In
this report, unless the context requires otherwise, references to the “Company”, “BioPharma”, “we”,
“us” and “our” are to Nexien BioPharma, Inc., a Delaware corporation, formerly Intiva BioPharma Inc.
Corporate
History
The
Company was incorporated on November 10, 1952 in Michigan as Gantos, Inc. On July 21, 2008, the Company completed its change in domicile
to Delaware and subsequently changed its name to Kinder Holding Corp. Since bankruptcy liquidation in June 2000, the Company has not
had any operations and adopted “fresh-start” accounting as of June 21, 2000, in accordance with procedures specified by AICPA
Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.”
As
of October 13, 2017, the Company completed a reverse acquisition (the “Share Exchange Transaction”) of Intiva BioPharma Inc.,
a private Colorado corporation (“Colorado BioPharma”). In connection with the completion of the reverse merger the Company
changed its name to Intiva BioPharma Inc. on November 8, 2017.
Colorado
BioPharma was formed under the laws of the State of Colorado in March 2017 as a wholly-owned subsidiary of Kanativa USA Inc. (formerly
Intiva USA Inc.) engaged in the business of developing drugs containing cannabinoids for the treatment of various diseases, disorders
and medical conditions; the development or licensing of proprietary delivery systems for cannabinoid-based1 pharmaceutical
medications; and the investment in companies and the acquisition of technologies or medications, focused on cannabinoid-based science
through special purpose vehicles, discussed more fully below. Kanativa USA Inc. is a wholly-owned subsidiary of Kanativa Inc., formerly
Intiva Inc., an Ontario, Canada corporation.
The
Company changed its name to Nexien BioPharma, Inc. in September 2018.
On
October 26, 2018, we entered into a Limited Liability Company Interest Purchase Agreement (the “Purchase Agreement”) with
the members of CRx Bio Holdings LLC, a Delaware limited liability company (“CRx”), to acquire all of the membership interest
in CRx in exchange for 11,000,000 restricted shares of our common stock (the “Acquisition”). CRx was engaged in the research
and development of advanced cannabinoid formulations and drug delivery systems with a focus on bioavailability and related pharmacokinetics
and pharmacodynamics (PK/PD) optimization. The Acquisition transaction was consummated on October 26, 2018. By acquiring CRx as a wholly-owned
subsidiary, we acquired all of its assets, which consisted primarily of three U.S. provisional patent applications relating to cannabinoid
formulations to treat convulsive disorders, chronic traumatic encephalopathy, and neuropathic pain. At the closing, we issued to the
six members of CRx (the “Sellers”) 1,100,000 shares not subject to any forfeiture restrictions and 9,900,000 shares which
were to be released from forfeiture restrictions in three equal tranches upon each anniversary of the closing of the Acquisition. Any
Seller who was not then providing services to us or any of our subsidiaries on any vesting date, whether through voluntary termination
or termination “for cause,” would forfeit his unvested shares, which would be cancelled.
Effective
December 31, 2018, one of the Sellers resigned from the Company and forfeited 1,732,500 unvested shares previously issued. In May 2019,
that Seller returned to the Company an additional 142,500 vested shares issued in accordance with the Purchase Agreement. The fair value
of the returned shares was credited to the operations as of June 30, 2019. In March 2021, four of the Sellers terminated their relationships
with the Company and forfeited their remaining 2,409,000 unvested shares, valued at the original issuance price of $1,830,840 ($0.76
per share).
1
A cannabinoid is one of a class of diverse chemical compounds that acts on cannabinoid receptors in cells that alter neurotransmitter
release in the brain. Ligands for these receptor proteins include the endocannabinoids (produced naturally in the body by animals), the
phytocannabinoids (found in cannabis and some other plants), and synthetic cannabinoids (manufactured artificially). The most notable
cannabinoid is the phytocannabinoid tetrahydrocannabinol (THC), the primary psychoactive compound in cannabis. Cannabidiol (CBD) is another
major constituent of the plant. There are at least 113 different cannabinoids isolated from cannabis, exhibiting varied effects.
Business
Plan
The
Company’s business objective is to develop and commercialize novel FDA-compliant cannabinoid pharmaceuticals, drug delivery systems,
and related technologies for diseases, disorders and medical conditions. The Company is utilizing cannabinoids as the active pharmaceutical
ingredients to develop synthetic pharmaceuticals in strict accordance with the U.S. Food and Drug Administration (“FDA”)
pre-clinical and clinical pathways.
The
Company’s current flagship research and development programs are focused on advancing formulations that have the potential to significantly
improve the treatment outcomes of certain convulsive disorders and neuromuscular disorders. As of the date of this report, work on these
research and development programs has ceased due to the lack of sufficient funding. The Company is currently seeking a business combination
opportunity and maintaining the intellectual property assets which management believes have the most potential.
Our
Drug Development Activities
Due
to the significant amount of financing needed to develop and commercialize a new drug and the Company’s limited resources, it is
focusing its efforts on advancing formulations that have the potential to significantly improve the treatment of epilepsy and myotonic
dystrophy.
Convulsive
Disorders: Epilepsy and Refractory Epilepsy
Epilepsy
is a neurological disorder marked by sudden recurrent episodes of sensory disturbance, loss of consciousness, or convulsions, associated
with abnormal electrical activity in the brain. It is caused by an imbalance in inhibitory and excitatory neurotransmission resulting
in synchronous neural activity. Refractory epilepsy occurs when standard of care medicine is not bringing seizures under control. This
condition, which may be called by other names, such as uncontrolled, intractable, or drug-resistant epilepsy, is not age specific. Up
to one of every three epilepsy patients will develop what is considered refractory epilepsy.
Our
near-term objective is to secure adequate funding to engage in sponsored research collaboration with a leading Ivy League university
medical school in order to develop a pre-clinical proof of concept for the Company’s proposed parenteral-delivered formulations.
CRx had entered into discussions and subsequently, into a Master Service Agreement (MSA) with the medical school prior to its acquisition
by the Company. The study design involves pre-clinical mouse models in two phases: I – MTD and PK/PD modeling, and II – efficacy
modeling in mice bred to be genetically prone to convulsions/seizures, with a primary focus of advancing a rigorous study design and
improving new meritorious research and development by continued collaboration with our academic partners.
Myotonic
Dystrophy
Myotonic
dystrophy (“DM”) is part of a group of genetic disorders called muscular dystrophies, and is the most common form of muscular
dystrophy that begins in adulthood. DM is characterized by progressive muscle wasting and weakness. People with this disorder often have
prolonged muscle contractions (myotonia) and are not able to relax certain muscles after use. Also, affected people may have slurred
speech or temporary locking of their jaw. Signs and symptoms overlap between DM Type 1 (“DM1”) and Type 2 (“DM2”),
although DM2 tends to be milder than DM1. The muscle weakness associated with DM1 particularly affects the lower legs, hands, neck and
face, while muscle weakness in DM2 primarily involves the muscles of the neck, shoulders, elbows, and hips. The two types of DM are caused
by mutations in different genes.
The
use of cannabinoid receptor modulators and/or terpenes for clinical symptom relief in DM patients has not been explored. Current scientific
knowledge of the effects of cannabis on skeletal muscles or other multiple system symptoms in DM is rather limited. However, some anecdotal
reports suggest that cannabis may be supportive in relief of the most common symptoms in both DM1 and DM2. Unfortunately, currently there
is no standard treatment for these symptoms.
Our
patent applications relate to methods and compositions for treating such diseases with the use of cannabinoids and covers the administration
of the drug(s) by such delivery systems as topical, oral, nasal, inhalation or a combination thereof. On July 07, 2020, a utility patent
was granted (US10702,495) relating to a method for treating the symptoms of myotonia with a therapeutically effective amount of cannabidiol
and tetrahydrocannabinol in a subject. Corresponding claims were also submitted in Europe.
In
April 2018, the Company retained Dr. Benedikt Schoser, a world-renowned expert in DM, to advise the Company. To elicit further information
regarding whether DM patients have had any experience with cannabis and if so whether such experience has resulted in any symptom relief,
a questionnaire was sent to a number of DM 1 and DM 2 patients by patient organizations. The results of the questionnaire suggest further
exploration is appropriate. The survey was published in the Journal of Neurology, Neurosurgery & Psychiatry.
On
August 13, 2019 we filed a pre-IND meeting request (the “Request”) to discuss the requirements for submission of an Investigation
New Drug Application for a combination of Cannabidiol and THC Sublingual Tablet for muscle relaxation in patients with myotonic dystrophy
and for the treatment of myotonia. On October 8, 2019 we received written responses from the FDA to the questions we raised in the pre-IND
meeting request. We are presently evaluating the responses as we seek to move our development plan forward.
The
FDA pathway for the development of drugs for certain of these genetic muscular diseases may fall under the Orphan Drug Act of 1983,
which was passed by the U.S. Congress to facilitate the development of orphan drugs. The FDA may grant orphan drug designation to drugs
intended to treat a rare disease or condition that affects fewer than 200,000 individuals annually in the United States. Such an orphan
drug designation may entitle a recipient to financial incentives, such as opportunities for grant funding towards clinical trial costs,
tax credits for certain research and user fee waivers under certain circumstances. See risk factor “We may apply for orphan
drug status granted by the FDA for some of our drug candidates for the treatment of rare diseases” below.
An
additional utility patent application (US16/435,756) was filed as a continuation-in-part on June 10, 2019, resulting in the issuance
of patent US10,702,495 on July 07, 2020, to incorporate some early formulation concepts that may show use in the relief of these DM symptoms.
A corresponding application has been filed at the European Patent Office (EP19179559.0).
Our
Drug Delivery System Development Activities
Accu-Break
License Agreement
On
February 28, 2018, we obtained a worldwide exclusive license from Accu-Break Pharmaceuticals, Inc., a Florida corporation (“Accu-Break”)
with respect to a proprietary delivery system for cannabinoid-based medications. We are required to use commercially reasonable efforts
to develop and commercialize one or more products utilizing the licensed technology and will be responsible for the costs and efforts
associated with the design, manufacturing, preclinical, clinical, and regulatory development activities of these licensed products worldwide.
