2021 and into 2022, we are increasingly confident and excited about the potential of our CNS pipeline to mitigate many mental health challenges and make meaningful improvements in the lives of millions of individuals around the world who are suffering from the debilitating effects of anxiety and depression. Among the milestones we achieved during the second quarter of fiscal 2022 was the initiation of PALISADE-2, the second major Phase 2 trial in our PALISADE Phase 3 program for PH94B in social anxiety disorder or SAD. Like PALISADE-1, PALISADE-2 is the U.S. multi-center, randomized, double-blind, placebo-controlled Phase 3 clinical study designed to evaluate the efficacy, safety and tolerability of our PH94B nasal spray for the acute treatment of anxiety in adults with SAD. As a reminder, according to the U.S. National Institute of Health, SAD is the third most common like psychiatric condition in the U.S. after depression and substance abuse and it now affects over 23 million Americans. The initiation of PALISADE-2 is another important step forward in our efforts to confirm the positive efficacy and safety…

Thank you, Shawn. As Shawn mentioned, I'll highlight a few items from the second quarter of our fiscal year 2022 financial results. I would also encourage everyone to review our quarterly report on Form 10-Q that we filed with the SEC earlier this afternoon for additional details and disclosures. For the second quarter of our fiscal year 2022 ending on September 30, 2021, VistaGen recognized approximately $0.4 million in non-cash sublicense revenue from the $5 million upfront payment that we received in the second quarter of fiscal 2021 related to our PH94B development and commercialization agreement with AffaMed Therapeutics. We recognized approximately $0.3 million related to this agreement in the second quarter of fiscal year 2021 that ended on September 30, 2020. Our research and development expenses increased by about $7.7 million from $2.4 million to $10.1 million for the second quarter ended September 30, 2020 and 2021 respectively. This increase results primarily from conducting our PALISADE Phase 3 program for PH94B and SAD with the continuation of PALISADE-1 and the initiation of PALISADE-2 and PALISADE long-term safety study, as well as the initiation of our Phase 2A study of PH94B for the treatment of adjustment disorder with anxiety, while we continued nonclinical development and outsourced manufacturing activities for both PH94B and PH10. All of that accounting for increased expenses of approximately $5.9 million during the quarter ended September 30, 2021, compared to the same quarter of the previous fiscal year. Salaries and benefits expense for the quarter ended September 30, 2021 increased by approximately $1.6 million versus the expense for the comparable prior year quarter, primarily due to the hiring of additional senior management and other personnel focused on clinical operations, outsourced manufacturing activities, and regulatory affairs. General and administrative expenses increased to approximately $3.1 million from approximately $1.3 million for the quarters ended September 30, 2021 and 2020 respectively. The increase was primarily due to the hiring of additional senior management personnel and expenses incurred in connection with various customary pre-commercialization activities for PH94B. Our net loss for the second quarter of fiscal 2020, the quarter ending September 30, 2021, was approximately $12.8 million versus a loss of $3.3 million for the comparable quarter of fiscal year 2021. At September 30, 2021, the company had cash and cash equivalents of approximately $93.6 million. I'd also note that between October 1, 2021 and today, the company has received approximately $1.1 million in additional cash proceeds from the exercise of outstanding warrants. Again, please refer to our quarterly report on Form 10-Q filed earlier today with the SEC for additional details and disclosures. I'll now turn the call back to Shawn.

Thanks Jerry. So we continue to march forward determining the resilience and unwavering towards several significant and potentially transformative milestones across our pipeline. With patients and investor focused priorities, guiding our mission to improve the lives of millions of people who battle mental health challenges every day, our team at VistaGen is thankful for the privilege and for the opportunity to make a difference for those needing changes in their treatment options. Our accomplishments this year and as we advanced towards our goal to becoming a top tier biopharmaceutical company would not at all be possible without the commitment and hard work and endurance of our entire VistaGen team, our collaborators and our stockholders. We thank you for your continued support, and we look forward to creating life-changing value for patients and for all of our stakeholders.

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

Thank you. Ladies and gentlemen, at this time we will be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Skorney with Robert W. Baird. Please proceed with your question.

