Item 1. Description of Business
Historically we were previously an exploration
stage mining company which transitioned into a bio-tech company in 2014.
Our corporate address is #3 Bethesda Metro
Center, Suite 700, Bethesda, Maryland, 20814; Telephone (877) 424-2429.
The company was previously engaged in the
oil and gas exploration business. On April 29th, 2014, the company began a new direction and the majority of the Shareholders of
the company elected the current Board of Directors and renamed the Company Cannabics Pharmaceuticals Inc. The Directors formed
a US based company founded in 2012 by a group of renowned researchers from the fields of molecular biology, cancer research and
pharmacology. R&D is conducted in Government licensed labs in Israel with the focus of development of personalized cannabinoid-based
therapies, medications and administration routes for cancer.
History
Cannabics Pharmaceuticals Inc. was incorporated
on September 15, 2004, under the laws of the State of Nevada, as Thrust Energy Corp., for the purpose of acquiring undivided working
interests in small oil and gas exploration properties and non-operating interests in both producing and exploration projects throughout
the United States and Canada.
On September 30, 2010, we increased our
authorized capital to 900 million shares of common stock (par value $0.0001) and 100 million shares of preferred stock (par value
$0.0001), and effected a 20-for-1 reverse split of our issued and outstanding common stock. As a result of the reverse split, our
issued and outstanding common stock was reduced from 13,604,000 shares to 680,202 shares and 5,000,000 preferred shares.
Due to our inability to earn any meaningful
revenue from oil and gas exploration, our management determined in April 2011 that we should change our business plan to include
toll milling and refining.
On May 5, 2011, we effected a change of name to American Mining
Corp. by completing a short form merger with a wholly-owned subsidiary.
On April 25, 2014, Cannabics Inc., a Delaware
Corporation, purchased 20,500,000 shares of restricted stock of the Company, thus acquiring control of the company.
On June 3, 2014, the Company's Board of
Directors declared a two-to-one forward stock split of all outstanding shares of common stock. The stock split was approved by
FINRA on June 19th, 2014. The effect of the stock split increased the number of shares of common stock outstanding from 40,880,203
to 81,760,406. All common share and per common share data in these financial statements and related notes hereto have been retroactively
adjusted to account for the effect of the stock split for all periods presented prior to June 3rd, 2014. The total number of authorized
common shares and the par value thereof was not changed by the split.
On June 19, 2014, FINRA granted final
approval of Change of Name & Ticker Symbol of the Corporation from American Mining Corporation to CANNABICS PHARMACEUTICALS
INC., with the new Ticker Symbol of “CNBX”. Said approval was predicated upon Cannabics Pharmaceuticals Inc.’s
filing of Articles of Merger with American Mining Corporation with the Nevada Secretary of State on May 21st, 2014. Under the laws
of the State of Nevada, Cannabics Pharmaceuticals Inc. was merged with and into the Registrant, with the Registrant being the surviving
entity. The Merger was completed under Section 92A.180 of the Nevada Revised Statutes, Chapter 92A, as amended, and as such, does
not require the approval of the stockholders of either the Registrant or Cannabics Pharmaceuticals Inc.
On July 24, 2014, the Company executed
a Collaboration Agreement with Cannabics, Inc. (“Cannabics”), a Delaware corporation and largest shareholder of the
Company. Per the terms of the Agreement, the Company issued 18,239,594 shares of its common stock to acquire the entire institutional
knowledge of Cannabics, Inc., which primarily consists of in-process Research & Development technology, the cumulative result
of its years of scientific institutional knowledge in the fields of Molecular Biology, Cancer and Pharmacology research. Additionally,
Cannabics tendered $150,000 to the Company specifically earmarked as working funds towards prospective projects of the Company.
Per the Agreement, from that day forth they have carried forward their research and development as part of, and for the exclusive
benefit of the Company, which initial findings have now branched out into new and divergent discoveries.
On August 25, 2014, Cannabics Pharmaceuticals
Inc. incorporated a wholly owned subsidiary in Israel, named “G.R.I.N Ultra Ltd”, dedicated to advanced research and
development.
On July 3, 2018, the Company announced
the conclusion of its Clinical Trial of Cannabics SR 5mg drug for Cancer Anorexia Cachexia Syndrome, as noted on the press release
of that date.
On June 10th, 2020, the Company announced its collaboration
agreement with Cannomed, a public company on the Israeli stock exchange, for the development of 17 specific cultivars rich in known
anti-tumor properties to target various human cancer cells.
On June 16th, 2020, the Company announced its appointment
of Dr. Erez Scapa, MD, to its Scientific Board of Advisors. Dr. Scapa is an Expert in Invasive Gastroenterology in the Sourasky
Medical Center in Tel-Aviv, Israel, where he is head of the Endoscopic Submucosal Dissection (ESD) program.