Commencing
with the first commercial sale in any country worldwide of any licensed product by the Company or any of its affiliates or sublicensees,
the Company shall pay to Accu-Break royalties for licensed products sold, equal to 4% of the Company’s net sales of licensed products
or 25% of the total revenue received by the Company for sales of licensed products by sublicensees. Such royalties shall continue so
long as the manufacture, use, sale, import or offer for sale of the licensed product infringes a valid claim of Accu-Break’s licensed
technology.
In
addition to the royalty payments described above, and as consideration for entering into the agreement, the Company agreed to pay Accu-Break
a license fee of $100,000, which has been paid in full.
The
Company is also required to pay in cash or, at its option in shares of its Common Stock, milestone payments as follows:
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$100,000
upon approval of filing by each regulatory authority of each pharmaceutical licensed product;
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$100,000
upon approval by each regulatory authority of each pharmaceutical licensed product;
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$50,000
upon achievement of $10,000,000 of cumulative net sales for any and all of the licensed products;
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$50,000
upon achievement of $25,000,000 of cumulative net sales for any and all of the licensed products; and
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$50,000
upon achievement of $50,000,000 of cumulative net sales for any and all of the licensed products.
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The
license fee and milestone payments shall be offset against any amounts due to Accu-Break for royalties and sublicensee payments.
The
license granted to the Company shall continue on a country by country basis and licensed product by licensed product basis so long as
the manufacture, use, sale, import or offer for sale of such licensed product infringes a valid claim of any of Accu-Break’s licensed
technology. Upon such expiration, the license, with respect to such country and such licensed product, will be automatically converted
to a fully paid-up royalty-free perpetual license.
The
license may be terminated by Accu-Break only for the Company’s default under the Agreement, which default shall not have been corrected
within 60 days of having received notice of such default.
Due
to the Company’s limited financial and personnel resources ,the Company estimated that it would not be able to recover the $65,000
of costs capitalized under the Accu-Break License Agreement, and recognized an impairment of $65,000 at June 30, 2019. The $35,000 value
of common stock issued in the year ended June 30, 2020 was charged to operations. Although the Company has recognized an impairment under
Generally Accepted Accounting Principles, it retains its rights under both of these license agreements.
Patents,
Intellectual Property and Proprietary Rights
Our
current patent applications are related to our drug development projects and their respective drug candidates. We intend to seek patent
protection in the U.S. and other countries as appropriate, related to methods and compositions and proprietary technologies for the use
of cannabinoids receptor modulators and/or terpenes to treat certain diseases, disorders and medical conditions.
To
date, we have filed three provisional patent applications all related to our drug development projects, specifically the use of cannabinoid
receptor modulators and/or terpenes to treat certain diseases or medical conditions. Assuming the successful completion of clinical trials,
of which there can be no assurance, we believe that we will be able to secure patent protection and retain applicable intellectual property
rights.
The
table below depicts the Company’s patent applications:
Description
of the Patent Application filed with USPTO
|
|
Date
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Method and Compositions for Treating Dystrophies and
Myotonia
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|
Granted July 07, 2020
|
Method and Compositions for Parenteral Administration
of Cannabidiol in the treatment of Convulsive Disorders
|
|
July 31, 2020
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Method and Compositions for Parenteral Administration
of Cannabidiol in the treatment and prevention of Chronic Traumatic Encephalopathy
|
|
July 31, 2020
|
Method and Compositions for the treatment of Neuropathic
Pain by Parenteral Administration of Cannabinoids
|
|
July 31, 2020
|
In
addition, on June 8, 2018, a U.S. Patent Application was filed relating to the use of cannabinoid receptor modulators and/or terpenes
to treat extreme health hazards due to exposure to organophosphorus nerve agents and/or organophosphorus insecticides. A continuation
was filed on August 01, 2020 relating to a compound disclosed in the patent application with pending applications in Europe and Canada.
An Israeli patent (238946) was granted on July 01, 2019 for the Use of Cannabinoids and Terpenes for Treatment of Organophosphate and
Carbamate Toxicity based on licensed technology from Kotzker Consulting LLC.
Competition
The
emerging markets for cannabinoid-based drug research and development is and will likely remain competitive. In general, the biotechnology
and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary
drugs.
We
expect that we will be required to compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies,
as well as drugs and processes being developed at universities and other research institutions. Our competitors may develop or may already
have developed drugs comparable or competitive with our drug candidates. Competitive therapeutic treatments for diseases, disorders and
medical conditions that are included in our drug development projects have already been approved and accepted by the medical community
and any new treatments that may enter the market would face fierce competition.
We
are aware of a number of companies that are engaged in cannabinoid-based drug development. In addition, several other U.S.-based companies
are in early stage discovery and preclinical development utilizing synthetic and/or plant-derived CBD and/or THC.
Established
companies may have a competitive advantage due to their size and experiences, positive cash flows and institutional networks. Many of
our competitors may have significantly greater financial, technical and human resources than we do. Due to these factors, our competitors
may have a range of competitive advantages and may obtain regulatory approval of their drug candidates before we are able to develop
or commercialize our drug candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less
expensive than ours. Furthermore, some of these competitors may make acquisitions or establish collaborative relationships among themselves
or with third parties to increase their ability to rapidly gain market share and/or increase their drug line.
Mergers
and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller
number of competitors. Smaller and other early-stage companies, such as ours, may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies. We compete with large and small companies in recruiting and
retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical
trials, as well as in acquiring technologies complementary to our research projects.
Government
Laws and Regulations
As
a development stage company that intends to have its drug candidates approved in the U.S., we are subject to extensive regulation by
regulatory agencies. The U.S. Food, Drug, and Cosmetic Act and its implementing regulations set forth, among other things, requirements
for the research, testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping,
reporting, distribution, import, export, advertising and promotion of our drugs. Generally, our activities in other countries will be
subject to regulations that are similar in nature and scope as those in the United States, although there can be important differences.
Additionally, some significant aspects of regulation in the European Union are addressed in a centralized way through the European Medicines
Agency (“EMA”) and the European Commission, but country-specific regulation remains essential in many respects. The process
of obtaining regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes
and regulations require the expenditure of substantial time and financial resources and we may not be successful.
The
US Regulatory Framework for the Marijuana Industry
On
January 4, 2018, United States Attorney General Jeff Sessions and the Department of Justice (“DOJ”) issued a Memorandum for
all United States Attorneys entitled “Marijuana Enforcement” (the “Sessions Memo”). The effect of the Sessions
Memo has been to rescind the guidance issued on August 29, 2013 relative to medical marijuana enforcement under the Cole Memorandum (the
“Cole Memo”).
The
Sessions Memo instructs federal prosecutors to disregard the previous Obama-era Cole Memo guidance, and instead follow “the well-established
principles that govern all federal prosecutions as reflected in chapter 9-27.000 of the U.S. Attorney’s Manual.” The Sessions
Memo continues, stating, “[t]hese principles require federal prosecutors deciding which cases to prosecute to weigh all relevant
considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent
effect of criminal prosecution, and the cumulative impact of particular crimes in the community.”
The
effect of the Cole Memo’s rescission remains to be seen. Since 1980, when chapter 9-27.000 of the U.S. Attorney’s Manual
was originally promulgated, the United States has undergone a dramatic shift in both national and state-level marijuana policy. In 1980,
there were no states in the U.S. with marijuana decriminalization or legalization statutes. As of June 30, 2021, a majority of the states
and the District of Columbia have enacted medical marijuana legislation in some form, with additional states considering similar legalization
measures. As a result, the manner in which the factors identified in chapter 9-27.000 of the U.S. Attorney’s Manual (e.g. “seriousness
of the crime,” “deterrent effect of criminal prosecution,” and cumulative impact . . . in the community”) are
considered and interpreted today as a matter of prosecutorial discretion, will likely be different than the way in which they were considered
and interpreted in 1980.
On
the same day of the Sessions Memo’s release, numerous government officials, legislators and federal prosecutors in states with
medical and recreational marijuana statutes announced their intention to continue the Cole Memo-era status quo despite the DOJ’s
decision to rescind it. The impact that this lack of uniformity between state and federal authorities could have on individual state
cannabis markets and the businesses that operate within them is unclear and the enforcement of relevant federal laws is a significant
risk. Please see disclosure under Item 1A - “Risk Factors” below.
The
Department of Justice under the current Biden administration has not yet issued an official memorandum on this subject.
We
intend to conduct some of our research and development relating to our drug candidates in the United States, at which time, our research
and development, future manufacturing, distribution and sale of our drugs will become subject to the United States Federal Controlled
Substances Act of 1970 and regulations promulgated thereunder. While cannabis is a Schedule I controlled substance, drugs approved
for medical use in the United States that contain cannabis or cannabis extracts must be placed in Schedules II-V, since approval by the
FDA satisfies the “accepted medical use” requirement. If any of our drug candidates will receive approval by the FDA, it
must be listed by the DEA as a Schedule II or III controlled substance to be allowed for commercialization. Consequently, the manufacture,
importation, exportation, domestic distribution, storage, sale and legitimate use of our future drugs will be subject to a significant
degree of regulation by the DEA. In addition, individual states in the United States have also established controlled substance laws
and regulations. Though state-controlled substances laws often mirror federal law, because the states are separate jurisdictions, they
may separately schedule our drugs.
Regulations
Related to the Drug Regulatory Process
We
operate in a highly controlled regulatory environment. Strict regulations establish requirements relating to analytical, toxicological
and clinical standards and protocols in respect to the testing of pharmaceuticals. Regulations also cover research, development, manufacturing
and reporting procedures, both pre- and post-approval. Failure to comply with regulations can result in stringent sanctions, including
product recalls, withdrawal of approvals, seizure of products and criminal prosecution. Further, many countries have stringent regulations
relating to the possession and use of cannabis or drugs derived from cannabis
Before
obtaining regulatory approvals for the commercial sale of our future drug candidates, we must demonstrate through preclinical studies
and clinical trials that our drug candidates are safe and effective. Historically, the results from preclinical studies and early clinical
trials often have not accurately predicted results of later clinical trials. In addition, many pharmaceuticals have shown promising results
in clinical trials but subsequently failed to establish sufficient safety and efficacy results to obtain necessary regulatory approvals.
