ITEM
1A. RISK FACTORS.
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, are not required to provide the information
under this Item. Nevertheless, we have chosen to voluntarily include the following risk factors in this Quarterly Report.
Investing
in our common shares involves a high degree of risk. You should carefully consider each of the following risks, together with
all other information set forth in our Registration Statement, including the consolidated financial statements and the related
notes, before making a decision to buy our common shares. If any of the following risks actually occurs, our business could be
harmed. In that case, the trading price of our common shares could decline, and you may lose all or part of your investment.
Risks
Related to our Securities
The
market prices for our common shares are volatile and will fluctuate.
The
market price for our common shares may be volatile and subject to wide fluctuations in response to numerous factors, many of
which are beyond our control, including the following: (i) actual or anticipated fluctuations in our quarterly financial
results; (ii) recommendations by securities research analysts; (iii) changes in the economic performance or market valuations
of other issuers that investors deem comparable to ours; (iv) addition or departure of our executive officers or members of
our Board and other key personnel; (v) release or expiration of lock-up or other transfer restrictions on outstanding common
shares; (vi) sales or perceived sales of additional common shares; (vii) liquidity of the common shares; (viii) significant
acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or
our competitors; and (ix) news reports relating to trends, concerns, technological or competitive developments, regulatory
changes and other related issues in our industry or target markets. Financial markets often experience significant price and
volume fluctuations that affect the market prices of equity securities of public entities and that are, in many cases,
unrelated to the operating performance, underlying asset values or prospects of such entities. Accordingly, the market price
of our common shares may decline even if our operating results, underlying asset values or prospects have not changed.
Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be
other than temporary, which may result in impairment losses. As well, certain institutional investors may base their
investment decisions on consideration of our environmental, governance and social practices and performance against such
institutions’ respective investment guidelines and criteria, and failure to meet such criteria may result in limited or
no investment in our common shares by those institutions, which could materially adversely affect the trading price of our
common shares. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased
levels of volatility and market turmoil continue for a protracted period of time, our operations could be materially
adversely impacted and the trading price of our common shares may be materially adversely affected.
There
is a limited market for our securities.
Our
common shares are listed on the TSX and on the Nasdaq, however, there can be no assurance that an active and liquid market for
the common shares will develop or be maintained on the applicable stock exchanges, and an investor may find it difficult to resell
any of our securities.
Raising
additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights
to our technologies or Product Candidates.
We
may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships
and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, existing ownership interests will be diluted and the terms of such financings may include liquidation or other
preferences that adversely affect the rights of existing shareholders. Debt financings may be coupled with an equity component,
such as warrants to purchase shares, which could also result in dilution of our existing shareholders’ ownership. The incurrence
of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such
as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens
being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and
intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with
third parties, we may have to relinquish valuable rights to our Product Candidates or grant licenses on terms that are not favorable
to us.
Future
offerings of debt or equity securities may rank senior to common shares.
If
we decide to issue debt or equity securities in the future ranking senior to our common shares or otherwise incur additional
indebtedness, it is possible that these securities or indebtedness will be governed by an indenture or other instrument
containing covenants restricting our operating flexibility and limiting our ability to pay dividends to shareholders.
Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and
privileges, including with respect to dividends, more favorable than those of common shares and may result in dilution to
shareholders. Because our decision to issue debt or equity securities in any future offering or otherwise incur indebtedness
will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or
nature of our future offerings or financings, any of which could reduce the market price of our common shares and dilute
their value.
Common
shareholders are subordinated to our lenders.
In
the event of bankruptcy, liquidation or reorganization, any holders of our debt and our trade creditors will generally be entitled
to payment of their claims from our assets before any assets are made available for distribution to us or our shareholders. The
common shares are effectively subordinated to our debt and other obligations. As of the date of this document, we do not have
any debt obligations.
Future
sales of common shares by officers and directors may negatively impact the market price for our common shares.
Subject
to compliance with applicable securities laws, our directors and officers and their affiliates may sell some or all of their common
shares in the future. No prediction can be made as to the effect, if any, such future sales of common shares may have on the market
price of the common shares prevailing from time to time. However, the future sale of a substantial number of common shares by
our directors and officers and their affiliates, or the perception that such sales could occur, could adversely affect prevailing
market prices for our common shares.
We
do not currently pay dividends on our common shares and have no intention to pay dividends on our common shares for the foreseeable
future.
No
dividends on our common shares have been paid by us to date. We do not intend to declare or pay any cash dividends in the
foreseeable future. Payment of any future dividends will be at the discretion of our Board, after taking into account a
multitude of factors appropriate in the circumstances, including our operating results, financial condition and current and
anticipated cash needs. In addition, the terms of any future debt or credit facility may preclude us from paying any
dividends unless certain consents are obtained and certain conditions are met.
Investors
in our securities may face adverse tax consequences. In particular, we may be considered a “passive foreign investment company”
which may have adverse United States federal income tax consequences for United States holders.
Prospective
investors should be aware that the purchase of any of our securities may have tax consequences in the United States, Canada and
other jurisdictions. Prospective investors should consult with their own independent tax advisor before purchasing any of our
securities.
In
particular, investors in our securities who are subject to United States federal taxation should be aware that we believe we may
be classified as a passive foreign investment company, or “PFIC”, during the tax year ended June 30, 2020, and based
on the nature of our business, the projected composition of our gross income and the projected composition and estimated fair
market value of our assets, we may be classified as a PFIC for the current tax year ending June 30, 2021 and may be a PFIC in
subsequent tax years. If we are a PFIC for any year during a United States holder’s holding period, then such United States
holder generally will be required to treat any gain realized upon a disposition of securities, or any so-called “excess
distribution” received on securities, as ordinary income, and to pay an interest charge on a portion of such gain or distributions,
unless the holder makes a timely and effective “qualified electing fund” election, or a QEF election, or a “mark-to-market”
election. Subject to certain limitations, a QEF election may be made with respect to the common shares, pre-funded warrants and
warrant shares. Subject to certain limitations, such mark-to-market election may be made with respect to the common shares and
warrant shares. A United States holder who makes a QEF election generally must report on a current basis its share of our net
capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to securityholders.
A United States holder who makes the mark-to-market election generally must include as ordinary income each year the excess of
the fair market value of the common shares or warrant shares over the taxpayer’s basis therein. The foregoing is qualified
in its entirety by the more detailed discussion of the PFIC rules in our Registration Statement in “Material United States
Federal Income Tax Considerations – Passive Foreign Investment Company Rules.” Each United States holder should consult
its own tax advisor regarding the United States federal, United States local, and foreign tax consequences of the PFIC rules and
the acquisition, ownership, and disposition of our securities.
We
are exposed to risks related to currency exchange rates.
We
currently hold most of our cash, cash equivalents and short-term investments in Canadian dollars which is our functional currency.
Over time a greater portion of our operations may be conducted in U.S. dollars. Because our financial statements are presented
in U.S. dollars, changes in currency exchange rates have had and could have a significant effect on our operating results. Exchange
rate fluctuations between other currencies and the Canadian dollar create risk in several ways, including the following:
|
|
●
|
weakening
of the Canadian dollar may decrease the value of our cash, cash equivalents and short- term investments when translated to U.S.
dollars in our financial statements;
|
|
|
●
|
weakening
of the Canadian dollar may reduce the U.S. dollar value of funds that we will have available for an increasing amount of research
and development expenses incurred outside Canada and the cost of sourced product components from outside Canada;
|
|
|
●
|
weakening
of the U.S. dollar may decrease the value of our revenues denominated in other currencies;
|
|
|
●
|
the
exchange rates on non-U.S. dollar transactions and cash deposits can distort our financial results; and
|
|
|
●
|
commercial
product pricing and profit margins are affected by currency fluctuations.
|
For
as long as we are an “emerging growth company” we intend to take advantage of reduced disclosure and governance requirements
applicable to emerging growth companies, which could result in our common shares being less attractive to investors and could
make it more difficult for us to raise capital as and when we need it.
We
are an “emerging growth company,” as defined in the JOBS Act, and we have taken advantage, and intend to continue
to take advantage, of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved.
Investors
may find our common shares less attractive because we rely on these exemptions, which could contribute to a less active trading
market for our common shares or volatility in our share price. In addition, we may be less attractive to investors and it may
be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other
companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry.
If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be
materially and adversely affected.
We
may take advantage of these reporting exemptions until we are no longer an emerging growth company.
If
we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately
report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and,
as a result, the value of our common shares.
We
will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness
of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by
our management in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies,
in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of
annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley
Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our
internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS
Act, we intend to take advantage of the exemption permitting us not to comply with the independent registered public accounting
firm attestation requirement.
Our
compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts.
We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation
and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will
be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not
be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure
to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition,
results of operations or cash flows. This may expose us, including individual executives, to potential liability which could significantly
affect our business. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent
registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over
financial reporting once that firm begins its audits of internal control over financial reporting, we could lose investor confidence
in the accuracy and completeness of our financial reports, the market price of our common shares could decline, and we could be
subject to sanctions or investigations by the TSX, Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material
weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required
of public companies, could also restrict our future access to the capital markets.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our
disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports
we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls
and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control
system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
Deficiencies
in disclosure controls and procedures and internal control over financial reporting could result in a material misstatement in
our financial statements.
We
could be adversely affected if there are deficiencies in our disclosure controls and procedures or in our internal controls over
financial reporting. The design and effectiveness of our disclosure controls and procedures and our internal controls over financial
reporting may not prevent all errors, misstatements or misrepresentations. Consistent with other entities in similar stages of
development, we have a limited number of employees currently in the accounting group, limiting our ability to provide for segregation
of duties and secondary review. A lack of resources in the accounting group could lead to material misstatements resulting from
undetected errors occurring from an individual performing primarily all areas of accounting with limited secondary review. Deficiencies
in internal controls over financial reporting which may occur could result in material misstatements of our results of operations,
restatements of financial statements, other required remediations, a decline in the price of our common shares, or otherwise materially
adversely affect our business, reputation, results of operations, financial condition or liquidity.