On August 5th, 2020, the Company announced its appointment
of Dr. Dana Ben-Ami Shor to its Scientific Board of Advisors, where she will help lead the design and implementation of the company's
clinical validation plan of its novel drug candidates for the treatment of colorectal cancer.
On August 20th, 2020, the Company
announced the creation of a new Division for its Anti-Tumor drug candidate RCC-33, for the treatment of colorectal cancer. The
emanates from the Company’s focus on a clinical validation path, including in-vivo experiments, collaborations with
key medical centers, and the preparation of a product dossier with which the company plans to schedule a Pre IND-Meeting with the
US FDA.
Our Business
We are a biopharmaceutical company specializing
in the discovery, development and commercialization of novel cannabinoid-based products and innovative technologies for the treatment
of cancer.
Management Experience
Cannabics Pharmaceuticals
Inc.’s management team is highly experienced in various aspects of biotech and pharmaceutical management. The scientific
team has a long cumulative track record in cancer and CNS research, pharmaceutical development, clinical studies and a deep hands-on
understanding of the medical cannabis industry.
Dr. Eyal
Ballan, 45, is a co-founder of Cannabics Inc. and is its CTO. Dr. Ballan holds a Ph.D. in Neurophysiology, EEG, Brain Wave
Analysis and Cortical Connectivity. After obtaining his Ph.D. he was an entrepreneur in the field of Biofeedback Studies and developed
a Resonating Neuro-Feedback system. Dr. Ballan holds a M.Sc. from Tel-Aviv University - Magna Cum Laude - in anticancer drug
development. Dr. Ballan was part of the renowned research team which developed Salirasib (Treatment for Non-Small Cell Lung Cancer).
He is an expert in molecular biology, cell cultures and genomics with a focus towards identification of anticancer compounds and
delivery systems to tumors and is a member of the American Academy of Neurology. Eyal is committed full time to the Company.
Eyal Barad, 55, is a co-founder
of Cannabics Inc. He was named Director & CEO on November 13 th, 2017, as noted in the 8K of that date. Mr. Barad
brings over 20 years of executive managerial experience in successful technology ventures. He has a BA in Economics & International
Relations from the Hebrew University in Jerusalem, and an MBA with Honors from Haifa University. Eyal is committed full time to
the Company.
Gabriel Yariv, Mr. Yariv, 43, was
named Director and Chief Operations Officer on November 6th, 2019. Mr. Yariv brings over 20 years of successful executive
experience in the medical industry. Mr. Yariv was part of the founding group of BreathID, an Oridion Medical business
unit (now Medtronic) and its subsequent spinoff company, Exalenz Bioscience, which develops and manufactures advanced
non-invasive diagnostic medical devices for gastrointestinal and liver conditions. Mr. Yariv also co-founded SimuTec, a medical
simulation and training company in Brazil that develops and commercializes advanced personalized Virtual Reality training programs
for physicians. Mr. Yariv is actively engaged in non-profit and philanthropic activities including ongoing business mentoring of
entrepreneurs, founder of the Yariv Foundation for Leadership, and current member of the Friends of the Israel Museum
society. Mr. Yariv holds a BA (Cum Laude) in History, Philosophy & Political science from Boston University, and a Certificate
Course in Cyberlaw from Harvard University.
Advisory Board –
Dr. Sigalit Ariely-Portnoy - Senior
Advisor in the field of Regulation, Validation and Quality. Dr. Sigalit Ariely-Portnoy has over 17 years’ experience in the
pharmaceutical industry. During this time, she has managed pharmaceutical and chemical plants at Taro pharmaceutical industries
Ltd as Operation Group Vice president and in Teva Pharmaceutical industries Ltd as Kfar-Saba OSD plant manager. Dr. Ariely-Portnoy
managed Teva's largest plant worldwide (9 billion tablets per annum and more than $2B revenues). During her career, she led more
than 50 inspections by the US FDA, EMEA, Israeli MOH, and others. Dr. Ariely-Portnoy spearheaded the construction of a 200,000
sq ft pharmaceutical plant, several chemical plants and bio-warehouses, as well as many significant plant expansions for manufacturers
of semisolids, liquids and oral solid dosage forms. Between the years 2003-2006, Dr. Ariely-Portnoy was the president of the Israel
chapter of the PDA (Parenteral Drug Association). For the last 5 years, Dr. Ariely-Portnoy manages Gsap, a company which consults
pharmaceutical, medical device and biotechnology companies in several major fields, including innovative product development, regulation,
establishing quality systems and validation services. Dr. Ariely-Portnoy received her B.Sc., M.Sc., and D.Sc. from the Technion
Institute of Technology in Haifa, Israel, in the fields of Chemical Engineering and Biomedical Engineering.
Dr. Danna Ben-Ami Shor, MD –
Dr. Ben-Ami Shor is a recognized expert in invasive endoscopy and gastroenterology in the Sourasky Medical Center in Tel-Aviv,
Israel. Dr. Ben-Ami Shor earned her M.D in 2009, graduating cum laude from the Sackler Faculty of Medicine, Tel Aviv University.