We
expect to incur substantial expense for, and devote a significant amount of time to, preclinical studies and clinical trials. Many factors
can delay the commencement and rate of completion of clinical trials, including the inability to recruit patients at the expected rate,
the inability to follow patients adequately after treatment, the failure to manufacture sufficient quantities of materials used for clinical
trials, and the emergence of unforeseen safety issues and governmental and regulatory delays. If a drug candidate fails to demonstrate
safety and efficacy in clinical trials, this failure may delay development of other drug candidates and hinder our ability to conduct
related preclinical studies and clinical trials. Additionally, if we have failures, we may also be expected to experience challenges,
delays or even the inability to obtain additional financing at acceptable terms and conditions.
Governmental
authorities in all major markets require that a new drug be approved or exempted from approval before it is marketed, and have established
high-standards for technical appraisal, which can result in an expensive and lengthy approval process. The time to obtain approval varies
by country and some drugs are never approved. The lengthy process of conducting clinical trials, seeking approval and the subsequent
compliance with applicable statutes and regulations, if approval is obtained, are very costly and require the expenditure of substantial
resources.
In
the United States, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations
promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the safety and effectiveness
standards for our drugs and the raw materials and components used in the production of, testing, manufacture, labeling, storage, record
keeping, approval, advertising and promotion of drug candidates on a product-by-product basis.
Preclinical
tests include in vitro and in vivo evaluation of the drug candidate, its chemistry, formulation and stability, and animal studies to
assess potential safety and efficacy. Certain preclinical tests must be conducted in compliance with good laboratory practice regulations.
Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring them to be replicated. After laboratory
analysis and preclinical testing, testing, a sponsor files an Investigational New Drug Application, or IND, to begin human testing. Typically,
a manufacturer conducts a three-phase human clinical testing program which itself is subject to numerous laws and regulatory requirements,
including adequate monitoring, reporting, record keeping and informed consent. In Phase I, small clinical trials are conducted to determine
the safety and proper dose ranges of drug candidates. In Phase II, clinical trials are conducted to assess safety and gain preliminary
evidence of the efficacy of drug candidates. In Phase III, clinical trials are conducted to provide sufficient data for the statistically
valid evidence of safety and efficacy. The time and expense that will be required for us to perform this clinical testing can vary and
is substantial. We cannot be certain that we will successfully complete Phase I, Phase II or Phase III testing within any specific period,
if at all. Furthermore, the FDA, the IRB are responsible for approving and monitoring the clinical trials at a given site, the Data Safety
Monitoring Board, where one is used, or we may suspend the clinical trials at any time on various grounds, including a finding that subjects
or patients are exposed to unacceptable health risk.
If
the clinical data from these clinical trials (Phases I, II and III) are deemed to support the safety and effectiveness of the drug candidate
for its intended use, then we may proceed to seek to file with the FDA, a New Drug Application, or NDA, seeking approval to market a
new drug for one or more specified intended uses. We have not completed our clinical trials for any candidate drug for any intended use
and therefore, we cannot ascertain whether the clinical data will support and justify filing an NDA. Nevertheless, if and when we are
able to ascertain that the clinical data supports and justifies filing an NDA, we intend to make such appropriate filing.
The
purpose of the NDA is to provide the FDA with sufficient information so that it can assess whether it should approve the drug candidate
for marketing for specific intended uses. The fact that the FDA has designated a drug as an orphan drug for a specific intended use does
not mean that the drug has been approved for marketing. Only after an NDA has been approved by the FDA is marketing allowed. A request
for orphan drug status must be filed before the NDA is filed. The orphan drug designation, though, provides certain benefits, including
a seven-year period of market exclusivity subject to certain exceptions.
The
NDA normally contains, among other things, sections describing the chemistry, manufacturing, and controls, non-clinical pharmacology
and toxicology, human pharmacokinetics and bioavailability, microbiology, the results of the clinical trials, and the proposed labeling
which contains, among other things, the intended uses of the candidate drug.
We
cannot take any action to market any new drug or biologic drug in the United States until our appropriate marketing application has been
approved by the FDA. The FDA has substantial discretion over the approval process and may disagree with our interpretation of the data
submitted. The process may be significantly extended by requests for additional information or clarification regarding information already
provided. As part of this review, the FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians.
Satisfaction of these and other regulatory requirements typically takes several years, and the actual time required may vary substantially
based upon the type, complexity and novelty of the drug. Government regulation may delay or prevent marketing of potential drugs for
a considerable period and impose costly procedures on our activities. We cannot be certain that the FDA or other regulatory agencies
will approve any of our drugs on a timely basis, if at all. Success in preclinical or early stage clinical trials does not assure success
in later-stage clinical trials. Even if a drug receives regulatory approval, the approval may be significantly limited to specific indications
or uses and these limitations may adversely affect the commercial viability of the drug. Delays in obtaining, or failures to obtain regulatory
approvals, would have a material adverse effect on our business.
Even
after we obtain FDA approval, we may be required to conduct further clinical trials (i.e., Phase IV trials) and provide additional data
on safety and effectiveness. We are also required to gain separate approval for the use of an approved drug as a treatment for indications
other than those initially approved. In addition, side effects or adverse events that are reported during clinical trials can delay,
impede or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can result in additional limitations
being placed on the drug’s use and, potentially, withdrawal of the drug from the market. Any adverse event, either before or after
marketing approval, can result in product liability claims against us.
As
an alternate path for FDA approval of new indications or new formulations of previously-approved drugs, a company may file a Section
505(b)(2) NDA, instead of a “stand-alone” or “full” NDA. Section 505(b)(2) of the Food, Drug, and Cosmetic
Act was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman
Amendments. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from
studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Some examples of drugs
that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration,
formulation or indication. The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies
conducted for an approved drug or the FDA’s conclusions from prior review of such studies. The FDA may require companies to perform
additional studies or measurements to support any changes from the approved drug. The FDA may then approve the new drug for all or some
of the labeled indications for which the referenced listed drug has been approved, as well as for any new indication supported by the
NDA. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right
of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality
of the new drug must be included in an NDA submitted under Section 505(b)(2).
To
the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already
approved drug, the applicant is required to certify to the FDA concerning any patents listed for the approved drug in the FDA’s
“Orange Book” publication. Specifically, the applicant must certify that: (i) the required patent information has not been
filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval
is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new drug. The Section 505(b)(2)
application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical
entity, listed in the Orange Book for the reference drug has expired. Thus, the Section 505(b)(2) applicant may invest a significant
amount of time and expense in the development of its drugs only to be subject to significant delay and patent litigation before its drugs
may be commercialized.
In
addition to regulating and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, laboratories and processes
used in the manufacturing and testing of such drugs prior to providing approval to market a drug.
Orphan
Drug Designation in the U.S.
Under
the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which
is a disease or condition that affects fewer than 200,000 individuals in the United States. If the disease or condition affects more
than 200,000 individuals in the United States, orphan drug designation may nevertheless be available if there is no reasonable expectation
that the cost of developing and making the drug would be recovered from sales in the United States. In the United States, a drug that
has received orphan drug designation is eligible for financial incentives, such as opportunities for grant funding towards clinical trial
costs, tax credits for certain research and user fee waivers under certain circumstances. The Orphan Drug Act provides that, if a designated
drug is approved for the rare disease or condition for which it was designated, the approved drug will be granted seven years of orphan
drug exclusivity, which means the FDA generally will not approve any other application for a drug containing the same active moiety for
the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the
drug with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease
or condition, or the same drug for a different disease or condition. In the European Union, orphan drug designation also entitles a party
to financial incentives such as a reduction of fees or fee waivers and ten years of market exclusivity following drug approval. This
period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the drug
is sufficiently profitable not to justify maintenance of market exclusivity.
Orphan
drug designation must be requested before submission of an application for marketing approval. Products that qualify for orphan designation
may also qualify for other FDA programs that are intended to expedite the development and approval process and, as a practical matter,
clinical trials for orphan products may be smaller, simply because of the smaller patient population. Nonetheless, the same approval
standards apply to orphan-designated products as for other drugs. Orphan drug designation does not convey any advantage in, or shorten
the duration of, the regulatory review and approval process.
Employees
As
of the date of this report, all of our officers are serving without compensation and have no employees. To the extent not covered by
the services of our offices, we expect to use third-party firms and individuals for our drug candidate development and management.
Our
employees are not subject to any collective bargaining agreement.
Research
and Development Activities
We
have incurred no costs during the fiscal years ended June 30, 2021 and 2020, on research and development for the Company.
You
should carefully consider the risks, uncertainties and other factors described below because they could materially and adversely affect
our business, financial condition, operating results and prospects and could negatively affect the market price of our Common Stock.
Also, you should be aware that the risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties
that we do not yet know of, or that we currently believe are immaterial, may also impair our business operations and financial results.
Our business, financial condition or results of operations could be harmed by any of these risks. The trading price of our Common Stock
could decline due to any of these risks, and you may lose all or part of your investment.
In
assessing these risks, you should also refer to the other information contained in or incorporated by reference to this Annual Report
on Form 10-K, including our financial statements and the related notes.
Risks
Related to Our Financial Position and Capital Requirements
Our
independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.
The
audited financial statements of BioPharma included in this Annual Report have been prepared assuming that we will continue as a going
concern and do not include any adjustments that might result if we cease to continue as a going concern. The development of pharmaceuticals
with the objective of obtaining approval by the FDA and other international regulatory authorities is not a short-term endeavor for any
specific drug candidate. It also requires extremely significant amounts of capital funding for clinical trials and other matters. At
June 30, 2021, the Company had a working capital deficit of $13,775. The Company will require significant additional capital to fund
the implementation and execution of its business plan. This capital, which likely will be millions of dollars for a single drug candidate,
will be required for research, regulatory applications, and clinical trials. We have incurred an accumulated deficit of $10,307,101 since
our inception. We have funded these losses primarily through the sale of restricted shares of our Common Stock.