In
connection with the audit of our financial statements as of and for the years ended June 30, 2020 and 2019, material weaknesses
in our internal control over financial reporting were identified and we may identify additional material weaknesses in the future.
In
connection with the preparation and audits of our financial statements as of and for the years ended June 30, 2020 and 2019, material
weaknesses (as defined under the Exchange Act and by the auditing standards of the U.S. Public Company Accounting Oversight Board,
or “PCAOB”), were identified in our internal control over financial reporting. A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that
a material misstatement of our annual financial statements will not be prevented or detected on a timely basis. The identified
material weaknesses arose from a lack of resources in our finance function that resulted in an overstatement of the valuation
of warrants issued as part of a financing as described elsewhere in this Quarterly Report.
In
light of the identified material weaknesses, it is possible that, had we performed a formal assessment of our internal control
over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over
financial reporting in accordance with PCAOB standards, additional control deficiencies may have been identified.
We
have begun taking measures, and plan to continue to take measures, to remediate these material weaknesses. However, the implementation
of these measures may not fully address these material weaknesses in our internal control over financial reporting, and, if so,
we would not be able to conclude that they have been fully remedied. Our failure to correct these material weaknesses or our failure
to discover and address any other control deficiencies could result in inaccuracies in our financial statements and could also
impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely
basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our
common shares, may be materially and adversely affected.
We
have incurred, and will continue to incur, increased costs as a result of operating as a public company, and our management has
been required, and will continue to be required, to devote substantial time to new compliance initiatives.
As
a public company, we have incurred and are continuing to incur significant legal, accounting and other expenses and these expenses
may increase even more after we are no longer an “emerging growth company.” In the United States, we are subject to
the reporting requirements of the Exchange Act and the rules adopted, and to be adopted, by the SEC and, when our common shares
are listed on Nasdaq. Our management and other personnel devote a substantial amount of time to these compliance initiatives.
Moreover,
these rules and regulations have substantially increased our legal and financial compliance costs and made some activities more
time-consuming and costly. The increased costs have increased our net loss. These rules and regulations may make it more difficult
and more expensive for us to maintain sufficient director’s and officer’s liability insurance coverage. We cannot
predict or estimate the amount or timing of additional costs we may continue to incur to respond to these requirements. The ongoing
impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our
Board, our Board committees or as executive officers.
Future
sales and issuances of our common shares or rights to purchase common shares pursuant to our equity incentive plan could result
in additional dilution of the percentage ownership of our shareholders and may cause our share price to fall.
We
expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital,
we may sell substantial amounts of common shares or securities convertible into or exchangeable for common shares. These future
issuances of common shares or common share-related securities, together with the exercise of outstanding options and any additional
shares issued in connection with acquisitions, if any, may result in material dilution to our investors. Such sales may also result
in material dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to those
of holders of our common shares.
Pursuant
to our 2017 Amended and Restated Stock Option Plan, our compensation committee is authorized to grant equity-based incentive awards
in the form of options to purchase common shares to our directors, executive officers and other employees and service providers.
As of September 30, 2020, there were 487,326 options to purchase common shares available for future grant under our stock option
plan. Future equity incentive grants under our stock option plan may result in material dilution to our shareholders and may have
an adverse effect on the market price of our common shares.
Provisions
in our corporate charter documents and certain Canadian laws could delay or deter a change of control.
Provisions
in our articles and our by-laws, as well as certain provisions under the BCBCA and applicable Canadian securities laws, may discourage,
delay or prevent a merger, acquisition, tender offer or other change in control of us that some shareholders may consider favorable.
In addition, because our Board is responsible for appointing the members of our management team, these provisions may frustrate
or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders
to replace members of our Board. As well, our preferred shares are available for issuance from time to time at the discretion
of our Board, without shareholder approval. Our articles allow our Board, without shareholder approval, to determine the special
rights to be attached to our preferred shares, and such rights may be superior to those of our common shares.
In
addition, limitations on the ability to acquire and hold our common shares may be imposed by the Competition Act in Canada. This
legislation permits the Commissioner of Competition of Canada, or “Commissioner”, to review any acquisition of a significant
interest in us. This legislation grants the Commissioner jurisdiction to challenge such an acquisition before the Canadian Competition
Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of
competition in any market in Canada. The Investment Canada Act subjects an acquisition of control of a company by a non-Canadian
to government review if the value of our assets, as calculated pursuant to the legislation, exceeds a threshold amount. A reviewable
acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to result in a net benefit
to Canada. Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic opportunities for
our shareholders to sell their shares.
If
securities or industry analysts publish inaccurate or unfavorable research about our business, our share price and trading volume
may decline.
The
trading market for our common shares depends in part on the research and reports that securities or industry analysts publish
about us or our business. If one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable
research about our business, our shares price may decline. If one or more of these analysts cease coverage of our company or fail
to publish reports on us regularly, demand for our shares may decrease, which may cause our shares price and trading volume to
decline.
We
are incorporated in Canada, with our assets and officers primarily located in Canada, with the result that it may be difficult
for investors to enforce judgments obtained against us or some of our officers.
We
are a company organized and existing under the laws of British Columbia, Canada. Many of our directors and officers and the experts
named in our Registration Statement are residents of Canada or otherwise reside outside the United States, and all or a substantial
portion of their assets, and a substantial portion of our assets, are located outside the United States. It may be difficult for
holders of common shares who reside in the United States to effect service within the United States upon those directors, officers
and experts who are not residents of the United States. It may also be difficult for holders of securities who reside in the United
States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the
civil liability of our directors, officers and experts under the U.S. federal securities laws. Our Canadian counsel has advised
us that there is doubt as to the enforceability in Canada against us or against our directors, officers and experts who are not
residents of the United States, in original actions or in actions for enforcement of judgments of courts of the United States,
of liabilities predicated solely upon U.S. federal or state securities laws.
Conversely,
some of our directors and officers reside outside Canada and some of our assets are also located outside Canada. Therefore, it
may not be possible for you to enforce in Canada against our assets or those directors and officers residing outside Canada, judgments
obtained in Canadian courts based upon the civil liability provisions of the Canadian securities laws or other laws of Canada.
We
may have a contingent liability arising out of electronic communications inadvertently made available to potential investors.
These disclosures may constitute violations of Section 5 of the Securities Act.
In
July 2020, following the filing of Amendment No. 2 to our Registration Statement on Form S-1 with the SEC, a third party vendor
inadvertently distributed, without our consent, an email to addresses that had registered via our website to receive periodic
corporate updates (the “Vendor Emails”). The Vendor Emails provided hyperlinks to our website and to our SEC filings,
including to our Registration Statement. The Vendor Emails and the material available through the embedded hyperlinks did not
contain any non-public information. The hyperlinks included in the Vendor Emails were severed as promptly as possible.
As
a publicly traded company in Canada, we maintain a standard corporate presentation on our website. We intended to use an updated
version of such presentation in connection with the public offering. The only difference between the updated version of the presentation
that we intended to post on our website and the potential investor version of the presentation is that the potential investor
version included in the disclaimers section, a reference to the filing of our draft, non-confidential Registration Statement.
In July 2020, we discovered that we had inadvertently posted the potential investor version of our standard corporate presentation
to our website (the “July Presentation”). Promptly after becoming aware of the error, the incorrect corporate presentation
was removed from our website and replaced with the correct version that did not include any reference to our Registration Statement.
The incorrect version of the presentation was viewed on our website by limited number of unique viewers.
Any
disclosure in the Vendor Emails or the July Presentation that did not comply with, or that exceeded the scope permissible under,
Rule 134 under the Securities Act, may not be entitled to the “safe-harbor” provided by Rule 134. As a result, either
the Vendor Emails or the July Presentation could be determined not to be in compliance for a registered securities offering under
Section 5 of the Securities Act. If the communications in the Vendor Emails or the July Presentation are determined by a court
to be a violation by us of the Securities Act, the recipients of the email messages, including someone who may have been forwarded
the emails, if any, who purchased our common shares in the public offering may have a rescission right, to require us to repurchase
those shares at their original purchase price with interest or a claim for damages if the purchaser no longer owns the securities,
for one year following the date of the violation. We could also incur considerable expense if contesting any such claims. Such
payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations
and business plan, delay or prevent us from completing our plan of operation, or force us to raise additional funding sooner than
expected, which funding might not be available or available on favorable terms. Consequently, due to the Vendor Emails or the
July Presentation, we may have a contingent liability arising out of this possible violation of the Securities Act. The likelihood
and magnitude of this contingent liability, if any, is presently impossible to quantify. In addition, if either the Vendor Emails
or the July Presentation is deemed to be a violation of Section 5 of the Securities Act, in addition to the potential contingent
liability referenced above, the SEC and relevant state regulators could impose monetary fines or other sanctions as provided under
relevant federal and state securities laws. Additionally, the value of our common shares could decline in the event that we are
deemed to have liability or are required to make payments or pay expenses in connection with the potential claims described above.
Risks
Related to our Financial Position and Capital Needs
We
have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.
Since
our inception as a pharmaceutical company in October 2014, we have devoted substantially all of our resources to the development
of our proprietary Product Candidates. We have generated significant operating losses since our inception with an accumulated
deficit to September 30, 2020 of approximately $66.2 million. Our comprehensive losses for the three months ended September 30,
2020 and 2019 were approximately $1.6 million and $2.8 million, respectively. Substantially all of our losses have resulted from
expenses incurred in connection with our research and development programs and from general and administrative costs associated
with our operations.
We
expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses will
increase as we continue the research and development of, and clinical trials for, our Product Candidates. In addition to budgeted
expenses, we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely
affect our business. If our Product Candidates fail in preclinical or clinical trials, or do not gain regulatory approval, or
even if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future,
we may not be able to sustain profitability in subsequent periods.
Due
to our limited operating history and history of losses, any predictions about our future success, performance or viability may
not be accurate.
We
will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete
the development and commercialization of our Product Candidates.
