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 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 analyst. 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 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, VistaGen 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 US 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 3 program for PH94B in social anxiety disorder, or SAD, also our PALISADE-1 and PALISADE-2 double-blind placebo-controlled Phase 3 studies and our PALISADE open-label study. And while the outcome of PALISADE-1 was a setback, that will extend our time line for bringing PH94B to market, it was by no means the end of the line for PH94B in 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…

Thank you, Shawn. As Shawn 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 Shawn noted previously, our time line to expected FDA and 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 30, 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 10-Q 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 30, 2021 and 2022, respectively. This increase is primarily due to the expense related to conducting our PALISADE Phase 3 program for PH-94B. As Shawn has already described. That program includes PALIPHADE-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 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 30, 2022, was approximately $17.5 million versus a net loss of approximately $13.2 million for the quarter ended September 30, 2021. At 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 resulting from the conclusion of clinical trials, as Shawn 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. Shawn, 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, Shawn. This concludes our prepared remarks. Operator, we would like now to open up the question -- open up the call to questions from analysts. Thanks.

[Operator Instructions] And we will hear first from Andrew Tsai of Jefferies.

Thanks. Sorry, I hopped on from another call. So apologies, if you've answered this already. So just I guess this interim analysis, did they happen to look at – do they 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.

Hey, Andrew, great to talk to you. They looked at all the unblinded data available for the 140 subjects that have completed PAL-2 up to the point where we paused it because that would include. The objective of that – yes, 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 there was prudent to continue the study. And so that is clearly what we got 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 know. So it's an independent third-party global biostatistician team that looked at it. So as a result of that recommendation, it makes sense, obviously, to continue.

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

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 then 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. Our absenteeism 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 on to. 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 factory test. There's other things that we can assess upfront 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 -- these are 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 PALISADE 2 Phase 3 trial before restarted. And we're being very careful and methodical and systematic in the way that we assess any of the potential root causes as PAL-1 and apply the lessons learned from that effort into the restart of PALISADE 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 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, I guess, enrolled during COVID. I guess the root of my question is, are you -- how can we know for sure, administrations can be done properly going forward? And what -- these changes you make in PALISADE 2 to perhaps would the FDA would be on board with that in terms of like 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 off their nose and not spray 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 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. So there are things that can be done. Certainly, things that no way with the FDA, we believe, object to. But importantly, it's the case that every company, as you all know, has the risk of ensuring that training and the protocols are rigorously here 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 at the sites 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. I'm just trying to determine how much weight we can give to this interim finding. If could it be possibly kind of a false read and pardon my choice of words, is it pretty compelling of a finding such that you would start another Phase 3 potentially, I guess? Yeah. Thanks.

Yeah. Look, the key of that analysis was to determine what's the disciplined way forward. It would have been reckless to simply say on the result of PALISADE-2. 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 remove 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 and the FDA agreed upon that analysis to be done. And of course, we have to remain blinded to all of it because of advice related issues that 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. It's a relatively modest additional spend to complete the study, and we are on track to get that done. And 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've 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. It's -- we'll consider it. So what we want with the FDA, why we're meeting with them is to generate optionality. If PALISADE-2is positive, that puts us on one track. If it's a trend with a potentially significant effect size, that's…

Great. Okay. All right. Fingers crossed and how 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. Just following up on not meeting with the agency. How long do you think before you get that means scheduled? And then obviously, starting Calise, it's a great outcome. When can we expect top line once that's restarted? And then also with the LCOs, obviously, it's not as immediate of a measurement like I said, are you going to talk to the FDA about the next study potentially being more of a real-world study, not a laboratory study?

Yes. 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. So 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. I 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 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 SAD because there had not been anything yet approved on the basis of SAD. 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 II before the results of PALISADE-2 out. So we can give further guidance on PAI when we restart. But ideally, it could be a little bit after the holidays. It's not always a great idea to start neurosite studies in the holiday season, but we may do it a little bit before the holidays, the Christmas holidays, it's 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. And could you take an alpha spend given the PALISADE-2 [indiscernible] that statistically did you have to take a stand on that?

No.

Fair enough. Thank you, very much.

We will move next to Brian Skorney with Baird.

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

Yes. Hey Luke. Thanks for the question. So 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, ultimately the NDA was supported by two different types of Phase 3 studies. One was a conventional parallel design. One was a randomized withdrawal study. So there is precedent in 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 -- may be non-traditional, but maybe becoming more commonplace approaches by the division of psychiatric products to embrace different NDA enabling Phase 3 program. So again, the SAD 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 as we 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 there 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 environment. So, having the Liebowitz study at the three sites in Phase 2 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 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're engaged 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 ask one…

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

The other one was, any other advocacy endpoints from the study LSAS, yes.

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 -- in the first quarter there'll be some additional assessments, especially on like CGI-I 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 or two months or 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 end point and provide some color on the degree of impact you're looking for?

It's a different -- 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 HAM-A was the conventional scale that was used for anti-depressants approved for GAD. It's associated with benzos that are used for that indication. So we thought it was the most appropriate and sort of the FDA, the common endpoint for this type of indication, although there haven't been a lot of studies in adjustment disorder. So, 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 -- they need to get those drugs approved in similar indications, again, not just in disorder. But we took teaching from literature in several other indications where HAM-A was involved to land on using that as a primary endpoint.

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

Thanks, Luke.

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

Excellent. Thanks, Jenny. If you have any additional questions, please do not hesitate to get in touch with us by e-mailing ir@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.