Based
on our financial history, in its report on the financial statements for the year ended June 30, 2021, our independent registered public
accounting firm has expressed substantial doubt as to our ability to continue as a going concern. To date, we have not generated any
revenues and we do not anticipate generating any significant revenues during the current fiscal year.
Notwithstanding
BioPharma’s success in raising approximately $2.1 million from the sale of its securities from inception in 2017 through June 2021,
there can be no assurance that we will be able to continue to raise equity and/or debt capital from investors on terms and conditions
satisfactory to the Company, find strategic or financial partners for a specific drug candidate, or have adequate capital resources required
by us to fund our current and future planned operations. If we are unable to obtain adequate capital resources to fund operations, we
may be required to delay, scale back or eliminate some or all of our plan of operations, which may have a material adverse effect on
our business, results of operations and ability to operate as a going concern.
The
Company has negative cash flow for the financial year ended June 30, 2021.
The
Company had negative operating cash flow for the financial year ended June 30, 2021. To the extent that the Company has negative operating
cash flow in future periods, it may need to allocate a portion of its cash reserves to fund such negative cash flow. The Company may
also be required to raise additional funds through the issuance of equity or debt securities. There can be no assurance that the Company
will be able to generate a positive cash flow from its operations, that additional capital or other types of financing will be available
when needed or that these financings will be on terms favorable to the Company.
We
face many of the risks and difficulties frequently encountered by relatively new companies with respect to our operations.
The
Company’s business objective is to conduct scientific research and development related to the use of cannabinoid receptor modulators
and/or terpenes for medical treatment of certain medical conditions and diseases. We have no operating history as a medical research
company engaged in cannabinoid-based research upon which an evaluation of the Company and its prospects could be based. There can be
no assurance that our management will be successful in being able to commercially exploit the results, if any, from our drug development
research projects or that we will be able to develop drugs and treatments that will enable us to generate sufficient revenues to meet
our expenses or to achieve and/or maintain profitability.
If
we are unable to raise sufficient capital as needed, we may be required to reduce the scope of our planned research and development activities,
which could harm our business plans, financial condition and operating results, or cease our operations entirely, in which case, you
will lose all your investment.
We
currently have no revenues and may never become profitable.
Our
ability to generate revenue and become profitable depends upon our ability to obtain regulatory approval for any of our drug development
projects. Even if we are able to successfully achieve regulatory approval for any of our drug candidates, we do not know when any of
these drugs will generate revenues, 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 drug candidates. The amount of future losses is uncertain
and will depend, in part, on the rate of growth of our research and development expenses as well as other operating expenses. We are
unable to predict the timing or amount of these expected increases in operating expenses. If we are able to obtain approval for any of
our drug candidates, we will incur significant costs associated with commercializing our drug candidates.
We
will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete
any of our drug development projects
Our
research operations are expected to require significant cash expenditures. We expect to spend substantial and increasing amounts to conduct
our planned research and development, including preclinical testing and clinical trials of our drug candidates, to seek regulatory approvals
to eventually market and commercialize any of our drug candidates. As of June 30, 2021, we had only $18,041 in cash and cash equivalents.
Through June 2021, we have raised approximately $2.1 million in equity under private placement offerings. We believe that current cash
is not sufficient to fund our overhead operations through the remainder of calendar 2021. We estimate that we will require additional
capital of at least $40,000 for the remainder of calendar 2021 to maintain our existence as a public reporting company. As discussed
below, determining a budget is subject to a number of factors. In general, this estimate may higher if our research efforts prove to
be successful or lower if the research efforts are not fruitful. Any progress we make in our research efforts is uncertain because it
is difficult to predict our budget for our drug development activities due to numerous factors, including, without limitation, the rate
of progress of preclinical studies, clinical trials, the results of preclinical studies and clinical trials for such indication and the
costs and timing of seeking and obtaining regulatory approvals for clinical trials. 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 anticipated due to changing
circumstances beyond our control. Our future capital requirements may depend on a wide range of factors, including, but not limited to:
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the
costs related to initiation, progress, timing, costs and results of preclinical studies and clinical trials for our drug candidates;
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any
change in the clinical development plans for these drug candidates;
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the
number and characteristics of drug candidates that we develop;
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the
terms of any future collaboration agreements we may choose to enter;
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the
events related to the outcome, timing and cost of meeting regulatory requirements established by the DEA, the FDA, the European Medicines
Agency (“EMA”) or other comparable foreign regulatory authorities;
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the
potential costs of filing, prosecuting, defending and enforcing our patent claims and other intellectual property;
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the
cost of defending intellectual property disputes; and
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the
cost of marketing and generating revenues for any of our drug candidates.
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We
cannot be certain that additional funding will be available on acceptable terms, if at all. If we are unable to raise additional capital
on terms acceptable to us, we may have to significantly delay, scale back or discontinue one or more of our drug development projects.
Raising
additional capital may cause dilution to our existing stockholders and restrict our operations.
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 stockholders. Debt financings may be coupled with an equity component, such as warrants
to purchase shares, which could also result in dilution of our existing stockholders’ 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
drug candidates.
The
Company’s officers and directors may be engaged in a range of business activities resulting in potential conflicts of interest.
The
Company may be subject to various potential conflicts of interest because some of its officers and directors may be engaged in a range
of business activities. In addition, the Company’s executive officers and directors may devote time to their outside business interests,
so long as such activities do not materially or adversely interfere with their duties to the Company. In some cases, the Company’s
executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability
to devote time to the Company’s business and affairs and that could adversely affect the Company’s operations. These business
interests could require significant time and attention of the Company’s executive officers and directors.
In
addition, the Company may also become involved in other transactions which conflict with the interests of its directors and the officers
who may from time to time deal with persons, firms, institutions or companies with which the Company may be dealing, or which may be
seeking investments similar to those desired by it. The interests of these persons could conflict with those of the Company. In addition,
from time to time, these persons may be competing with the Company for available investment opportunities. Conflicts of interest, if
any, will be subject to the procedures and remedies provided under applicable laws. In particular, if such a conflict of interest arises
at a meeting of the Company’s directors, a director who has such a conflict will abstain from voting for or against the approval
of such participation or such terms. In accordance with applicable laws, the directors of the Company are required to act honestly, in
good faith and in the best interests of the Company.
The
Company is subject to uncertainty regarding legal and regulatory status and changes.
Achievement
of the Company’s business objectives is also contingent, in part, upon compliance with other regulatory requirements enacted by
governmental authorities and obtaining other required regulatory approvals. The regulatory regime applicable to the cannabis business
in the U.S. is currently undergoing significant proposed changes and the Company cannot predict the impact of the regime on its business
once the structure of the regime is finalized. Similarly, the Company cannot predict the timeline required to secure all appropriate
regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. Any
delays in obtaining, or failing to obtain, required regulatory approvals may significantly delay or impact the development of markets,
products and sales initiatives and could have a material adverse effect on the business, results of operations and financial condition
of the Company. The Company will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations
may result in additional costs for corrective measures, penalties or in restrictions on the Company’s operations. In addition,
changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Company’s
operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business,
results of operations and financial condition of the Company.
Risks
Relating to Our Drug Development Projects
Our
future success will largely depend on the success of our drug candidates, which development will require significant capital resources
and years of clinical development effort.
We
currently have no drug products on the market, and none of our drug development projects has reached preclinical study or clinical trial
status. Our business depends almost entirely on the successful clinical development, regulatory approval and commercialization of our
drug candidates. Investors need to be aware that substantial additional investments including clinical development and regulatory approval
efforts will be required before we are permitted to market and commercialize our drug candidates, if ever. It may be several years before
we can commence clinical trials, if ever. Any clinical trial will be subject to extensive and rigorous review and regulation by numerous
government authorities in the United States, the European Union, and other jurisdictions where we intend, if approved, to market our
drug candidates. Before obtaining regulatory approvals for any of our drug candidates, we must demonstrate through preclinical testing
and clinical trials that the drug candidate is safe and effective for its specific application. This process can take many years and
may include post-marketing studies and surveillance, which would require the expenditure of substantial resources. Of the large number
of drugs in development for approval in the United States and the European Union, only a small percentage will successfully complete
the FDA regulatory approval process or be granted authorization to be marketed in the European Commission or the other competent authorities
in the European Union (“EU”) Member States. Accordingly, even if we obtain the sufficient financing to fund our planned research,
development and clinical programs, we cannot assure you that any of our drug candidates will be successfully developed or commercialized.
We
may be unable to formulate or scale-up any or all of our drug candidates. There is no guarantee that any of the drug candidates will
be or are able to be produced in a manner to meet the FDA’s criteria for product stability, content uniformity and all other criteria
necessary for product approval in the United States and other markets. Any of our drug candidates may fail to achieve their specified
endpoints in clinical trials. Furthermore, drug candidates may not be approved even if they achieve their specified endpoints in clinical
trials. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements
for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a drug for fewer
or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials
(i.e., Phase IV trials). In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the
successful commercialization of our drug candidates.
If
we are unable to expand our pipeline and obtain regulatory approval for our drug candidates on the timelines we anticipate, we will not
be able to execute our business strategy effectively and our ability to substantially grow our revenues will be limited, which would
have a material adverse impact on our long-term business, results of operations, financial condition, and prospects.
Our
drug development projects, if approved, may be unable to achieve the expected market acceptance and, consequently, limit our ability
to generate revenue.