Our
operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial and increasing
amounts to conduct further research and development, preclinical testing and clinical trials of our Product Candidates, to seek
regulatory approvals and reimbursement for our Product Candidates and to launch and commercialize any Product Candidates for which
we receive regulatory approval.
As
at September 30, 2020, we had approximately $4.5 million in cash, cash equivalents and short-term investments, which, together
with the net proceeds from the Public Offering, we currently estimate funds our base operations until approximately into the second
quarter of fiscal 2022. Our ability to develop our research and development programs beyond this point is subject to accessing
additional capital, including through the sale of equity, partnership revenues, and out-licensing activities. There is no assurance
that we will be successful in these efforts.
The
progress of our Product Candidates for both current and prospective target indication(s) is uncertain because it is difficult
to predict our spending for our Product Candidates up to the time that we seek FDA approval due to numerous factors, including,
without limitation, the rate of progress of clinical trials, the results of preclinical studies and clinical trials for such indication,
the costs and timing of seeking and obtaining FDA and other regulatory approvals for clinical trials and FDA guidance regarding
clinical trials for such indication. Moreover, changing circumstances may cause us to expend cash significantly faster than we
currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.
For these reasons, we are unable to state unequivocally the actual funds we will require for development and any approved marketing
and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including,
but not limited to:
|
|
●
|
the
initiation, progress, timing, costs and results of preclinical studies and clinical trials for our Product Candidates;
|
|
|
●
|
any
change in the clinical development plans or target indications for these Product Candidates;
|
|
|
●
|
the
number and characteristics of Product Candidates that we develop or may in-license;
|
|
|
●
|
the
terms of any collaboration agreements we may choose to execute;
|
|
|
●
|
the
outcome, timing and cost of meeting regulatory requirements established by the Drug Enforcement Administration, or “DEA”,
the FDA, the European Medicines Agency, or “EMA”, Health Canada, or “HC”, or other comparable foreign
regulatory authorities;
|
|
|
●
|
the
cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
|
|
|
●
|
the
cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
|
|
|
●
|
the
effect of competing product and market developments;
|
|
|
●
|
the
costs and timing of the implementation of commercial scale manufacturing activities; and
|
|
|
●
|
the
cost of establishing, or outsourcing, sales, marketing and distribution capabilities for any Product Candidates for which we may
receive regulatory approval in regions where we choose to commercialize our products on our own.
|
We
cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional
capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the
development or commercialization of one or more of our Product Candidates or one or more of our other research and development
initiatives.
Any
doubt about our ability to continue as a going concern may materially and adversely affect the price of our common shares, and
it may be more difficult for us to obtain financing. Any doubt about our ability to continue as a going concern may also adversely
affect our relationships with current and future collaborators, contract manufacturers and investors, who may become concerned
about our ability to meet our ongoing financial obligations. If potential collaborators decline to do business with us or potential
investors decline to participate in any future financings due to such concerns, our ability to increase our financial resources
may be limited. We have prepared our financial statements on a going concern basis, which assumes that we will be able to meet
our commitments, realize our assets and discharge our liabilities in the normal course of business. Our condensed consolidated
interim financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
We
currently have no commercial revenue and may never become profitable.
To
date, the only revenue we have generated has been from the receipt of research grants and interest income on cash, cash equivalents
and short-term investments. Our ability to generate revenue and become profitable depends upon our ability to obtain regulatory
approval for, and successfully commercialize, our Product Candidates that we may develop, in-license or acquire in the future.
Even
if we are able to successfully achieve regulatory approval for these Product Candidates, we do not know what the reimbursement
status of our Product Candidates will be or when any of these products will generate revenue for us, if at all. We have not generated,
and do not expect to generate, any product revenue for the foreseeable future, and we expect to continue to incur significant
operating losses for the foreseeable future due to the cost of research and development, preclinical studies and clinical trials
and the regulatory approval process for our Product Candidates. The amount of future losses is uncertain and will depend, in part,
on the rate of growth of our expenses.
Our
ability to generate revenue and become profitable depends upon a number of additional factors, including our ability to:
|
|
●
|
successfully
complete development activities, including the remaining preclinical studies and ongoing and planned clinical trials for our Product
Candidates;
|
|
|
●
|
in-license
or acquire in the future, Product Candidates and other potential lines of business that we may develop;
|
|
|
●
|
complete
and submit NDAs to the FDA and Marketing Authorization Applications, or “MAAs”, to the EMA, and obtain regulatory
approval for indications for which there is a commercial market;
|
|
|
●
|
complete
and submit applications to, and obtain regulatory approval from, other foreign regulatory authorities;
|
|
|
●
|
manufacture
any approved products in commercial quantities and on commercially reasonable terms;
|
|
|
●
|
develop
a commercial organization, or find suitable partners, to market, sell and distribute approved products in the markets in which
we have retained commercialization rights;
|
|
|
●
|
achieve
acceptance among patients, clinicians and advocacy groups for any products we develop;
|
|
|
●
|
obtain
coverage and adequate reimbursement from third parties, including government payors; and
|
|
|
●
|
set
a commercially viable price for any products for which we may receive approval.
|
We
are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability.
Even if we are able to complete the processes described above, we anticipate incurring significant costs associated with commercializing
our Product Candidates.
Changes
in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and ability to achieve profitability.
We
are subject to income taxes in Canada. As our operations expand, we may become subject to income tax in jurisdictions outside
of Canada. Our effective income tax rate in the future could be adversely affected by a number of factors including changes in
the mix of earnings (losses) in countries with differing statutory tax rates, changes in the valuation of deferred tax assets
and liabilities and changes in tax laws. We regularly assess all of these matters to determine the adequacy of our tax provision
which is subject to discretion. If our assessments are incorrect, it could have an adverse effect on our business and financial
condition. There can be no assurance that income tax laws and administrative policies with respect to the income tax consequences
generally applicable to us or to our subsidiaries will not be changed in a manner which adversely affects our shareholders.
Our
ability to use our net operating loss carryforwards and other tax attributes may be limited.
As
of our last fiscal year end, we had non-capital loss, or “NOL”, carry-forwards of approximately $36.4 million available
to offset future taxable income in Canada. These NOL carry-forwards begin to expire in 2026.
Our
NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under provisions in the Canadian
Income Tax Act, and corresponding provisions of Canadian provincial law, if a corporation undergoes an “ownership change,”
generally defined as a greater than 50% change, by value, the corporation’s ability to use its pre-change Canadian NOLs
and other pre-change tax attributes, such as research and development tax credits, to offset its post-change income may be limited.
Specifically, NOLs from a business before the change of control may be carried forward to taxation years after the change of control,
but only if the same business is carried forward on after the change in control with a reasonable expectation of profit, and only
to offset income from that business or a similar business. We have not performed any analyses under the applicable provisions
in the Canadian Income Tax Act and cannot forecast or otherwise determine our ability to derive benefit from our various federal
or provincial tax attribute carryforwards. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards
to offset Canadian federal taxable income may be subject to limitations, which could potentially result in increased future tax
liability to us. In addition, at the provincial level, there may be periods during which the use of NOLs is suspended or otherwise
limited, which could accelerate or permanently increase provincial taxes owed.
In
addition, we may experience ownership changes in the future as a result of subsequent shifts in our share ownership, including
in any future offerings, some of which may be outside of our control. If we determine that an ownership change has occurred and
our ability to use our NOL carryforwards is materially limited, it would harm our future operating results by effectively increasing
our future tax obligations.
Changes
to accounting standards may adversely impact the manner in which we report our financial position and operating results.
There
are ongoing projects conducted by the Financial Accounting Standards Board in the United States that are expected to result in
new pronouncements that continue to evolve, which could adversely impact the manner in which we report our financial position
and operating results.
Risks
Related to our Business and Industry
Our
IntegraSynTM manufacturing approach may prove unsuccessful in achieving yields and/or cost levels required to be economically
competitive with alternative methods of manufacturing.
Given
the early stage of development of the IntegraSynTM program and the risks inherent in research and development, it is too early
to project the commercial viability of cannabinoids produced via this process. Potential negative outcomes from this program include
but are not limited to:
|
|
●
|
the
technology fails to produce sufficient quantities of cannabinoids or ones for which we or others have a need; or
|
|
|
●
|
the
cost structure of the technology is such that it is not commercially competitive with alternate methods of cannabinoid manufacturing
leading to the technology having no value proposition nor incremental value to the Company.
|
Our
prospects depend on the success of our Product Candidates which are at early stages of development with a statistically high probability
of failure.
Given
the early stage of development, we can make no assurance that our research and development programs will result in regulatory
approval or commercially viable products. To achieve profitable operations, we, alone or with others, must successfully develop,
gain regulatory approval, and market our future products. We currently have no products that have been approved by the FDA, HC,
or any similar regulatory authority. To obtain regulatory approvals for our Product Candidates being developed and to achieve
commercial success, clinical trials must demonstrate that the Product Candidates are safe for human use and that they demonstrate
efficacy. We have no products or technologies which are currently in human clinical trials. Additionally, we have no products
for commercial sale or licensed for commercial sale, nor do we expect to have any such products for the next several years.
Many
potential pharmaceuticals products never reach the stage of clinical testing and even those that do have only a small chance of
successfully completing clinical development and gaining regulatory approval. Our Product Candidates may fail for a number of
reasons, including, but not limited to, being unsafe for human use or due to the failure to provide therapeutic benefits equal
to or better than the standard of treatment at the time of testing. Positive results of early preclinical research may not be
indicative of the results that will be obtained in later stages of preclinical or clinical research. Similarly, positive results
from early stage clinical trials may not be indicative of favorable outcomes in later-stage clinical trials. We can make no assurance
that any future studies, if undertaken, will yield favorable results.
The
early stage of our product development makes it particularly uncertain whether any of our product development efforts will prove
to be successful and meet applicable regulatory requirements, and whether any of our Product Candidates will receive the requisite
regulatory approvals, be capable of being manufactured at a reasonable cost or be successfully marketed. If we are successful
in developing our current and future Product Candidates into approved products, we will still experience many potential obstacles,
such as the need to develop or obtain manufacturing, marketing and distribution capabilities. If we are unable to successfully
commercialize any of our products, our financial condition and results of operations may be materially and adversely affected.