Hi, good afternoon everyone. Thank you for taking my question. I guess on the initiation of – long-term safety study, I was just hoping you could kind of walk us through how to think about sort of how randomized patients and screened out patients are handled in the follow-up and how you kind of look at monitoring the drug level – drug exposure levels that they have. And then I think the gating factor on the study was animal tox studies. I guess was there anything of note in those studies to speak up and can we assume that being cleared to enroll patients on this study means there was nothing of note?

Hi, Brian. Thanks for the question. So no, there was nothing to note in the six months tox studies that support us getting into the long-term safety study. Mark Smith, our CMO is on. I'll let, Mark address some of your questions regarding the study.

Yes, so…

Smith, ongoing is on track.

Yes, so the placebo controlled studies, we are looking for patients who get very stressed out by public speaking. So we're kind of self-selecting some of those patients, but for the long-term safety, we're really looking for all comers, pretty much everybody with social anxiety disorder. We want to give them a try on this medication. So those that maybe didn't quite make the inclusion exclusion for the placebo-controlled maybe because they were not quite sick enough or maybe they were on – already taking like an SSRI. They were on some background medications that were not allowed in the placebo-controlled study. We're allowing all those people now to come in to the long-term safety. So a lot of those people, who screen failed for the two randomized trials, we will allow them to go in now to the long-term safety. Now, the FDA has given us the green light on that. So, I think, it'll be very interesting to see how some of these other patients respond to the medication and also those with we want to make sure that it's safe to use on top of background antidepressants which we believe it will be, but this will provide some evidence for that. And maybe you also asked about how do we monitor? How much they're taking? So, it's two ways. The old fashioned way we essentially weigh the vile before and after each visit that will give us an indication of how many administrations they delivered. And the second way is we're asking them to actually record on a cell phone app. So they'll each have an app on their smartphone. And we ask them at the end of each day to record how many times they took it. In the previous outpatient study on average even though they can take it up to 4 times a day, on average they took it about 1.5 times a day. So we'll see if that continues in this long-term safety, that will be important information I think for us as to guiding folks how to take this medication.

Great. And then maybe if I could just ask a follow-up on just trying to get some granularity on sort of how to think about the timeline for PALISADE readout. I think that in the protocol, it allows for up to seven weeks from screening to last visit of a patient. So should we also expect maybe another six weeks on top of that for data lock and scrubbing? So I'm just trying to figure out like once you announced the completion of enrollment, would we think it's about a quarter from that completion to top-line data?

Yes, I'd say four to six weeks after we enroll our last patient. So, the protocol itself could go fairly quickly, but yes, you're right. I mean, there could be a little prolonged screening period. So, yes, four to six weeks, I would expect.

Okay. Thank you.

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

Hi, good afternoon. This is [indiscernible] Andrew Tsai. I just have a few questions and I appreciate your time today. If I could begin, you did briefly talk about the cardio – the Carbon-14 radiolabeled study to see where the drug goes. To confirm it does stay in the peripheral neurons and does not get into the brain. Do you know how it gets eliminated by the body?

Good question. Good question. The shorter answer is we really don't know. In this particular study, most was gotten eliminated through the feces and some in the urine. Now, I'm not sure that's true in man to be honest, because I think in this particular study, we were giving a lot of volume to these rats, and I think some of it went back down there, nasopharynx and into their gut. That could happen in humans as well if they sniff too hard or something. But the shorter answer is we don't believe it's taken up into the brain. That was very clear in this study that most of it was contained in the nasopharynx and then some of it went back down the throat. But a lot of people try to give drugs through the nose like oxytocin, hoping that some will get across and then into the brain. That is not why we're giving this in the nose. We're giving it in the nose because that's where the receptors are. But back to your question, how it's eliminated. Honestly, we don't know completely. We actually – I was just – we're just researching this and much to my surprise we learned that the nose actually has a lot of cytochrome P450 enzymes in it, not as much as in the liver, but quite a substantial amount. And so, obviously, this is a mechanism by which drugs can be metabolized. So it may be metabolized locally right in the nose much to my surprise to be honest. And we may investigate that. So that actually may be how it's eliminated. And one other caveat for that C-14 experiment, we were measuring C-14. So we don't know if the PH94B was modified, it could have been metabolized. And so whatever – what small amount we were seeing in the body. We're not even sure that was parent drug. So still a lot to be learned here.