Even
when drug development is successful and regulatory approval has been obtained, our ability to generate significant revenue depends on
the acceptance of our drug candidates by physicians and patients. We cannot assure you that any of our drug candidates will achieve the
expected market acceptance and revenue, if and when we obtain the regulatory approvals. The market acceptance of any drug depends on
a number of factors, including the indication statement and warnings approved by regulatory authorities for the drug label, continued
demonstration of efficacy and safety in commercial use, physicians’ willingness to prescribe the drug, reimbursement from third-party
payers such as government health care systems and insurance companies, the price of the drug, the nature of any post-approval risk management
plans mandated by regulatory authorities, competition, and marketing and distribution support. Any factors preventing or limiting the
market acceptance of our drugs could have a material adverse effect on our business, results of operations and financial condition.
Results
of preclinical studies and earlier clinical trials are not necessarily predictive indicators of future results.
Any
positive results from future preclinical testing of our drug candidates and potential clinical trials may not necessarily be predictive
of the results from Phase 1, Phase 2 or Phase 3 clinical trials. In addition, our interpretation of results derived from clinical data
or our conclusions based on our preclinical data may prove inaccurate. Frequently, pharmaceutical and biotechnology companies have suffered
significant setbacks in clinical trials after achieving positive results in preclinical testing and early clinical trials, and we cannot
be certain that we will not face similar setbacks. These setbacks may be caused by the fact that preclinical and clinical data can be
susceptible to varying interpretations and analyses. Furthermore, certain drug candidates may perform satisfactorily in preclinical studies
and clinical trials, but nonetheless fail to obtain FDA approval, a marketing authorization granted by the European Commission, or appropriate
approvals by government authorities in other countries. If we fail to produce positive results in our clinical trials for our drug candidates,
the development timeline and regulatory approval and commercialization prospects for them and as a result our business and financial
prospects, would be materially adversely affected.
The
regulatory approval processes with the FDA, the EMA and other comparable foreign regulatory authorities is lengthy and inherently unpredictable.
We
are not permitted to market our drug candidates in the United States or the European Union until we receive approval of a New Drug Application
(“NDA”) from the FDA or a Marketing Authorization Application (“MAA”) from the European Commission, respectively,
or in any foreign countries until we receive the approval from the regulatory authorities of such countries. Prior to submitting an NDA
to the FDA or an MAA to the EMA for approval of our drug candidates we will need to have completed our preclinical studies and clinical
trials. Successfully completing any clinical program and obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain
process, and the FDA or EMA may delay, limit or deny approval of drug candidates for many reasons, including, among others, because:
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an
inability to demonstrate that our drug candidates are safe and effective in treating patients to the satisfaction of the FDA or EMA;
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results
of clinical trials that may not meet the level of statistical or clinical significance required by the FDA or EMA;
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disagreements
with the FDA or EMA with respect to the number, design, size, conduct or implementation of clinical trials;
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requirements
by the FDA and EMA to conduct additional clinical trials;
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disapproval
by the FDA or EMA or other applicable foreign regulatory authorities of certain formulations, labeling or specifications of drug
candidates;
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findings
by the FDA or EMA that the data from preclinical studies and clinical trials are insufficient;
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the
FDA or EMA may disagree with the interpretation of data from preclinical studies and clinical trials; and
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the
FDA, European Commission or other applicable foreign regulatory agencies may change their approval policies or adopt new regulations.
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Any
of these factors, many of which are beyond our control, could increase development costs or jeopardize our ability to obtain regulatory
approval for our drug candidates.
We
may apply for orphan drug status granted by the FDA for some of our drug candidates for the treatment of rare diseases.
Regulatory
authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient
populations as orphan drugs. The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects
fewer than 200,000 individuals annually in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products
grants orphan drug designation to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening
or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union. Additionally, such designation
is granted for drugs intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and
chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify
the necessary investment in developing the drug.
In
the United States, orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding towards
clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a drug receives
the first FDA approval for the drug and indication for which it has orphan drug designation, the drug is entitled to seven years of market
exclusivity, which means the FDA may not approve any other application for the same drug for the same indication for a period of seven
years, except in limited circumstances, such as a showing of clinical superiority over the drug with orphan drug exclusivity. Orphan
drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different
disease or condition. In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction
of fees or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the orphan
drug designation criteria are no longer met, including where it is shown that the drug is sufficiently profitable so that market exclusivity
is no longer justified.
Our
drug candidates may become subject to controlled substance laws and regulations in the U.S.
While
cannabis is a controlled substance under the CSA in the United States, we plan to initially focus our drug development projects using
cannabinoids that are synthetically produced. Some of these synthetics, such as dronabinol, have been approved by the FDA for various
medical research and conditions. While plant-derived cannabinoids are categorized as Schedule I substances under the CSA, dronabinol,
which is synthetic tetrahydrocannabinol, or THC is a Schedule III substance in capsule form, although it is a Schedule I substance in
bulk form. Even though dronabinol is still a controlled substance, research based on Schedule III substances, including trials in the
United States, are substantially less restrictive.
However,
if we decide to proceed with clinical trials using plant-derived cannabinoids, and are conducting those trials in the United States,
we will become subject to the CSA laws and regulation in addition to FDA regulations. Currently the Company does not intend to proceed
with clinical trials using cannabis-derived cannabinoids in the U.S. If the Company decides to proceed with plant-derived cannabinoids,
it will evaluate where to conduct its research and preclinical trials.
At
present we have no guaranteed or reliable source of synthetic cannabinoids at an economically feasible price – even though we intend
to focus on the utilization of synthetic cannabinoids
Our
primary objective is to focus our initial drug development utilizing synthetic cannabinoids. While we currently have arrangements with
sources from which we are obtaining synthetic cannabinoids, without any guarantees of supply, there is no assurance that we will be able
to access synthetic cannabinoids in the future, or at an economically feasible price for a reasonable period of time that would enable
us to implement and execute our business plan.
Laws
and regulations affecting therapeutic uses of cannabis are constantly evolving.
The
potential ongoing evolution of laws and regulations affecting the research and development of cannabinoid-based medical drugs and treatments
could detrimentally affect our business. Laws and regulations related to the therapeutic uses of cannabis and cannabinoid-based drugs
may be subject to changing interpretations. These changes may require us to incur substantial costs associated with legal and compliance
fees and may ultimately require us to alter our business plan. Furthermore, violations or alleged violation of these laws could disrupt
our business and result in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws,
regulations, interpretations or applications of laws and regulations and it is possible that new laws and regulations may be enacted
in the future that will be directly applicable to our business.
Our
research activities in the cannabinoid drug industry may make it difficult to obtain insurance coverage.
In
the event that we decide to commence research based on plant-derived cannabinoids in the U.S., obtaining and maintaining necessary insurance
coverage, for such things as workers compensation, general liability, product liability and directors and officers liability insurance,
may be more difficult and/or expensive for us to find because of our research directions utilizing synthetic and/or plant-derived cannabinoids.
There can be no assurance that we will be able to find such insurance, if needed, or that the cost of coverage will be affordable or
cost-effective. If, either because of unavailability or cost prohibitive reasons, we are compelled to operate without insurance coverage,
we may be prevented from entering certain business sectors, experience inhibited growth potential and/or expose us to additional risks
and financial liabilities.
We
face a potentially highly competitive market.
Demand
for cannabinoid-derived drugs will likely be dependent on a number of social, political and economic factors that are beyond our control.
While we believe that there will be a demand for such drugs, and that the demand will grow, there is no assurance that such demand will
happen, that we will benefit from any demand or that our business, in fact, will ever generate revenues from our drug development activities
or become profitable.
The
emerging markets for cannabinoid-derived drugs and medical research and development is and will likely remain competitive. The development
and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies and specialized
biotechnology companies, as well as products and processes being developed by universities and other research institutions. Many of our
competitors have developed, are developing, or will develop drugs and processes competitive with our drug candidates. Competitive therapeutic
treatments include those that have already been approved and accepted by the medical community and any new treatments that may enter
the market. For some of our drug development directions, other treatment options are currently available, under development, and may
become commercially available in the future. If any of our drug candidates is approved for the diseases and conditions we are currently
pursuing, they may compete with a range of therapeutic treatments that are either in development or currently marketed.
Our
failure to comply with existing and potential future laws and regulations relating to drug development could harm our plan of operations.
Our
business is, and will be, subject to wide-ranging existing federal and state laws and regulations and other governmental bodies in each
of the countries we may develop and/or market our drug candidates. We must comply with all regulatory requirements if we expect to be
successful.
If
any of our cannabinoid-derived drug candidates are approved in the United States, they will be subject to ongoing regulatory requirements
including federal and state requirements. As a result, we and our collaborators and/or joint venture partners must continue to expend
time, money and effort in all areas of regulatory compliance, including, if applicable, manufacturing, production, quality control and
assurance and, of upmost importance, clinical trials. We will also be required to report certain adverse reactions and production problems,
if any and applicable, to the FDA, and to comply with advertising and promotion requirements for our cannabinoid-derived drug candidates.
Any
failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to conduct clinical trials
which are prerequisites to our ability to commercialize our cannabinoid-based drugs and related treatments. If regulatory sanctions are
applied or if regulatory approval, once obtained, is for any reason withdrawn, the value of our business and our operating results could
be materially adversely affected.
Changes
in legislation or regulation in the health care systems in the United States and foreign jurisdictions may affect us.
Our
ability to successfully commercialize our drugs may depend on how the U.S. and other governments and/or health administrations provide
coverage and/or reimbursements for any drugs that we are successful in developing. The ongoing efforts of governments, insurance companies,
and other participants in the health care services industry to trim health care costs may adversely affect our ability to achieve profitability.
In
certain foreign markets, including countries in the European Union, pricing of prescription pharmaceuticals is subject to governmental
control. Price negotiations with governmental authorities may range from 6 to 12 months or longer after the receipt of regulatory marketing
approval for a drug. Our business could be detrimentally affected if reimbursements of our drugs is unavailable or limited, if pricing
is set at unacceptable levels.
We
will need to increase the size of our organization and may experience difficulties in managing growth.