Even
if our Product Candidates advance through preclinical studies and clinical trials, we may experience difficulties in managing
our growth and expanding our operations.
We
have limited resources to carry out objectives for our current and future preclinical studies and clinical trials. Since our inception
as a pharmaceutical company in October 2014, we have conducted numerous preclinical experiments and are currently conducting early
stage clinical trials, which is a time-consuming, expensive and uncertain process. In addition, while we have experienced management
and expect to contract out many of the activities related to conducting these programs, we are a small company with less than
20 employees and therefore have limited internal resources both to conduct preclinical studies and clinical trials and to monitor
third-party providers. As our Product Candidates advance through preclinical studies and clinical trials, we will need to expand
our development, regulatory and manufacturing operations, either by expanding our internal capabilities or contracting with other
organizations to provide these capabilities for us. In the future, we expect to have to manage additional relationships with collaborators
or partners, suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue
to improve our operational, financial and management controls, reporting systems and procedures.
If
we have difficulty enrolling patients in clinical trials, the completion of the trials may be delayed or cancelled.
As
our Product Candidates advance from preclinical testing to clinical testing, and then through progressively larger and more complex
clinical trials, we will need to enroll an increasing number of patients that meet the eligibility criteria for those trials.
The factors that affect our ability to enroll patients are largely uncontrollable and include, but are not limited to, the following:
|
|
●
|
size
and nature of the patient population;
|
|
|
●
|
inclusion
and exclusion criteria for the trial;
|
|
|
●
|
design
of the study protocol;
|
|
|
●
|
competition
with other companies for clinical sites or patients;
|
|
|
●
|
the
perceived risks and benefits of the product candidate under study;
|
|
|
●
|
the
patient referral practices of physicians; and
|
|
|
●
|
the
number, availability, location and accessibility of clinical trial sites.
|
As
a result of the foregoing factors, we may have difficulty enrolling or maintaining the enrollment of patients in any clinical
trials conducted for our products, which may result in the delay or cancellation of such trials. The delay or cancellation of
any clinical trials could shorten any periods during which we may have the exclusive right to commercialize our Product Candidates
or allow our competitors to bring products to market before us, which would impair our ability to successfully commercialize our
Product Candidates and may harm our financial condition, results of operations and prospects.
If
clinical trials of our Product Candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities
or do not otherwise produce positive results, we would incur additional costs or experience delays in completing, or ultimately
be unable to complete, the development and commercialization of our Product Candidates.
Before
obtaining marketing approval from regulatory authorities for the sale of our Product Candidates, we must conduct preclinical studies
in animals and extensive clinical trials in humans to demonstrate the safety and efficacy of the Product Candidates. Clinical
testing is expensive and difficult to design and implement, can take many years to complete and has uncertain outcomes. The outcome
of preclinical studies and early clinical trials may not predict the success of later clinical trials and interim results of a
clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding
promising results in earlier trials. We do not know whether the clinical trials we may conduct will demonstrate adequate efficacy
and safety to result in regulatory approval to market any of our Product Candidates in any jurisdiction. A product candidate may
fail for safety or efficacy reasons at any stage of the testing process. A major risk we face is the possibility that none of
our Product Candidates under development will successfully gain market approval from the FDA or other regulatory authorities,
resulting in us being unable to derive any commercial revenue from them after investing significant amounts of capital in multiple
stages of preclinical and clinical testing.
If
we experience delays in clinical testing, we will be delayed in commercializing our Product Candidates, and our business may be
substantially harmed.
We
cannot predict whether any clinical trials will begin as planned, will need to be restructured, or will be completed on schedule,
or at all. Our product development costs will increase if we experience delays in clinical testing. Significant clinical trial
delays could shorten any periods during which we may have the exclusive right to commercialize our Product Candidates or allow
our competitors to bring products to market before us, which would impair our ability to successfully commercialize our Product
Candidates and may harm our financial condition, results of operations and prospects. The commencement and completion of clinical
trials for our products may be delayed for a number of reasons, including delays related, but not limited, to:
|
|
●
|
failure
by regulatory authorities to grant permission to proceed or placing the clinical trial on hold;
|
|
|
●
|
import/export
and research restrictions for cannabinoid-based pharmaceuticals may delay or prevent clinical trials in various geographical jurisdictions;
|
|
|
●
|
patients
failing to enroll or remain in our trials at the rate we expect;
|
|
|
●
|
suspension
or termination of clinical trials by regulators for many reasons, including concerns about patient safety or failure of our contract
manufacturers to comply with current good manufacturing practice, or “cGMP”, requirements;
|
|
|
●
|
any
changes to our manufacturing process that may be necessary or desired;
|
|
|
●
|
delays
or failure to obtain clinical supply from contract manufacturers of our products necessary to conduct clinical trials;
|
|
|
●
|
Product
Candidates demonstrating a lack of safety or efficacy during clinical trials;
|
|
|
●
|
patients
choosing an alternative treatment for the indications for which we are developing any of our Product Candidates or participating
in competing clinical trials and/or scheduling conflicts with participating clinicians;
|
|
|
●
|
patients
failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons;
|
|
|
●
|
reports
of clinical testing on similar technologies and products raising safety and/or efficacy concerns;
|
|
|
●
|
clinical
investigators not performing our clinical trials on their anticipated schedule, dropping out of a trial, or employing methods
not consistent with the clinical trial protocol, regulatory requirements or other third parties not performing data collection
and analysis in a timely or accurate manner;
|
|
|
●
|
failure
of our CROs, to satisfy their contractual duties or meet expected deadlines;
|
|
|
●
|
inspections
of clinical trial sites by regulatory authorities or Institutional Review Boards, or “IRBs”, or ethics committees
finding regulatory violations that require us to undertake corrective action, resulting in suspension or termination of one or
more sites or the imposition of a clinical hold on the entire study;
|
|
|
●
|
one
or more IRBs or ethics committees rejecting, suspending or terminating the study at an investigational site, precluding enrollment
of additional subjects, or withdrawing its approval of the trial; or
|
|
|
●
|
failure
to reach agreement on acceptable terms with prospective clinical trial sites.
|
Our
product development costs will increase if we experience delays in testing or approval or if we need to perform more or larger
clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur, and we may need to amend
study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to regulatory authorities
or IRBs or ethics committees for re-examination, which may impact the cost, timing or successful completion of that trial. Delays
or increased product development costs may have a material adverse effect on our business, financial condition and prospects.
Negative
results from clinical trials or studies of others and adverse safety events involving the targets of our products may have an
adverse impact on our future commercialization efforts.
From
time to time, studies or clinical trials on various aspects of pharmaceutical products are conducted by academic researchers,
competitors or others. The results of these studies or trials, when published, may have a significant effect on the market for
the pharmaceutical product that is the subject of the study. The publication of negative results of studies or clinical trials
or adverse safety events related to our Product Candidates, or the therapeutic areas in which our Product Candidates compete,
could adversely affect the price of our common shares and our ability to finance future development of our Product Candidates,
and our business and financial results could be materially and adversely affected.
We
intend to expend our limited resources to pursue our Product Candidates for certain indications and may fail to capitalize on
other Product Candidates or other indications for our Product Candidates that may be more profitable or for which there is a greater
likelihood of success.
Because
we have limited financial and managerial resources, we are focusing on research programs relating to our Product Candidates for
certain indications, primarily for the treatment of EB, which concentrates the risk of product failure in the event our Product
Candidates prove to be unsafe or ineffective or inadequate for clinical development or commercialization. As a result, we may
forego or delay pursuit of opportunities with other Product Candidates or for other indications that could later prove to have
greater commercial potential. We may also deem it advisable to refocus our clinical development programs based on clinical trial
results.
The
regulatory approval processes of the FDA, HC, the EMA and other comparable foreign regulatory authorities are lengthy, time-consuming
and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our Product Candidates, our business
will be substantially harmed.
We
are not permitted to market our Product Candidates in any jurisdiction until we receive formal approval from the appropriate regulatory
authorities. For example, prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our Product Candidates, we
will need to complete our preclinical studies and clinical trials. Successfully completing our clinical program and obtaining
approval of an application seeking commercialization approval is a complex, lengthy, expensive and uncertain process, and the
regulatory authorities may delay, limit or deny approval of our Product Candidates for many reasons, including, among others,
because:
|
|
●
|
we
may not be able to demonstrate that our Product Candidates are safe and effective in treating patients to the satisfaction of
the regulatory authorities such as the FDA, HC or EMA;
|
|
|
●
|
the
results of our clinical trials may not meet the level of statistical or clinical significance required by the regulatory authorities
for marketing approval;
|
|
|
●
|
the
regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical trials;
|
|
|
●
|
the
regulatory authorities may require that we conduct additional clinical trials;
|
|
|
●
|
the
regulatory authorities or other applicable foreign regulatory authorities may not approve the formulation, labeling or specifications
of our Product Candidates;
|
|
|
●
|
the
contract manufacturing organizations and other contractors that we may retain to conduct our clinical trials may take actions
outside of our control that materially adversely impact our clinical trials;
|
|
|
●
|
the
regulatory authorities may find the data from clinical studies and clinical trials insufficient to demonstrate that our Product
Candidates are safe and effective for their proposed indications;
|
|
|
●
|
the
regulatory authorities may disagree with our interpretation of data from our preclinical studies and clinical trials;
|
|
|
●
|
the
regulatory authorities may not accept data generated at our clinical trial sites or may disagree with us over whether to accept
efficacy results from clinical trial sites outside the United States, Canada or outside the European Union, as applicable, where
the standard of care is potentially different from that in the United States, Canada or in the European Union, as applicable;
|
|
|
●
|
if
our applications are submitted to the regulatory authorities, the regulatory authorities may have difficulties scheduling the
necessary review meetings in a timely manner, may recommend against approval of our application or may recommend or require, as
a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and
use restrictions;
|
|
|
●
|
the
FDA may require development of a Risk Evaluation and Mitigation Strategy which would use risk minimization strategies to ensure
that the benefits of certain prescription drugs outweigh their risks, as a condition of approval or post-approval, and the EMA
may grant only conditional marketing authorization or impose specific obligations as a condition for marketing authorization,
or may require us to conduct post-authorization safety studies;
|
|
|
●
|
the
FDA, DEA, HC, EMA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities of
third-party manufacturers with which we contract or DEA or other applicable foreign regulatory agency quotas may limit the quantities
of controlled substances available to our manufacturers; or
|
|
|
●
|
the
FDA, HC, EMA or other applicable foreign regulatory agencies may change their approval policies or adopt new regulations.
|
In
the United States, our activities are potentially subject to additional regulation by various federal, state and local authorities
in addition to the FDA, including, among others, the Centers for Medicare and Medicaid Services, other divisions of the United
States Department of Health and Human Services, or “HHS”, (for example, the Office of Inspector General), the Department
of Justice, or “DOJ”, and individual United States Attorney offices within the DOJ, and state and local governments.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that
some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be
in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may
be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion
from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production,
denial or withdrawal of pre marketing product approvals, private “qui tam” actions brought by individual whistleblowers
in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment
or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of
operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and
regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud
and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare
professionals.