Thank you for the explanations. To follow up just briefly on that, do you know if there's any changes in heart rate or blood pressure after administration into the nasopharynx?

So early experiments that Dr. Monti did that discover these Pherins early experiments when he was back in academia, he did see some transient changes in blood pressure and heart rate, and mainly to a slight decrease in blood pressure, slight decrease in heart rate and heart rate variability. So yes, there were some transitory effects. So we do believe this does affects the sympathetic, parasympathetic nervous system. And we're actually looking forward now to some small studies not part of the placebo control because we didn't want to complicate that, but so smaller studies where we will be examining this. And heart rate, blood pressure, skin conductance was a consistent change. We'll be also looking at this in an upcoming PTSD study where we enroll PTSD patients and look at some biomarkers like this because we believe this drug part of its mechanism of action is to tone down the fight or flight response. And so, we'll be measuring these biomarkers in upcoming studies.

And we'll provide more guidance on that as we go forward.

Okay. Thank you. Just a few more questions. So we know that the PALISADE-1 and 2 studies are ongoing. Do both U.S. PALISADE studies need to be successful for you to file an NDA because we asked only because the Phase 2 at a very high P value. So could that be a supporting study? And what do you do if one of the two studies failed? Do you have some sort of hedge or backup that you can leverage?

Yes, good question.

Yes, well, the standard – let me address this. The standard requirement is what applies here. So, obviously, as is the case, normally you need two adequate well-controlled studies to anchor your NDA. PALISADE-1 and PALISADE-2 are intended to suit that purpose. If one of them doesn't read out as supportive, then we also have PALISADE global that will start sometime in the middle of next year that will be to support regulatory submissions outside the United States, but it could also be further supportive of what we might need to do in the U.S. I don't think it's safe at the moment. We certainly haven't had guidance from the agency that the Phase 2 study could be used to support just adding one more Phase study – Phase 3 study on top of that. So I think we have to just assume that the track we're on is intended through this whole program is intended to ultimately if successful support – the NDA in the United States, mid-2023. I'll say global would launch we expect sometime in the middle of next year.

Got you. That's the global Phase 3 trial.

Yes, there'll be a replicate of what we see in PALISADE-1, PALISADE-2, or just involve other jurisdictions besides the United States.

Wonderful. Okay. Thank you. And again, just a few more questions. The next question is, can you talk a little bit about the competitive landscape in SAD other than the SSRIs, benzos, betablockers? We see that companies are starting up anxiety studies. So what's your messaging around that competitive environment?

Well, look, there is never one size fits all for any of these neuropsychiatric indications. We are considerably downstream. As you know we're certainly not aware of anybody in the Phase 3 arena, who's got the type of product profile that we're advancing with PH94B. So we certainly hope the world continues to get as many anxiety and depression treatment options as possible because we do know that no one size fits all, but on the other side we're extremely confident about where we're positioned with PH94B and social anxiety disorder.

Got you. Thank you. Thank you. And so for PH94B for adjustment disorder, you started the Phase 2 study. How did you end up choosing kind of the four times a day dosing regimen rather than two or six? And what makes you kind of feel that this four times a day dosing will be safe and efficacious?

Well, remember our objective with the program, the Phase 2A program is to be able to explore PH94B's potential in a fairly broad range of anxiety disorders beyond SAD. So these are exploratory Phase 2A studies, which means first time in these populations. And so, it may not be that 94Bs use the same way in all different anxiety disorders and is this one that's designed from a different perspective as you just noted. I'll let Mark add a little more color to that, but our purpose here remember these are small exploratory Phase 2A studies to try to get some information to be able to assess potential to move into Phase 2b as we want to see additional indications for PH94B as we build on top of what we hope to be the initial first and foremost focus in social anxiety disorder. Mark?