At
present, we are a very small company. We expect to experience a period of expansion in headcount, infrastructure and overhead and anticipate
that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added
responsibilities on members of management, including the need to identify, recruit, maintain and integrate new members of our management
team, employees including researchers, and consultants. Our future financial performance and our ability to compete effectively will
depend, in part, on our ability to manage any future growth effectively.
We
may not be able to successfully expand our business through acquisitions.
We
may review corporate and product acquisition candidates as a part of our growth strategy. If we decide to undertake an acquisition to
obtain, what we view as promising drug candidates, we may not be able to successfully integrate it in order to realize the full benefit
of such acquisition. Factors which may affect our ability to grow successfully through acquisitions include:
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inability
to identify suitable targets given the relatively narrow scope of our drug candidates;
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difficulties
and expenses in connection with integrating the acquired companies and achieving the expected benefits;
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diversion
of management’s attention from current operations;
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the
possibility that we may be adversely affected by risk factors facing the acquired companies;
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possible
dilution of earnings, or in the case of acquisitions made through the issuance of our common shares to the stockholders of the acquired
company, dilution in the percentage of ownership of our existing stockholders;
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potential
losses resulting from undiscovered liabilities of acquired companies not covered by the indemnification we may obtain from the seller;
and
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loss
of key employees of the acquired companies.
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Risks
Related to Collaboration with Third Parties and Intellectual Property Rights
We
will depend on third parties to conduct our research activities.
We
will rely on third parties such as clinical data management organizations and consultants to design, conduct, supervise and monitor our
preclinical studies and clinical trials (the “Third Parties”). We and the Third Parties are required to comply with various
regulations and guidelines from regulatory authorities to ensure that the health, safety and rights of patients are protected in clinical
development and clinical trials, and that trial data integrity is assured. Relying on Third Parties does not relieve us of certain responsibilities
and requirements. If we or any of the Third Parties fail to comply with applicable requirements, the clinical data generated in our clinical
trials may be deemed unreliable and the FDA, the EMA or other comparable foreign regulatory authorities may require us to perform additional
clinical trials before approving our marketing applications. There is no assurance that upon inspection by a given regulatory authority,
such regulatory authority will determine that any of our clinical trials comply with such requirements. Failure to comply with these
regulations may require us to repeat preclinical studies and clinical trials, which would delay the regulatory approval process.
The
Third Parties will not be designated as our employees. We therefore cannot control whether they devote sufficient time and resources
to our ongoing clinical and preclinical programs. If the Third Parties do not successfully carry out their contractual duties or if the
quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to clinical protocols and/or regulatory
requirements, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for, or
successfully commercialize our drug candidates. As a result, our commercial prospects for our drug candidates would be harmed, our costs
could increase and our ability to generate revenue could be delayed or reduced.
Clinical
trials are very expensive, time consuming and difficult to design and implement. Our drug candidates are in preclinical development,
which is an extremely preliminary stage of development that includes no regulatory input. We estimate that clinical trials for these
drug candidates, if and when initiated, may continue for several years and may take significantly longer than expected to complete. In
addition, we, the FDA, an institutional review board (IRB), or other regulatory authorities, including state and local authorities, may
suspend, delay or terminate our clinical trials at any time, or the DEA could suspend or terminate the registrations and quota allotments
we require in order to procure and handle controlled substances, for various reasons, including:
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Lack
of effectiveness of any product candidate during clinical trials;
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Discovery
of serious or unexpected toxicities or side effects experienced by study participants or other safety issues;
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Slower
than expected rates of subject recruitment and enrollment rates in clinical trials;
|
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Difficulty
in retaining subjects who have initiated a clinical trial but who may withdraw at any time due to adverse side effects from the therapy,
insufficient efficacy, fatigue with the clinical trial process, or for any other reason;
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Delays
or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials, in particular, obtaining
sufficient quantities of synthetic or plant-derived cannabinoids due to regulatory and manufacturing constraints.
|
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Inadequacy
of or changes in our manufacturing process or product formulation;
|
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Delays
in obtaining regulatory authorization to commence a study, or “clinical holds” or delays requiring suspension or termination
of a study by a regulatory agency, including by the FDA, before or after a study is commenced;
|
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DEA-related
recordkeeping, reporting, or security violations at a clinical site, leading the DEA or state authorities to suspend or revoke the
site’s controlled substance license and causing a delay or termination of planned or ongoing studies;
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Changes
in applicable regulatory policies and regulations;
|
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Delays
or failure in reaching agreement(s) on acceptable terms in clinical trial contracts or protocols with prospective clinical trial
sites;
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Uncertainty
regarding proper dosing;
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Unfavorable
results from ongoing clinical trials and preclinical studies;
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Failure
of the Third Parties or other third-party contractors to comply with all contractual and regulatory requirements or to perform their
services in a timely or acceptable manner;
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Failure
by us, our employees, our consultants, the Third Parties, or their employees to comply with all applicable FDA, DEA or other regulatory
requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for controlled substances;
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Scheduling
conflicts with participating clinicians and clinical institutions;
|
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Failure
to design appropriate clinical trial protocols;
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●
|
Insufficient
data to support regulatory approval;
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|
Inability
or unwillingness of medical investigators to follow our clinical protocols;
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Difficulty
in maintaining contact with subjects during or after treatment, which may result in incomplete data; or
|
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Regulatory
concerns with cannabinoid-derived drugs generally and the potential for abuse of the drugs.
|
Generally,
there is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our clinical
trials similar to the experience of many other companies in the pharmaceutical and biotechnology industries, even after receiving promising
results in early trials. Further, even if we view the results of a clinical trial to be positive, the FDA or other regulatory authorities
may disagree with our interpretation of the data. In the event that we abandon or are delayed in our clinical development efforts related
to our drug candidates, we may not be able to execute on our business plan effectively, we may not be able to generate revenues from
our drug development activities, become profitable, resulting in our reputation in the industry and in the investment community likely
becoming significantly damaged and this could adversely affect the price of our shares.
We
intend to rely upon Third Parties to formulate and produce our drug candidates in accordance with our clinical protocols and all applicable
regulatory requirements, including the FDA’s good clinical practice regulations and current good manufacturing practices and DEA
and state regulations governing the handling, storage, security and recordkeeping for controlled substances. These Third Parties are
anticipated to play a significant role in the formulation process and the development of our drug candidates. We intend to likely rely
on these Third Parties for the formulation and development of the products to be utilized in our clinical and preclinical studies, and
we will likely control minimally certain aspects of their activities.
We
intend to rely on Third Parties to conduct and oversee our clinical trials. If these Third Parties do not meet our deadlines or otherwise
conduct the trials as required, we may not be able to obtain regulatory approval for or commercialize our drug candidates when expected
or at all.
We
may also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance
with our clinical protocols and all applicable regulatory requirements, including the FDA’s good clinical practice regulations
and DEA and state regulations governing the handling, storage, security and recordkeeping for controlled substances. These Third Parties
are anticipated to play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the
clinical trials. We intend to rely heavily on these parties for the execution of our clinical and preclinical studies, and control only
certain aspects of their activities.
If
any of our clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may experience the loss
of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients
to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors
or consultants to us from time to time and receive cash or equity compensation in connection with their services. If these relationships
and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable
clinical trial site may be questioned by the FDA.
If
we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our drug candidates,
our competitive position could be harmed.
Our
commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection
in the U.S. and other countries with respect to our proprietary technology and drug candidates. We will 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. We are seeking to protect our proprietary positions by filing patent applications in the United States and abroad related
to our novel technologies and drugs that are important to our business.
We
do not know whether any of the pending patent applications for any of our drug candidates will result in the issuance of patents. The
patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions
and have often been the subject of litigation. As a result, the issuance, scope, validity, enforceability and commercial value of any
of our potential future patents are highly uncertain. The steps we will take to protect our proprietary rights may not be adequate to
preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside
the United States. Patent examination processes may require us to narrow the claims for our pending patent applications, which may limit
the scope of patent protection that may be obtained if the patents are granted. The rights to be granted under future patents issued
to us may not provide us with the proprietary protection or competitive advantages we seek. If we are unable to obtain and maintain patent
protection for our technology and drugs, or if the scope of the patent protection obtained is not sufficient, our competitors could develop
and commercialize technology and drugs similar or superior to ours, and our ability to successfully commercialize our technology and
drugs may be adversely affected.
The
issuance of a patent may not always be conclusive as to its inventorship, scope, validity or enforceability. Our issued patents may be
challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection, the narrowing
of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using
or commercializing similar or identical technology and drugs, or limit the duration of the patent protection for our technology and drugs.
Costly
litigation may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation of the
intellectual property rights of others.
We
may face significant expense and liability due to litigation or other proceedings relating to patents and other intellectual property
rights of others. If another party has also filed a patent application or been issued a patent relating to an invention or technology
claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual
outcome were favorable to us. We, or our licensors, also could be required to participate in interference proceedings involving issued
patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to cease using
the technology or to license rights from prevailing third parties.
The
cost to us of any patent application or patent litigation, even if resolved in our favor, could be substantial. Our ability to enforce
our patent protection could be limited by our financial resources, and may be subject to lengthy delays.
A
third party may claim that we use inventions claimed by their patents and may go to court to stop us from engaging in research, development
and/or the sale of any of our future drugs. Such lawsuits are expensive and would consume time and other resources. There is a risk that
the court will decide that we are infringing on the third party’s patents and will order us to stop the activities claimed by the
patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents.
Moreover,
there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed
by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third
parties may in the future, assert other intellectual property infringement claims against us with respect to our drug candidates, technologies
or other matters.
We
will rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using
our intellectual property to compete against us.