Any
of these factors, many of which are beyond our control, could increase development costs, jeopardize our ability to obtain regulatory
approval for and successfully market our Product Candidates and generate product revenue.
We
intend to conduct clinical trials for our Product Candidates in several international jurisdictions, and acceptance by all regulatory
authorities for such “international” data is not certain.
We
intend to conduct clinical trials for our Product Candidates both inside and outside the United States. To date, all of our clinical
development has been conducted outside of the United States. Ultimately, we plan to submit NDAs for our Product Candidates to
the FDA and other regulatory authorities upon completion of all requisite clinical trials. As an example, although the FDA may
accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain
conditions. For example, the clinical trial must be conducted in accordance with FDA regulations relating governing human subject
protection and the conduct of clinical trials, which are referred to as “Good Clinical Practice”, or “GCP”
requirements and the FDA must be able to validate the data from the clinical trial through an onsite inspection if it deems such
inspection necessary. Where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in
the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are considered
applicable to the U.S. patient population and U.S. medical practice, the clinical trials were performed by clinical investigators
of recognized competence, and the data is considered valid without the need for an on-site inspection by the FDA or, if the FDA
considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate
means. In addition, such clinical trials would be subject to the applicable local laws of the foreign jurisdictions where the
clinical trials are conducted. There can be no assurance the FDA or any other regulatory authorities will accept data from clinical
trials conducted outside of the United States or other international jurisdiction. If the FDA or any other regulatory authorities
does not accept any such data, it would likely result in the need for additional clinical trials, which would be costly and time-consuming
and delay aspects of our development plan.
In
addition, the conduct of clinical trials outside the United States could have a significant impact on us. Risks inherent in conducting
international clinical trials include:
|
|
●
|
foreign
regulatory requirements that could burden or limit our ability to conduct our clinical trials;
|
|
|
●
|
administrative
burdens of conducting clinical trials under multiple foreign regulatory schema;
|
|
|
●
|
foreign
currency fluctuations which could negatively impact our financial condition since certain payments are paid in local currencies;
|
|
|
●
|
manufacturing,
customs, shipment and storage requirements;
|
|
|
●
|
cultural
differences in medical practice and clinical research; and
|
|
|
●
|
diminished
protection of intellectual property in some countries.
|
Our
Product Candidates contain compounds that may be classified as “controlled substances”, the use of which may generate
public controversy and restrict their development or commercialization.
If
a drug has a potential for abuse, the NDA or other regulatory submission must include a description and analysis of studies or
information related to abuse of the drug, including a proposal for scheduling (for example, in the U.S. under the federal Controlled
Substances Act, or “CSA”). A description of any studies related to overdosage is also required, including information
on dialysis, antidotes, or other treatments, if known. While we believe there would be relatively minimal abuse potential with
our Product Candidates given the low drug concentration and topical route of administration, we could be wrong or they may be
perceived as having the potential for substance abuse. In either case, there may be a negative effect on our ability to successfully
develop or commercialize our Product Candidates. Since our Product Candidates contain purified substances that are chemically
identical to those occurring in nature, they may, therefore, be classified as “controlled substances”, and their regulatory
approval may generate public controversy. Political and social pressures and adverse publicity could lead to delays in approval
of, and increased expenses for, our Product Candidates. These pressures could also limit or restrict the introduction and marketing
of our Product Candidates. Adverse publicity from Cannabis misuse or adverse side effects from Cannabis or other cannabinoid products
may adversely affect the commercial success or market penetration achievable for our Product Candidates. The nature of our business
attracts a high level of public and media interest, and in the event of any resultant adverse publicity, our reputation may be
harmed. Furthermore, if our Product Candidates are classified as “controlled substances”, they may be subject to import/export
and research restrictions that could delay or prevent the development of our products in various geographical jurisdictions. The
successful commercialization of our Product Candidates may require permits or approvals from regulatory bodies, such as the DEA,
that regulate controlled substances.
Research
restrictions, product shipment delays or prohibitions could have a material adverse effect on our business, results of operations
and financial condition.
Research
on and the shipment, import and export of our Product Candidates and the API used in our Product Candidates will require research
permits, import and export licenses by many different authorities. For instance, in the United States, the FDA, U.S. Customs and
Border Protection, and the DEA; in Canada, the Canada Border Services Agency, and HC; in Europe, the EMA and the European Commission;
in Australia and New Zealand, the Australian Customs and Border Protection Service, the Therapeutic Goods Administration, the
New Zealand Medicines and Medical Device Safety Authority and the New Zealand Customs Service; and in other countries, similar
regulatory authorities, regulate the research on and import and export of pharmaceutical products that contain controlled substances.
Specifically, the import and export process requires the issuance of import and export licenses by the relevant controlled substance
authority in both the importing and exporting country. We may not be granted, or if granted, maintain, such licenses from the
authorities in certain countries. Even if we obtain the relevant licenses, shipments of API and our Product Candidates may be
held up in transit, which could cause significant delays and may lead to product batches being stored outside required temperature
ranges. Inappropriate storage may damage the product shipment resulting in delays in clinical trials or, upon commercialization,
a partial or total loss of revenue from one or more shipments of API or our Product Candidates. Once shipment is complete, we
or the research contractors we are working with may also suffer further delays or restrictions as a result of regulations governing
research on cannabinoids. A delay in a clinical trial or, upon commercialization, a partial or total loss of revenue from one
or more shipments of API or our Product Candidates could have a material adverse effect on our business, results of operations
and financial condition. The aforementioned examples and lists of various authorities that may currently, or in the future, affect
our ability to conduct research on or import or export our Product Candidates and/or API, should not be construed as exhaustive
or comprehensive in any way.
Healthcare
legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty
and cost for us to obtain marketing approval of and commercialize our Product Candidates.
Particularly
in the United States but also in other jurisdictions, there have been a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or delay marketing approval of our Product Candidates, restrict or
regulate post-approval activities or affect our ability to profitably sell any Product Candidates for which we obtain marketing
approval. One such regulation is the U.S. federal Patient Protection and Affordable Care Act (P.L. 111-148), or “PPACA”,
also referred to as the “Affordable Care Act” or “ACA”, was signed March 23, 2010, as amended by the Health
Care and Education Reconciliation Act, signed March 31, 2010. The act contains many provisions, with various effective dates.
Provisions included in the ACA are intended to expand access to insurance, increase consumer protections, emphasize prevention
and wellness, improve quality and system performance, expand the health workforce, and curb rising health care costs. The ACA
aims to extend health insurance coverage to about 32 million uninsured Americans by expanding both private and public insurance.
We
expect that the Affordable Care Act, as well as other healthcare reform measures that have been and may be adopted in the future,
may result in more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that
we receive for any approved product, and could seriously harm our future revenue. Any reduction in reimbursement from Medicare
or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment
measures or other healthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our
products.
Increased
scrutiny on drug pricing or changes in pricing regulations could restrict the amount that we are able to charge for our Product
Candidates, which could adversely affect our revenue and results of operations.
Drug
pricing by pharmaceutical companies is currently under increased scrutiny and is expected to continue to be the subject of intense
political and public debate in the United States and other jurisdictions. Specifically, there have been several recent U.S. Congressional
inquiries and hearings with respect to pharmaceutical drug pricing practices, including in connection with the investigation of
specific price increases by several pharmaceutical companies. Additionally, several states have recently passed laws designed
to, among other things, bring more transparency to drug pricing, and other states may pursue similar initiatives in the future.
We cannot predict the extent to which our business may be affected by these or other potential future legislative or regulatory
developments. However, increased scrutiny on drug pricing, negative publicity related to the pricing of pharmaceutical drugs generally,
or changes in pricing regulations could restrict the amount that we are able to charge for our Product Candidates, which could
have a material adverse effect on our revenue and results of operations.
Even
if we are able to commercialize our Product Candidates, they may not receive coverage and adequate reimbursement from third-party
payors, which could harm our business.
The
availability of reimbursement by governmental and private payors is essential for most patients to be able to afford their treatments.
Sales of our Product Candidates, if approved, will depend substantially on the extent to which the costs of these Product Candidates
will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed
by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement
is not available, or is available only to limited levels, we may not be able to successfully commercialize our Product Candidates.
Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing
sufficient to realize a sufficient return on our investment.
In
the United States, the Medicare Modernization Act, established the Medicare Part D program and provided authority for limiting
the number of drugs that will be covered in any therapeutic class thereunder. The Medicare Modernization Act, including its cost
reduction initiatives, could decrease the coverage available for any of our approved products. Furthermore, private payors often
follow Medicare in setting their own coverage policies. Therefore, any reduction in coverage that results from the Medicare Modernization
Act may result in a similar reduction from private payors.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States,
the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services,
or “CMS”, an agency within the HHS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed
under Medicare. Private payors tend to follow CMS to a substantial degree.