Yes. So the way we chose the dose was really based on our preclinical tox studies. So we gave that four times a day intranasally in our tox studies. So we knew that we had coverage for that pre-clinically. So this is the highest recommended dose, 3.2 micrograms intranasally four times a day. So we decided because this was the first time, actually one of the very first placebo-controlled trial I'm aware of in the U.S. in adjustment disorder, we decided to just push our dose because it's been so well tolerated and give it the best chance in this disorder beyond SAD.

Got you. And what data have you seen to kind of show that this drug will have an effect kind of throughout the day given kind of our long work days anywhere from like 8:00 a.m. wake up 6 – 10:00, 11:00 p.m. sleep time.

Yes. So, again, most of our studies have been single dose, but we did have one outpatient study where they – and social anxiety disorder, where they were allowed to take it up to four times a day. And like I said, they – on average, they took it 1.5. There were a few people that took it two or three times a day. There were – I can't recall anybody that needed to take it, boom, boom, boom. So it seemed – and this is anecdotal, but it seemed from that study that people were taking it one, two times a day and that seemed to be sufficient. But again, we do plan to do a – another study next year, where we address the question you've just posed to see what happens when people do read dose, how long does the dose last? And so, we will be addressing those – some of those questions next year and some ancillary studies.

One of the key benefits of the product profile that we envisioned for PH94B is the fact that it does have a shorter duration of effect and say a benzodiazepine. And that would allows us some hope and some confidence that it's going to be a very flexible treatment alternative for people. There are not only multiple different events within a particular day where people might have anxiety-provoking triggers, but it could be the very same event throughout a longer period in a day. So the ability to use the drug up to four times a day is very important and that it should not as we've seen so far in all clinical development in impair [indiscernible] sedation. It's really distinct from what a benzodiazepine delivers and even as to the rapidity of the onset. So that's our onset, but without the side effects and safety concerns of benzodiazepines is a critical component of why we are advancing PH94B forward in SAD.

Yes. Thank you. And I mean there definitely seems to be an unmet need in that category. I just want to ask do you have time for a few more questions?

Mark?

Yes, let's – we'll just come back. Yes, we're happy to take additional questions, but yes we have got a few more in the queue and we'll come back if the questions aren't answered. Is that good?

Yes. Wonderful. Thank you.

Excellent.

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

Thanks for taking my question and congratulations on the progress in the quarter. Mark, I think, you mentioned given the prior experience, you were expecting a 1.4 or maybe 1.5 times a day use. Is that roughly what's occurring in the open-label study as of now? And I guess there is a follow-up. I know there is a maximum of 4 times a day. So is there also a minimum in that study for how much patients use per day?

It's too early to tell what the average dose is going to be. We'll be monitoring that though throughout the study. But no, there's no minimum. We instruct patients they don't have to take it every day. And that's the beauty of this drug is that they only take it when they need it. I mean, they may go several days and not encounter a social stressor. So in those days, there is no need to take it, but then another day they may have a very stressful day and they may need to take it two or three times that day. So there is no minimum. There is a maximum of four based on our tox work, but no minimum and we'll be monitoring this through the app regularly, but I don't have any data to share with you right now.

Okay. That's understandable. And for – in the long-term study since you don't have the public speaking requirements and that trigger, are you collecting through the app? What is kind of triggering you?

No, not per se. They – we are actually looking into that. We are discussing that that was measured in the Phase 2 study. And there was various things that that study was all done in New York. So there were things like beyond subways and stuff that were individual maybe to that environment, but we're discussing that whether that would be feasible, but currently we're not collecting that information.

Okay. And can you just roughly describe how enrollment is going in PALISADE-1 and your happiness for the site conduct today?

Yes, I mean, it's going according to plan and we're pretty confident we will deliver as planned, next summer.

Okay. That's great to hear. And maybe one last question, can you just talk about, I know you have the adjustment disorder study up and running. And I also know that you were planning on a number of other Phase 2A since you just kind of give us a map of those additional Phase 2 when we expect to start on and when we can start seeing some data coming out of those.