We
will take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of confidential
information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the
ideas, developments, discoveries and inventions of our employees and consultants while we employ them. These agreements may be difficult
and costly to enforce. Although we will seek to obtain these types of agreements from these Third Parties, to the extent that employees
and consultants utilize or independently develop intellectual property in connection with any of our projects, disputes may arise as
to the intellectual property rights associated with our drug candidates. If a dispute arises, a court may determine that the right belongs
to a third party. Enforcement of our rights can be costly and unpredictable. Despite the protective measures we intent to employ, we
will still face the risk that:
●
|
these
agreements may be breached;
|
●
|
these
agreements may not provide adequate remedies for the applicable type of breach;
|
●
|
our
trade secrets or proprietary know-how will otherwise become known; or
|
●
|
our
competitors will independently develop similar technology or proprietary information.
|
Intellectual
property rights may not necessarily address all potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property rights may be uncertain because intellectual property rights have limitations,
and may not adequately protect us to enable us to maintain any competitive advantage. The following factors may weaken our protection:
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|
compounds
may be made by others that are the same or similar to our drug candidates, but are not covered by our patent claims;
|
●
|
inventions
covered by our future patents or pending patent may have been discovered by others previously;
|
●
|
independently
developed similar or alternative technologies may duplicate any of our technologies without infringing our intellectual property
rights;
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●
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pending
patents may not lead to issued patents;
|
●
|
our
future issued patents 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
|
●
|
the
patents of others may have an adverse effect on our business.
|
Risks
Related to Our Common Stock
There
can be no assurance of a liquid public trading market for our Common Stock or whether investors will be able to readily be able to sell
their shares of Common Stock.
At
present, our Common Stock is subject to quotation on the OTCQB under the symbol “NXEN”. There is only a limited and non-liquid
public trading market for our Common Stock and there can be no assurance that a more liquid market will ever develop or be sustained.
Market liquidity will depend on the perception of our business and any steps that our management might take to bring public awareness
of our business to the investing public within the parameters of the federal securities laws. We can provide no assurance that there
will be any awareness generated or sustained. Consequently, investors may not be able to liquidate their investment or liquidate it at
a price paid by investors equal to or greater than their initial investment in our Common Stock. As a result, holders of our Common Stock
may not find purchasers for their shares should they to decide to sell the Common Stock held by them at any specific time, if ever. Consequently,
our Common Stock should be purchased only by investors who have no immediate need for liquidity from their investment and who can hold
our Common Stock potentially for a prolonged period of time.
In
the event an active trading market develops for our Common Stock, the market price may, from time-to-time, be volatile.
In
the event an active trading market develops for our Common Stock, the market price of our Common Stock may be highly volatile. Some of
the factors that may materially affect the market price of our Common Stock are beyond our control, such as changes in conditions or
trends in the industry in which we operate, general market and economic conditions both in the United States and globally, as well as
the number of our shares of Common Stock being purchased and sold at any particular time. These factors may materially adversely affect
the market price of our Common Stock, regardless of our historic business performance or future business prospects. In addition, the
public stock markets have experienced and may be expected to experience extreme price and trading volume volatility. These market fluctuations
may adversely affect the market price of our Common Stock.
A
large number of additional shares will be available for resale into the public market pursuant to Rule 144, which may cause the market
price of our Common Stock to decline significantly.
Sales
of a substantial number of shares of our Common Stock in the public market will become available pursuant to Rule 144 promulgated by
the SEC under the Act, and could adversely affect the market price of our Common Stock. As of October 12, 2021, we have 55,772,196 shares
of Common Stock outstanding, of which 44,367,782 are restricted due to applicable federal securities laws. As restrictions on the resale
of shares of Common Stock expire, pursuant to the provisions of Rule 144 or otherwise, the market price could drop significantly if the
holders of these restricted shares sell them or are perceived by the market as intending to sell them at any given date or over any particular
period of time.
If
holders of restricted securities sell a large number of shares pursuant to Rule 144, they could adversely affect the market price for
our Common Stock, over which we will likely have no control.
You
may experience dilution of your ownership interest because of the potential of future issuance of additional shares of our Common Stock
or our preferred stock.
In
the future, we may issue our authorized but previously unissued equity securities, including shares of our Common Stock, resulting in
the dilution of the ownership interests of our present stockholders. We are authorized to issue an aggregate of 200,000,000 shares of
Common Stock, par value $0.0001 per share, of which 55,772,196 shares of Common Stock are outstanding as of October 12, 2021.
We
may also issue additional shares of our Common Stock, warrants or other securities that are convertible into or exercisable for the purchase
of shares of our Common Stock in connection with hiring and/or retaining employees or consultants, future acquisitions, future sales
of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of
our Common Stock or other securities, for any reason including those stated above, may have a negative impact on the market price of
our Common Stock. There can be no assurance that the issuance of any additional shares of Common Stock, warrants or other convertible
securities may not be at a price (or exercise prices) below the then prevailing price at which shares of our Common Stock will be quoted
in the U.S. over-the-counter market.
We
may never pay any dividends to our stockholders.
We
currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect
to pay any dividends in the foreseeable future, but will review this policy as circumstances dictate. The declaration and payment of
all future dividends, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend
policy at any time. Consequently, stockholders must rely on sales of their Common Stock after price appreciation, which may never occur,
as the only way to realize any future gains on their investment.
Insiders
will continue to have substantial control over us and will be able to influence corporate matters.
As
of October 12, 2021, our directors and executive officers and stockholders holding more than 5% of our Common Stock own of record and
beneficially, in the aggregate, approximately 74% of our outstanding Common Stock. As a result, if these stockholders were to choose
to act together, they would be able to exercise considerable influence over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, such as a merger or other sale of our Company or all or a significant
percentage of our assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect
of delaying or preventing a third party from acquiring control over us. For information regarding the ownership of our outstanding stock
by our executive officers and directors and their affiliates, see the disclosure under Item 12 - “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.”
We
cannot assure you that the interests of our management and affiliated persons will coincide with the interests of other stockholders.
As long as our management and affiliated persons collectively control a substantial portion of our Common Stock, these individuals and/or
entities controlled by them, including Kanativa USA Inc., will continue to collectively be able to strongly influence or effectively
control our decisions.
Our
Common Stock is thinly traded, so stockholders may be unable to sell at or near ask prices, or at all, if they need to sell shares to
raise money or otherwise desire to liquidate their shares.
Our
Common Stock is “thinly-traded,” meaning that the number of persons interested in purchasing our Common Stock at or near
ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including
the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others
in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they
tend to be risk-averse and would be reluctant to follow an unproven company such as ours, or purchase or recommend the purchase of our
shares until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or longer when trading
activity in our Common Stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading
activity that will generally support continuous sales without an adverse effect on its share price. We cannot give stockholders any assurance
that a broader or more active public trading market for our Common Stock will develop or be sustained, or that current trading levels
will be sustained.
Anti-takeover
provisions of the Delaware General Corporation Law may discourage or prevent a change of control, even if an acquisition would be beneficial
to our stockholders, which could reduce our stock price.
We
are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations
with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation,
bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors
or initiate actions that are opposed by our then-current board of directors, including a merger, tender offer or proxy contest involving
our Company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price
of our Common Stock to decline.
State
Blue Sky registration and potential limitations on resale of our Common Stock.
The
holders of our shares of Common Stock and those persons who desire to purchase our Common Stock in any trading market, should be aware
that there may be state blue-sky law restrictions upon the ability of investors to resell our securities. Accordingly, investors should
consider the secondary market our securities to be a limited one.
Our
Common Stock is considered a Penny Stock, which may be subject to restrictions on marketability, so you may not be able to sell your
shares.
We
are subject to the Penny Stock rules since our shares of Common Stock sell below $5.00 per share. Penny stocks generally are equity securities
with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared
by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer
must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its
salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid
and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing
prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In
addition, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The
penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our Common Stock.
As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common Stock may find it more
difficult to sell their securities.
The
control deficiencies in our internal control over financial reporting may until remedied cause errors in our financial statements or
cause our filings with the SEC to not be timely.
There
may be errors in our financial statements that could require a restatement, or our filings may not be timely made with the SEC. Based
on the work undertaken and performed by us, however, we believe the financial statements contained in our reports filed with the SEC
are fairly stated in all material respects in accordance with generally accepted accounting principles (“GAAP”) for each
of the periods presented.
At
present, our internal control over financial reporting or disclosure controls and procedures are not effective. We identified material
weaknesses including lack of sufficient internal accounting personnel in order to ensure complete documentation of complex transactions
and adequate financial reporting during the years ended June 30, 2021 and 2020.
We
intend to implement additional corporate governance and control measures to strengthen our control environment as we are able, but we
may not achieve our desired objectives. We may identify material weaknesses and control deficiencies in our internal control over financial
reporting in the future that may require remediation and could lead investors losing confidence in our reported financial information,
which could lead to a decline in our stock price.
Reporting
requirements under the Exchange Act and compliance with the Sarbanes-Oxley Act of 2002 (SOX), including establishing and maintaining
acceptable internal controls over financial reporting, are costly and may increase substantially.
The
rules and regulations of the SEC require a public company to prepare and file periodic reports under the Securities Exchange Act of
1934 (the “Exchange Act”), which will require that the Company engage legal, accounting, auditing and other professional
service providers. The engagement of such services is costly and continuing. Additionally, SOX requires, among other things, that we
design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with SOX and
the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal
controls over financial reporting. We expect these costs to be approximately $40,000 per year or perhaps more as our operations increase
in scope and magnitude. If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal
controls, we may not be able to produce reliable financial reports and/or discover and report fraud, which may harm our overall financial
condition and result in loss of investor confidence and a decline in our share price.
Our
by-laws provide for indemnification of our directors and the purchase of D&O insurance at our expense and limit their potential or
actual liability which may result in a significant cost to us and damage the interests of our stockholders.
The
Company’s By-Laws include provisions that eliminate the personal liability of the directors of the Company for monetary damages
to the fullest extent possible under the laws of the State of Delaware as well as other applicable laws. These provisions eliminate the
liability of directors to the Company and its stockholders for monetary damages arising out of any violation of a director of his fiduciary
duty of due care. Under Delaware law, however, such provisions do not eliminate the personal liability of a director for: (i) breach
of the director’s duty of loyalty; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation
of law; (iii) payment of dividends or repurchases of stock other than from lawfully available funds; or (iv) any transaction from which
the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities
laws or the recovery of damages by third parties.