The
intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination
administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable
under Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement
for a particular product may be uncertain.
Outside
the United States, particularly in EU Member States, the pricing of prescription drugs is subject to governmental control. In
these countries, pricing negotiations or the successful completion of Health Technology Assessment, or “HTA”, procedures
with governmental authorities can take considerable time after receipt of marketing authorization for a product. In addition,
there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part
of cost containment measures. Certain countries allow companies to fix their own prices for medicines but monitor and control
company profits. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations
may continue after reimbursement has been obtained. Reference pricing used by various EU Member States and parallel distribution,
or arbitrage between low-priced and high-priced EU member states, can further reduce net realized prices. In some countries, we
or our collaborators may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our Product
Candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts
by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of
publication and other countries. If reimbursement of any product candidate approved for marketing is unavailable or limited in
scope or amount, or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations or prospects
could be adversely affected.
Our
relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse, federal exclusion
or debarment, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future earnings.
Healthcare
providers, physicians and third-party payors play a primary role in the recommendation and prescription of any Product Candidates
for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements
and relationships through which we market, sell and distribute our products for which we obtain marketing approval. As a pharmaceutical
company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or
other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations
that may affect our ability to operate include the following:
|
|
●
|
the
U.S. federal healthcare Anti-Kickback Statute impacts our marketing practices, educational programs, pricing policies and relationships
with healthcare providers or other entities, by prohibiting, among other things, persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for,
either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment
may be made under a federal healthcare program such as Medicare and Medicaid;
|
|
|
●
|
federal
civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through civil
whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to
be presented, false or fraudulent claims for payment of government funds (including through reimbursement by Medicare or Medicaid
or other federal health care programs), which has been applied to impermissible promotion of pharmaceutical products for off-label
uses, or making a false statement or record to avoid, decrease or conceal an obligation to pay money to the federal government;
|
|
|
●
|
the
U.S. Health Insurance Portability and Accountability Act, or “HIPPA”, as amended by the Health Information Technology
for Economic and Clinical Health Act, or “HITECH Act”, among other things, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and also prohibits knowingly and willfully falsifying, concealing
or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making
or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or
entry in connection with the delivery of or payment for healthcare benefits, items or services;
|
|
|
●
|
the
U.S. federal Physician Payment Sunshine Act, being implemented as the Open Payments Program, requires applicable manufacturers
of covered drugs, devices, biologics and medical supplies to report annually to HHS information related to payments and other
transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate
family members;
|
|
|
●
|
analogous
state laws and regulations, such as state anti-kickback laws, false claims laws and privacy and security of health information
laws, may apply to sales or marketing arrangements, claims involving healthcare items or services reimbursed by non-governmental
third-party payors, including private insurers, or health information; and
|
|
|
●
|
certain
state laws require pharmaceutical companies to adopt codes of conduct consistent with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government; restrict certain marketing-related
activities including the provision of gifts, meals, or other items to certain health care providers; and/or require drug manufacturers
to report information related to payments and other transfers of value to physicians and certain other healthcare providers or
marketing expenditures.
|
Comparable
laws and regulations exist in the countries within the European Economic Area, or “EEA”. Although such laws are partially
based upon European Union, or “EU”, law, they may vary from country to country. Healthcare specific, as well as general
EU and national laws, regulations and industry codes constrain, for example, our interactions with government officials and healthcare
professionals, and the collection and processing of personal health data. Non-compliance with any of these laws or regulations
could lead to criminal or civil liability.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us,
we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians
or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable
laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs.
Failure
to comply with the U.S. Foreign Corrupt Practices Act, or “FCPA”, the Canadian Corruption of Foreign Public Officials
Act, or “CFPOA”, and other global anti-corruption and anti-bribery laws could subject us to penalties and other adverse
consequences
The
FCPA and the CFPOA, as well as any other applicable domestic or foreign anti-corruption or anti- bribery laws to which we are
or may become subject generally prohibit corporations and individuals from engaging in certain activities to obtain or retain
business or to influence a person working in an official capacity and requires companies to maintain accurate books and records
and internal controls, including at foreign- controlled subsidiaries. It is illegal to pay, offer to pay or authorize the payment
of anything of value to any foreign government official, government staff member, political party or political candidate in an
attempt to obtain or retain business or to otherwise influence a person working in an official capacity.
Compliance
with these anti-corruption laws and anti-bribery laws may be expensive and difficult, particularly in countries in which corruption
is a recognized problem. In addition, these laws present particular challenges in the pharmaceutical industry, because, in many
countries, hospitals are operated by the government, and physicians and other hospital employees are considered to be foreign
officials. Certain payments by other companies to hospitals in connection with clinical trials and other work have been deemed
to be improper payments to governmental officials and have led to FCPA enforcement actions.
Our
internal control policies and procedures may not protect us from reckless or negligent acts committed by our employees, future
distributors, licensees or agents. We are currently working to get policies and processes in place to monitor compliance with
the FCPA and CFPOA. We can make no assurance that they will not engage in prohibited conduct, and we may be held liable for their
acts under applicable anti-corruption and anti-bribery laws. Noncompliance with these laws could subject us to investigations,
sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil
and criminal penalties or injunctions, suspension or debarment from contracting with certain persons, the loss of export privileges,
whistleblower complaints, reputational harm, adverse media coverage, and other collateral consequences. Any investigations, actions
or sanctions or other previously mentioned harm could have a material negative effect on our business, operating results and financial
condition.
Recent
federal legislation and actions by state and local governments may permit reimportation of drugs from/ to foreign countries where
the drugs are sold at lower prices than in the country of origination, which could materially adversely affect our business and
financial condition.
We
may face competition for our Product Candidates, if approved, from cheaper generics and/or cannabinoid therapies sourced
from foreign countries that have placed price controls on pharmaceutical products. This is referred to as parallel
importation. For instance, the Medicare Modernization Act contains provisions that may change U.S. importation laws and
expand pharmacists’ and wholesalers’ ability to import cheaper versions of an approved drug and competing
products from Canada, where there are government price controls. These changes to U.S. importation laws will not take effect
unless and until the Secretary of HHS certifies that the changes will pose no additional risk to the public’s health
and safety and will result in a significant reduction in the cost of products to consumers. The Secretary of HHS has so far
declined to approve a reimportation plan. Proponents of drug reimportation, including certain state legislatures, may attempt
to pass legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing
the reimportation of drugs, if enacted, could decrease the price we receive for any products that we may develop, including
our Product Candidates, and adversely affect our future revenues and prospects for profitability.
We
are dependent upon our key personnel to achieve our business objectives.
We
depend on key personnel, the loss of any of whom could harm our business. Our future performance and development will depend to
a significant extent on the efforts and abilities of its executive officers, key employees, and consultants. The loss of the services
of one or more of these individuals could harm our business. Our success will depend largely on our continuing ability to attract,
develop and retain skilled employees and consultants in our business. Because of the specialized scientific and managerial nature
of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel.
The competition for qualified personnel in our field is intense. Due to this intense competition, we may be unable to continue
to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
Any delay in replacing such persons, or an inability to replace them with persons of similar expertise, would have a material
adverse effect on our business, financial condition and results of operations.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements,
which could subject us to significant liability and harm our reputation.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with regulations of domestic or foreign regulatory authorities. In addition, misconduct by employees could include intentional
failures to comply with certain development standards, to report financial information or data accurately, or to disclose unauthorized
activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and serious harm to our reputation. While prohibited, it is not always possible to
identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business
and results of operations, including the imposition of significant fines or other sanctions.
Our
insurance may be insufficient to cover losses that may occur as a result of our operations.
We
currently maintain directors’ and officers’ liability insurance, clinical trial insurance and property and general
liability insurance and intend in the future to obtain shipping and storage insurance for Product Candidates. This insurance may
not remain available to us or be obtainable by us at commercially reasonable rates, and the amount of our coverage may not be
adequate to cover any liability we incur. Future increases in insurance costs, coupled with the increase in deductibles, will
result in higher operating costs and increased risk. If we were to incur substantial liability and such damages were not covered
by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we were not able to obtain
liability insurance, our business, results of operations and financial condition could be materially adversely affected.
There
may be changes in laws, regulations and guidelines which are detrimental to our business.
Our
operations are subject to a variety of laws, regulations and guidelines relating to pharmacology, cannabinoids and drug delivery,
as well as laws and regulations relating to health and safety, the conduct of operations, and the protection of the environment.
While, to the knowledge of our management, we are currently in compliance with all such laws, changes to such laws, regulations
and guidelines due to matters beyond our control may cause adverse effects to our operations and financial condition. These changes
may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business
plan. In addition, if the governments of Canada or the United States were to enact or amend laws relating to our industry, it
may decrease the size of, or eliminate entirely, the market for our Product Candidates, may introduce significant new competition
into the market and may otherwise potentially materially and adversely affect our business, results of operations and financial
condition.
If
we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely
affected.
The
research and development that we carry out either directly or through third-parties involves, and may in the future involve, the
use of potentially hazardous materials and chemicals. Our operations may produce hazardous waste products. Although we believe
that our safety procedures for handling and disposing of these materials comply with the standards mandated by local, state and
federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an
accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental,
health and workplace safety laws and regulations and fire and building codes. Although we maintain workers’ compensation
insurance as prescribed by the Province of British Columbia to cover us for costs and expenses we may incur due to injuries to
our employees, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for
environmental liability or toxic tort claims that may be asserted against us. Additional federal, state and local laws and regulations
affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or
penalties if we violate, any of these laws or regulations.
Our
proprietary information, or that of our customers, suppliers and business partners, may be lost or we may suffer security breaches.