Yes. So, Tim, most of those studies that we've mapped out for you before 2022 will be initiating, I believe, the remaining components from the Phase 2 a – exploratory Phase 2A for 94B. So some will start in the first half of the year and others in the second half of the year in 2022, but they all should be up and running during the course of 2022. The adjustment disorder study should read out near the end of 2022. The others won't readout in 2022 most likely, but the adjustment disorder study will.

Okay, great to hear. Congrats on the progress.

Thanks, Tim.

Our next question comes from the line of Jason McCarthy with Maxim Group. Please proceed with your question.

Hi, guys. Thanks for taking the question. A lot of questions asked and answer. It sounds like a lot of progress has been made. Maybe a very broad general question. Shawn maybe – or Mark, maybe you guys can talk a little bit about your thoughts on the mental health space, particularly what happened after the compass readout the other day and the views of the space around the need for safety for some of these drugs, it was a big deal on the psychedelic side, but there's a lot of positive safety aspects around 94B and the drugs that you're developing. Can you talk a little bit about that impact?

Yes, absolutely. It's a critical component of every screen that we've put in to each candidate across the pipeline. And the safety is a critical component of the success we think of any drug in either neuropsych or neurology. So the trade-off you typically have to make between the benefit or the underlying condition and the cost associated with the side effects and safety concerns, it's a tough challenge sometimes, especially as it affects compliance. So, each of our three candidates as in all clinical work today, no pre-clinical work supportive of that. It's just had an exceptional side effects and safety profile. And a lot of that has to be really driven towards the mechanism of action and whether it's the pharynx or whether it's AV-101, there is a differentiation from what's out there today that has very well established concerns associated with their use. We just don't see those. And to be able – especially what we've seen recently with 94B in the GABA A study and in the C-14 study, it just continues to fortify what we had thought about these candidates going into them early on. It's just – they're completely different to not have to require systemic uptake and distribution of 94B intent to achieve anti-anxiety and antidepressant effects and that's radical. And it's something that we think if we're successful in this Phase 3 program with 94B, it will carry us quite well into the commercial arena. So it's a big deal. We've seen again, as Mark laid out to you, some of the rationale, we think that supports why we're seeing such an excellent safety profile. And I think as things continue in the program, I don't think we anticipate seeing anything different than what we've seen so far through clinical development, but of course we're going to be watching it carefully.

Great. Thank you, Shawn.

Our next question is a follow-up from Andrew Tsai with Jefferies. Please proceed with your question.

Thank you. I just want to note – I appreciate the time that you've taken today to answer all of these questions very thoroughly. I'm sure that the street appreciates as well as investors do. Just one last question for you. Presumably in the Phase 2 study for PH94B, there were patients that did not respond to the drug. Did you figure out why that may be the case? And if so, how did you address it in the Phase 3 study? Just trying to – I wonder how you can maximize essentially the probability of success for those Phase 3 trials?

Mark, go ahead and address that?

Yes. Well, I'll take the second part first. How do we maximize probability of success? I mean, we – it's really through a two-step inclusion, exclusion criteria. So we're including patients who have pretty severe social anxiety disorder. We – that's based on the Liebowitz scale. And so we're looking for patients like that. But on top of that we're also making sure that they have a sufficient response, stress response to the public speaking itself. So we're looking for people who – get pretty stressed out by the five minute talk we ask them to do. And does – I mean, so we're asking a lot of these subjects that we appreciate them participating in this study. So I think that the fact that they have high scores coming in makes them more sensitive to see a drug effect. So that's sort of how we're maximizing by our success and really following on the Phase 2 protocol very closely. Now back to your question. Yes, there were some patients who didn't respond. I think it was – I'm trying to remember. I think it was about 25%, 30%, who did not respond completely to the drug in the Phase 2. And it's a good question. We don't know exactly what will predict response and not response genetically or physiologically. I think that's an interesting question. But it is the minority of people who did not respond luckily, and didn't seem to be related to gender that we can tell because in the open-label study, both males and females responded to the drug. It doesn't seem to be related to age or gender, but we'll continue to look into that. And because I agree it is an important question, but it is a minority thankfully at least from that Phase 2 data.

All right. That's all the time we have for questions today. If you have any additional questions, please contact us at ir@vistagen.com or call any of the phone numbers listed on our press release 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.