Financial
Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a stockholder’s ability
to buy and sell our Common Stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment
to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to
recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain
information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least
some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock,
which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
If
we fail to maintain effective internal controls over financial reporting, the price of our Common Stock may be adversely affected.
Our
internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure
of which may have an adverse impact on the price of our Common Stock. We are required to establish and maintain appropriate internal
controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely
affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s
assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed or other matters
that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control
over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an
adverse impact on the price of our Common Stock.
We
are required to comply with certain provisions of Section 404 of SOX and if we fail to comply in a timely manner, our business could
be harmed and our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of SOX require an annual assessment of internal controls over financial reporting, and for
certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards
that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require
significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur expenses and to devote
resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be
to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies
in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process
on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently
applicable to us, we could become subject to these requirements in the future and we may encounter problems or delays in completing the
implementation of any resulting changes to internal controls over financial reporting. If our Chief Executive Officer or Chief Financial
Officer determines that our internal controls over financial reporting are not effective as defined under Section 404, we cannot predict
how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value
may be negatively affected.
Our
share price could be volatile and our trading volume may fluctuate substantially.
The
price of our common shares has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low
of pennies per share to a high of $0.44 during the two most recently completed fiscal years. Many factors could have a significant impact
on the future price of our common shares, including:
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our
inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
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●
|
our
failure to successfully implement our business objectives and strategic growth plans;
|
●
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compliance
with ongoing regulatory requirements;
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market
acceptance of our drug candidates, once approved for sale;
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changes
in government regulations;
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general
economic conditions and other external factors; and
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actual
or anticipated fluctuations in our quarterly financial and operating results; and
|
●
|
the
degree of trading liquidity in our common shares.
|
Our
annual and quarterly results may fluctuate greatly, which may cause substantial fluctuations in our Common Stock price.
Our
annual and quarterly operating results may in the future fluctuate significantly depending on a number of factors. Any unfavorable change
in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause
downward pressure on our Common Stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.
Risks
Related to the Regulation of Cannabis in the United States
While
cannabis is legal in many U.S. state jurisdictions, it continues to be a controlled substance under the United States CSA.
In
the United States, cannabis is largely regulated at the state level. To the Company’s knowledge, a majority of the states, plus
the District of Columbia, Puerto Rico and Guam, that have legalized cannabis in some form. Notwithstanding the permissible regulatory
environment of medical cannabis at the state level, cannabis continues to be categorized as a controlled substance under the CSA and
as such, violates federal law in the United States.
Violations
of federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising
from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited
to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on the Company,
including its reputation and ability to conduct business, the listing of its securities on various stock exchanges, its financial position,
operating results, profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for the
Company to estimate the time or resources that would be needed for the investigation of any such matters or its final resolution because,
in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable
authorities involved, and such time or resources could be substantial.
Currently
the Company does not intend to proceed with clinical trials using cannabis-derived cannabinoids in the U.S. If the Company decides to
proceed with plant-derived cannabinoids, it could become subject to risks relating to the characterization of cannabis as a controlled
substance.
The
approach to the enforcement of cannabis laws may be subject to change or may not proceed as previously outlined.
As
a result of the conflicting views between state legislatures and the federal government regarding cannabis, involvement in the cannabis
industry in the United States is subject to inconsistent legislation and regulation. If we decide to proceed with clinical trials using
plant-derived cannabinoids, and are conducting those trials in the United States, we could be subject to risks relating to the enforcement
of cannabis laws.
Regulatory
scrutiny of the Company’s industry may negatively impact its ability to raise additional capital.
The
Company’s business activities rely on newly established and/or developing laws and regulations in multiple jurisdictions. These
laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect the Company’s
potential for profitability or cause it to cease operations entirely. The cannabis industry may come under scrutiny by the U.S. FDA,
the SEC, the DOJ, the Financial Industry Regulatory Authority or other federal or other applicable state or nongovernmental regulatory
authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical
or non-medical purposes in the U.S. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives
that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the Company’s industry may
adversely affect the business and operations of the Company, including without limitation, the costs to remain compliant with applicable
laws and the impairment of its ability to raise additional capital, create a public trading market in the U.S. or elsewhere for securities
of the Company, which could reduce, delay or eliminate any return on investment in the Company.
State
and local laws and regulations may heavily regulate brands and forms of cannabis products and there is no guarantee that the Company’s
proposed products and brands will be approved for sale and distribution in any state.
States
generally only allow the manufacture, sale and distribution of cannabis products that are grown in that state and may require advance
approval of such products. Certain states and local jurisdictions have promulgated certain requirements for approved cannabis products
based on the form of the product and the concentration of the various cannabinoids in the product. If the Company produces products that
are derived from plant-based (rather than synthetic) cannabinoids, the Company intends to follow the guidelines and regulations of each
applicable state and local jurisdiction in preparing products for sale and distribution, there is no guarantee that such products will
be approved to the extent necessary. If the products are approved, there is a risk that any state or local jurisdiction may revoke its
approval for such products based on changes in laws or regulations or based on its discretion or otherwise.
We
may have difficulties accessing the services of banks in the United States due to the nature of our business.
The
use, sale, or possession of all forms of cannabis in the United States is illegal under federal law. As a Schedule I drug under the federal
Controlled Substances Act of 1970, cannabis is considered to have “no accepted medical use” and have a high potential
for abuse and physical or psychological dependence. As a result, historically many banks have not accepted for deposit funds from persons/entities
that are engaged in cannabis-related businesses, including those engaged in developing drugs containing cannabinoids such as our Company.
As described above, on February 14, 2014, the Financial Crimes Enforcement Network (“FinCEN”) released guidance to banks
“clarifying Bank Secrecy Act expectations for financial institutions seeking to provide services to cannabis-related businesses.”
In addition, U.S. Rep. Jared Polis (D-CO) has stated he will seek an amendment to banking regulations and laws in order to allow banks
to transact business with state-authorized medical marijuana treatment programs. While these are positive developments, there can be
no assurance this legislation will be successful, or that, even with the FinCEN guidance, banks will decide to do business with corporations
that are in the business of developing drugs containing cannabinoids, or that, in the absence of actual legislation, state and federal
banking regulators will not strictly enforce current prohibitions on banks handling funds generated from an activity that is illegal
under federal law. While the Company has not, to date, experienced any difficulty in opening accounts and otherwise using the services
of banks, any changes in this regard could materially harm our business.
Due
to the classification of cannabis as a Schedule I controlled substance under the CSA, banks and other financial institutions which service
the cannabis industry are at risk of violating certain financial laws, including anti-money laundering statutes.
Because
the manufacture, distribution, and dispensation of cannabis remains illegal under the CSA, banks and other financial institutions providing
services to cannabis-related businesses risk violation of federal anti-money laundering statutes (18 U.S.C. §§ 1956 and 1957),
the unlicensed money-remitter statute (18 U.S.C. § 1960) and the U.S. Bank Secrecy Act. These statutes can impose criminal
liability for engaging in certain financial and monetary transactions with the proceeds of a “specified unlawful activity”
such as distributing controlled substances which are illegal under federal law, including cannabis, and for failing to identify or report
financial transactions that involve the proceeds of cannabis-related violations of the CSA. The Company may also be exposed to the foregoing
risks if it produces drugs derived from plant-based (rather than synthetic) cannabinoids.
Any
re-classification of cannabis or changes in U.S. controlled substance laws and regulations may affect the Company’s business.
If
cannabis and/or CBD is re-categorized as a Schedule II or lower controlled substance, the ability to conduct research on the medical
benefits of cannabis would most likely be simpler and more accessible; however, if cannabis is re-categorized as a Schedule II or other
controlled substance, the resulting re-classification would result in the requirement for FDA approval if medical claims were made for
any of the Company’s products, such as medical cannabis. As a result, the manufacture, importation, exportation, domestic distribution,
storage, sale and use of such products may be subject to a significant degree of regulation by the DEA. In that case, the Company may
be required to be registered (licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory
mechanisms required by the DEA to prevent drug loss and diversion. Obtaining the necessary registrations may result in delay of the manufacturing
or distribution of the Company’s anticipated products. The DEA conducts periodic inspections of certain registered establishments
that handle controlled substances. Failure to maintain compliance could have a material adverse effect on the Company’s business,
financial condition and results of operations. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate
proceedings to restrict, suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.
Furthermore, if the FDA, DEA, or any other regulatory authority determines that the Company’s products may have potential for abuse,
it may require the Company to generate more clinical or other data than the Company currently anticipates establishing whether or to
what extent the substance has an abuse potential, which could increase the cost and/or delay the launch of that product.
CBD
is classified as Schedule I controlled substance. The DEA recently published a final rule in the Federal Register creating a new drug
code for “marijuana extracts”.
In
connection with the new drug code, the DEA has determined that all CBD products, regardless of origin, shall be considered Schedule I
controlled substances. The Company is unable to determine what the impact of this will be on its business.
U.S.
federal trademark and patent protection may not be available for the intellectual property of the Company due to the current classification
of cannabis as a Schedule I controlled substance.
As
long as cannabis remains illegal under U.S. federal law as a Schedule I controlled substance pursuant to the CSA, the benefit of certain
federal laws and protections which may be available to most businesses, such as federal trademark and patent protection regarding the
intellectual property of a business, may not be available to the Company if it determines to produce drugs using cannabis. As a result,
the Company’s intellectual property may never be adequately or sufficiently protected against the use or misappropriation by third-parties.
In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, the Company can provide no assurance
that it will ever obtain any protection of its intellectual property, whether on a federal, state or local level.
The
Company’s contracts may not be legally enforceable in the United States.
If,
in the future, the Company enters into contracts that involve cannabis and/or other activities that are not legal under U.S. federal
law and in some jurisdictions, the Company may face difficulties in enforcing its contracts in U.S. federal and certain state courts.