In
the ordinary course of our business, we may collect and store sensitive data, including intellectual property, data from preclinical
studies, clinical trial data, our proprietary business information and that of our customers, suppliers and business partners,
and personally identifiable information of our customers, clinical trial subjects and employees, in our data centers and on our
networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security
measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error,
malfeasance or other disruptions. Although to our knowledge we have not experienced any such material security breach to date,
any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or
stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under
laws that protect the privacy of personal information, regulatory penalties, disrupt our operations, damage to our ability to
obtain patent protection for our Product Candidates, damage to our reputation, and cause a loss of confidence in our products
and our ability to conduct clinical trials, which could adversely affect our business and reputation and lead to delays in gaining
regulatory approvals.
We
expect to face intense competition, often from companies with greater resources and experience than we have.
The
pharmaceutical industry is highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing
number of competitors and potential competitors enter the market. Many of these competitors and potential competitors have substantially
greater financial, technological, managerial and research and development resources and experience than we have. Some of these
competitors and potential competitors have more experience than we have in the development of pharmaceutical products, including
validation procedures and regulatory matters. Other companies researching in the same disease areas may develop products that
are competitive or superior to our Product Candidates. Other companies working in cannabinoid research may develop products targeting
the same diseases that we are focused on that are competitive or superior to our Product Candidates. In addition, there are non-FDA
approved Cannabis/ cannabinoid preparations being made available from companies in the so-called “medical marijuana”
industry, which may be competitive to our products. If we are unable to compete successfully, our commercial opportunities will
be reduced and our business, results of operations and financial conditions may be materially harmed.
If
we receive regulatory approvals, we intend to market our Product Candidates in multiple jurisdictions where we have limited or
no operating experience and may be subject to increased business and economic risks that could affect our financial results.
If
we receive regulatory approvals, we may plan to market our Product Candidates in jurisdictions where we have limited or no experience
in marketing, developing and distributing our products. Certain markets have substantial legal and regulatory complexities that
we may not have experience navigating. We are subject to a variety of risks inherent in doing business internationally, including
risks related to the legal and regulatory environment in non-U.S. jurisdictions, including with respect to privacy and data security,
trade control laws and unexpected changes in laws, regulatory requirements and enforcement, as well as risks related to fluctuations
in currency exchange rates and political, social and economic instability in foreign countries. If we are unable to manage our
international operations successfully, our financial results could be adversely affected.
Controlled
substance legislation may differ in other jurisdictions and could restrict our ability to market our products internationally,
which would result in increased business and economic risks that could affect our financial results.
Controlled
substance legislation may differ in other jurisdictions and could restrict our ability to market our products internationally.
Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control
of narcotic substances, including Cannabis extracts. Countries may interpret and implement their treaty obligations in a way that
creates a legal obstacle to our obtaining marketing approval for Product Candidates in those countries. These countries may not
be willing or able to amend or otherwise modify their laws and regulations to permit our Product Candidates to be marketed or
achieving such amendments to the laws and regulations may take a prolonged period of time. We would be unable to market our Product
Candidates in countries with such obstacles in the near future or perhaps at all without modification to laws and regulations.
Product
liability lawsuits against us could cause us to incur substantial liabilities.
Our
use of our Product Candidates in clinical trials and the sale of our Product Candidates, if approved, exposes us to the risk of
product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others selling
or otherwise coming into contact with our Product Candidates. For example, we may be sued if any product we develop allegedly
causes injury or is alleged to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent
in the product, including as a result of interactions with alcohol or other drugs, negligence, strict liability, and a breach
of warranties. Claims could also be asserted under local jurisdiction consumer protection acts. If we become subject to product
liability claims and cannot successfully defend ourselves against them, we could incur substantial liabilities. In addition, regardless
of merit or eventual outcome, product liability claims may result in, among other things:
|
|
●
|
withdrawal
of patients from our clinical trials;
|
|
|
●
|
substantial
monetary awards to patients or other claimants;
|
|
|
●
|
decreased
demand for our Product Candidates following marketing approval, if obtained;
|
|
|
●
|
damage
to our reputation and exposure to adverse publicity;
|
|
|
●
|
increased
FDA warnings on product labels or increased warnings imposed by the EMA or other regulatory authorities;
|
|
|
●
|
distraction
of management’s attention from our primary business;
|
|
|
●
|
the
inability to successfully commercialize our Product Candidates, if approved.
|
Our
current clinical trial liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer.
Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage
at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for
our Product Candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may
be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. Large judgments have
been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation
or other proceedings, even if resolved in our favor, could be substantial, particularly in light of the size of our business and
financial resources. A product liability claim or series of claims brought against us could cause our share price to decline and,
if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial
condition, results of operations, business and prospects could be materially adversely affected.
Failure
to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions,
or data corruption could significantly disrupt our operations and adversely affect our business and operating results.
We
rely on information technology, telephone networks and systems, including the internet, to process and transmit sensitive electronic
information and to manage or support a variety of business processes and activities. We use enterprise information technology
systems to record, process and summarize financial information and results of operations for internal reporting purposes and to
comply with regulatory, financial reporting, legal and tax requirements. Despite the implementation of security measures, our
information technology systems, and those of our third-party contractors and consultants, are vulnerable to a cyber-attack, malicious
intrusion, breakdown, destruction, loss of data privacy or other significant disruption. Any such successful attacks could result
in the theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary
information and disrupt our operations. Cyber-attacks are becoming more sophisticated and frequent, and our systems could be the
target of malware and other cyber- attacks. We have invested in our systems and the protection of our data to reduce the risk
of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. Nonetheless,
our computer systems are subject to penetration and our data protection measures may not prevent unauthorized access. We can give
no assurances that these measures and efforts will prevent interruptions or breakdowns. If we are unable to detect or prevent
a security breach or cyber-attack or other disruption from occurring, then we could incur losses or damage to our data, or inappropriate
disclosure of our confidential information or that of others; and we could sustain damage to our reputation, suffer disruptions
to our research and development and incur increased operating costs including increased cybersecurity and other insurance premiums,
costs to mitigate any damage caused and protect against future damage, and be exposed to additional regulatory scrutiny or penalties
and to civil litigation and possible financial liability. For instance, the loss of preclinical or clinical data could result
in delays in our development and regulatory filing efforts and significantly increase our costs.
Our
failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties
against us, and adversely impact our operating results.
We
are subject to various domestic and international data protection laws and regulations (i.e., laws and regulations that address
privacy and data security). The legislative and regulatory landscape for data protection continues to evolve, and in recent years
there has been an increasing focus on privacy and data security issues. Numerous laws, including data breach notification laws,
health information privacy laws and consumer protection laws, govern the collection, use and disclosure of health-related and
other personal information. In addition, we may obtain health information from third parties (e.g., healthcare providers who prescribe
our products) that are subject to privacy and security requirements under HIPAA regulations.
EU
Member States, Australia and other countries have also adopted data protection laws and regulations, which impose significant
compliance obligations. For example, the collection and use of personal data in the EU is governed by the provisions of the General
Data Protection Regulation, or “GDPR”. The GDPR and the national implementing legislation of the EU Member States
impose strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data
from clinical trials and adverse event reporting. In particular, these obligations and restrictions concern the consent of the
individuals to whom the personal data relates, the information provided to the individuals, the rights of individuals to control
personal data and the security and confidentiality of the personal data. In addition, the Australian Privacy Act 1988 (Cth), and
other laws in the states and territories in Australia where we conduct certain of our clinical trials, apply similar restrictions
on our ability to collect, analyze and transfer medical records and other patient data.
A
claim or series of claims brought against us alleging a failure to comply with these laws, or changes in the way in which these
laws are implemented, could lead to government enforcement actions and significant penalties against us, and adversely impact
our operating results and could cause our share price to decline and, if we are unsuccessful in defending such a claim or claims
and the resulting judgments exceed our insurance coverage, our financial condition, results of operations, business and prospects
could be materially adversely affected.
The
COVID-19 coronavirus could adversely impact our business, including several key activities that are critical to our success.
The
global outbreak of COVID-19 continues to rapidly evolve. As a result, businesses have closed and limits have been placed on travel.
The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot
be predicted with confidence, such as the ultimate impact of the disease on specific geographies, the duration of the outbreak,
travel restrictions and social distancing in the United States, Canada and other countries, business closures or business disruptions
and the effectiveness of actions taken in the United States, Canada and other countries to contain and treat the disease.
The
spread of COVID-19 throughout the world has also created global economic uncertainty, which may cause partners, suppliers and
potential customers to closely monitor their costs and reduce their spending budget. Either of the foregoing could materially
adversely affect our research and development activities, clinical trials, supply chain, financial condition and cash flows.
If
the COVID-19 outbreak continues to spread, we may need to limit operations or implement other limitations on our activities. There
is a risk that other countries or regions may be less effective at containing COVID-19, in which case the risks described herein
could be elevated significantly.
Risks
Related to our Intellectual Property
Our
success is largely dependent upon our patents, proprietary technology, and other intellectual property.
Our
success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the
proprietary rights of others. Patents and other proprietary rights are essential to our business. We rely on trade secret, patent,
copyright and trademark laws, and confidentiality and other agreements with employees and third parties, all of which offer only
limited protection. Our general policy has been to file patent applications to protect our inventions and improvements to our
inventions that are considered important to the development of our business. In certain cases, we have chosen to protect our intellectual
property by treating it as confidential internal know-how. Our success will depend in part on our ability to obtain patents, defend
patents, maintain internal know-how/trade secret protection and operate without infringing on the proprietary rights of others.
Interpretation and evaluation of pharmaceutical patent claims present complex legal and factual questions. Further, patent protection
may not be available for some of the products or technology we are developing. If we are placed in a position where we must spend
significant time and money defending or enforcing our patents, designing around patents held by others or licensing patents or
other proprietary rights held by others, our business, results of operations and financial condition may be harmed. In seeking
to protect our inventions using patents it is important to note that we have no assurance that:
|
|
●
|
patent
applications will result in the issuance of patents;
|
|
|
●
|
additional
proprietary products developed will be patentable;
|
|
|
●
|
patents
issued will provide adequate protection or any competitive advantages;
|
|
|
●
|
patents
issued will not be successfully challenged by third parties;
|
|
|
●
|
commercial
exploitation of our inventions does not infringe the patents or intellectual property of others; or
|
|
|
●
|
we
will be able to obtain any extensions of the patent term.
|
A
number of pharmaceutical, biotechnology and medical device companies and research and academic institutions have developed technologies,
filed patent applications or received patents on various technologies that may be related to our business. Some of these technologies,
applications or patents could limit the scope of the patents, if any, that we may be able to obtain. It is also possible that
these technologies, applications or patents may preclude us from obtaining patent protection for our inventions. Further, there
may be uncertainty as to whether we may be able to successfully defend any challenge to our patent portfolio. Moreover, we may
have to participate in derivation proceedings, inter partes review proceedings, post-grant review proceedings, or opposition proceedings
in the various jurisdictions around the world. An unfavorable outcome in a derivation proceeding, an inter partes review proceeding,
a post-grant review proceeding, or an opposition proceeding could preclude us or our collaborators or licensees from making, using
or selling products using the technology, or require us to obtain license rights from third parties. It is not known whether any
prevailing party would offer a license on commercially acceptable terms, if at all. Further, any such license could require the
expenditure of substantial time and resources and could harm our business. If such licenses are not available, we could encounter
delays or prohibition of the development or introduction of our product. In the case of intellectual property where we have chosen
to protect it by treating it as internal know how, there can be no assurance that others with greater expertise or access to greater
resources do not develop similar or superior technology that impairs the competitive value of our internal know-how.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance
with these requirements.
The
U.S. Patent and Trademark Office, or “PTO”, and various foreign national or international patent agencies
require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent
application process. Periodic maintenance fees on any issued patent are due to be paid to the PTO and various foreign
national or international patent agencies in several stages over the lifetime of the patent. While an inadvertent lapse can
in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in
partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in
abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage
patent applications based on our international patent application, failure to respond to official actions within prescribed
time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the
patents and patent applications covering our Product Candidates, our competitors might be able to enter the market, which
would have a material adverse effect on our business.
We
may become subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property
or claiming ownership of what we regard as our own intellectual property.
Our
commercial success depends upon our ability to develop, manufacture, market and sell our Product Candidates, and to use our related
proprietary technologies without violating the intellectual property rights of others. We may become party to, or threatened with,
future adversarial proceedings or litigation regarding intellectual property rights with respect to our Product Candidates, including
interference or derivation proceedings before the PTO or other international patent offices. Third parties may assert infringement
claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third
party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing
our Product Candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all.
Under certain circumstances, we could be forced, including by court order, to cease commercializing the applicable product candidate.
In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could
prevent us from commercializing our Product Candidates or force us to cease some of our business operations, which could materially
harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could
have a similar negative impact on our business.
While
our preclinical studies are ongoing, we believe that the use of our Product Candidates in these preclinical studies fall within
the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement
liability activities reasonably related to the development and submission of information to the FDA. As our Product Candidates
progress toward clinical trials and, ultimately, commercialization, the possibility of a patent infringement claim against us
increases. We attempt to ensure that our Product Candidates and the methods we employ to manufacture them, as well as the methods
for their uses we intend to promote, do not infringe other parties’ patents and other proprietary rights. There can be no
assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.
We
may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and
unsuccessful and have a material adverse effect on the success of our business.
Competitors
may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized
use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Also, third
parties may initiate legal proceedings against us to challenge the validity or scope of intellectual property rights we own. These
proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially
greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able
to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial
costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement
proceeding, a court may decide that a patent owned by us is invalid or unenforceable or may refuse to stop the other party from
using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any
litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could
also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares.
If
we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology
and products could be significantly diminished.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our current
and former employees, consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and
other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure
of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.
In addition, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our
trade secrets. Any party with whom we or they have executed such an agreement may breach that agreement and disclose our proprietary
information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing
a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the
outcome is unpredictable. In addition, some courts are less willing or unwilling to protect trade secrets. If any of our trade
secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those
to whom they disclose such trade secrets, from using that technology or information to compete with us. If any of our trade secrets
were to be disclosed to or independently developed by a competitor or other third-party, our competitive position would be harmed.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on all of our Product Candidates throughout the world would be prohibitively expensive. Therefore,
we have filed applications and/or obtained patents only in key markets such as the United States, Canada, Japan and Europe. Competitors
may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further,
may be able to export otherwise infringing products to territories where we have patent protection but where enforcement is not
as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any
issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them
from so competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign
jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the
enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which
could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our
proprietary rights generally. For example, an April 2016 report from the Office of the United States Trade Representative
identified a number of countries, including India and China, where challenges to the procurement and enforcement of patent
rights have been reported. Several countries, including India and China, have been listed in the report every year since
1989. As a result, proceedings to enforce our patent rights in certain foreign jurisdictions could result in substantial cost
and divert our efforts and attention from other aspects of our business and could be unsuccessful.
Patent
terms may be inadequate to protect our competitive position on our Product Candidates for an adequate amount of time.
Given
the amount of time required for the development, testing and regulatory review of new Product Candidates, patents protecting such
candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms
in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price
Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration
of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension).
However, the applicable authorities, including the FDA and the PTO, and any equivalent regulatory authorities in other countries,
may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents,
or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment
in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might
otherwise be the case.
Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. For example:
|
|
●
|
others
may be able to make compounds that are the same as or similar to our Product Candidates but that are not covered by the claims
of the patents that we own;
|
|
|
●
|
we
might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own;
|
|
|
●
|
we
might not have been the first to file patent applications covering certain of our inventions;
|
|
|
●
|
others
may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual
property rights;
|
|
|
●
|
it
is possible that our pending patent applications will not lead to issued patents;
|
|
|
●
|
issued
patents that we own may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of
legal challenges;
|
|
|
●
|
our
competitors might conduct research and development activities in the United States and other countries that provide a safe harbor
from patent infringement claims for certain research and development activities, as well as in countries where we do not have
patent rights and then use the information learned from such activities to develop competitive products for sale in our major
commercial markets; or
|
|
|
●
|
the
patents of others may have an adverse effect on our business.
|
Risks
Related to our Third Parties
We
rely heavily on contract manufacturers over whom we have limited control. If we are subject to quality, cost or delivery issues
with the preclinical and clinical grade materials supplied by contract manufacturers, our business operations could suffer significant
harm.
We
currently have no manufacturing capabilities and rely on contract development and manufacturing organizations, or “CDMOs”,
to manufacture our Product Candidates for preclinical studies and clinical trials. We rely on CDMOs for manufacturing, filling,
packaging, testing, storing and shipping of drug products in compliance with cGMP, regulations applicable to our products. The
FDA and other regulatory agencies ensure the quality of drug products by carefully monitoring drug manufacturers’ compliance
with cGMP regulations. The cGMP regulations for drugs contain minimum requirements for the methods, facilities and controls used
in manufacturing, processing and packaging of a drug product. If our CDMOs increase their prices or fail to meet our quality standards,
or those of regulatory agencies such as the FDA, and cannot be replaced by other acceptable CDMOs, our ability to obtain regulatory
approval for and commercialize our Product Candidates may be materially adversely affected.
The
APIs used in all of our Product Candidates are currently sourced from either contract manufacturers or, for smaller quantities,
from research material suppliers, that typically utilize synthetic chemistry as their manufacturing method. This is intended to
be an interim step to enable us to proceed with developing our formulation, execute preclinical toxicology studies and progress
through Phase I and II clinical trials, after which time we anticipate that we will have been able to successfully scale-up our
IntegraSynTM manufacturing approach so that it will be commercial-scale ready. Bridging studies consisting of chemical analysis
and, possibly, animal studies may be required in order to switch our APIs from the current external manufacturing sources to our
internally manufactured products. There is no guarantee that we will be successful in scaling up our IntegraSynTM manufacturing
process for cannabinoids, or successfully complete any required bridging studies, or be able to successfully transfer our IntegraSynTM
manufacturing process to a CDMO. The key risks and challenges associated with the development of the IntegraSynTM process include:
failure to continue optimization and development of the process manufacturing steps from the current scale while maintaining the
same or greater output of the selected cannabinoid; equipment and techniques may not be able to be scaled up using existing commercial
processing equipment; supply of the key starting materials for the process may not be secured to ensure stability and security
of commercial supply; and, failure of the large scale process to consistently produce the selected cannabinoid within set specifications
and meeting the process parameters and in process controls to enable the manufacturing process to be validated for GMP commercial
production of an API, among others. Failing to accomplish these or other criteria for the IntegraSynTM manufacturing process with
a CDMO may mean that we are not able to produce certain cannabinoids in a cost-effective manner. This could result in us not being
able to successfully commercialize our Product Candidates, if any, that may obtain regulatory approval.
Our
existing collaboration agreements and any that we may enter into in the future may not be successful.
We
also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our
request or assist us in formulating our research and development strategies. These scientific collaborators are not our employees
and may have commitments to, or consulting or advisory contracts with, companies that conflict in interests with and pose a competitive
threat to us. Moreover, to the extent that we decide to enter into collaboration agreements, we will face significant competition
in seeking appropriate collaborators. Collaboration arrangements are complex and time consuming to negotiate, document and implement.
We may not be successful in our efforts to establish, implement and maintain collaborations or other alternative arrangements
if we choose to enter into such arrangements and our selected partners may be given, and may exercise, a right to terminate their
agreement with us without cause. Our Collaborative Research Agreement with the University of British Columbia may be terminated
by either party upon 30 calendar days written notice. The terms of any collaboration or other arrangements that we may establish
may not be favorable to us.
For
all of the aforesaid reasons and others set forth in this Quarterly Report, an investment in our common shares and any other securities
that we may offer from time to time involves a certain degree of risk. Any person considering an investment in our common shares
or any other of our securities should be aware of these and other factors set forth in this registration statement and should
consult with his or her legal, tax and financial advisors prior to making an investment in our common shares or any other of our
securities that may be offered from time to time. Our common shares and any other securities that we may offer from time to time
should only be purchased by persons who can afford to lose all of their investment.