She specialized in internal medicine and gastroenterology at the Sheba Medical Center, Israel. She also successfully completed
an advanced endoscopy (ASGE) accredited fellowship within the Center for Interventional Endoscopy at AdventHealth, in Florida.
Additionally, Dr. Ben-Ami Shor is proficient in both diagnostic and therapeutic endoscopic ultrasound (EUS), and endoscopic retrograde
cholangiopancreatography (ERCP).
Prof. Zamir Halpern - Medical Advisor.
Prof. Halpern, is a senior physician at the Gastroenterology Institute of the Sourasky Medical Center in Tel-Aviv, Israel, and
current Chairman of the National Gastro Nutrition and Liver Diseases Council at the Israeli Ministry of Health. He has also served
as Chairman of the Israeli Association of the Study of Liver, Chairman of the Israeli Gastroenterology Association and Chairman
of the National Council for Food and Agriculture.
Dr. Erez Scapa, MD - Medical Advisor.
Dr. Scapa earned his M.D. in 2000 at the Technion Institute of Technology in Haifa, Israel, cum laude. He later held a Research
Fellowship in Hepatology at the Brigham and Women's Hospital, Harvard University, Boston, Massachusetts, as well as a fellowship
in Endoscopic Submucosal Dissection at the NTT Medical Center in Tokyo, Japan. He is an expert in invasive endoscopy and has extensive
experience in preforming colonoscopies and gastroscopies. He is proficient in both diagnostic as well as invasive endoscopic ultrasound
and has served as the head of the Endoscopic Submucosal Dissection program in Tel-Aviv Sourasky Medical Center since 2019.
Dr. Gil Feiler - Head of Advisory
Board and Business Development Advisor, Dr. Feiler served as Board Member of Advanced Vision Technology, traded on the Frankfurt
Stock Exchange (VSJ), served on the Board of Safra Bank Mutual Fund Division; and has served as Administrative advisor for the
Government of Ras Al Khaimah, UAE. Dr. Feiler has published extensively on business opportunities and strategies and was a frequent
speaker in world events including the World Economic Forum in Davos.
Prof. Amos Toren, MD - Medical Advisor
Prof. Amos Toren is the Director of Pediatric Hemato-Oncology and BMT Department at the Sheba Medical Center since 2001 and a Professor
in the division of Hematology, Sackler School of Medicine Tel-Aviv University. Prof. Toren is a specialist in Pediatrics, General
Hematology and Pediatric Hemato-Oncology. He also has a PhD degree in genetics and qualified as a Master of Health Administration
(MHA) at the Recannati Business School, Tel-Aviv University. Professor Toren runs numerous clinical studies, investigator initiated,
company initiated, unicenter as well as multicenter.
Dr. Tal Mofkadi - Financial Advisor,
Dr. Mofkadi holds a Ph.D. in Financial Economics from Tel Aviv University. He is a lecturer at Tel Aviv University, the Interdisciplinary
Center in Herzliya and universities abroad. He is the author of ‘The Handbook of Corporate Valuation’. Dr. Mofkadi
provides expert opinions in financing, economic, and legal proceedings, writing valuations and optimal pricing policies as well
as economic analysis of competition and regulatory aspects, risk assessment and more.
Company Overview –
CANNABICS PHARMACEUTICALS, INC. is based
in Bethesda, Maryland, and is dedicated to the development and licensing of personalized cannabinoid-based treatments and therapies.
The Company’s main focus is development and marketing innovative bioinformatic delivery systems for cannabinoids, personalized
medicine therapies and procedures based on cannabis originated compounds and bioinformatics tools. The parent Company Cannabics
Inc was founded by a group of Israeli researchers from the fields of cancer research, pharmacology and molecular biology.
Nature of the Company
The Company is a biopharmaceutical corporation
specializing in the discovery, development and commercialization of novel effective cannabinoid-based products and innovative technologies
for the treatment of cancer. Cannabics is a pioneer in the constellation of cannabis cancer and diagnostics. Our vision is to reveal
and personalize the potential of cannabis medicine to treat cancer itself, as well as side effects. We develop cancer diagnostics
in conjunction with cannabinoid medicine, utilizing novel bio-technological tools, striving to prevent cancer onset in healthy
adults and progression in patients. Personalization of cannabinoid-based treatments is the main scope of the company. We combine
the power of our proprietary technologies with the expertise of our leading scientists to unlock the medicinal properties of cannabis
and its diversity of bioactive compounds. We have conducted thousands of tests on biopsies and cell lines in order to identify
the physiologic impact of cannabinoids on cell cycle and cell death. This scientific workflow has generated an ongoing stream of
biological data through which we have accumulated in-depth knowledge of the various therapeutic effects of cannabinoids and identified
cannabinoid ratios demonstrating anti-tumor potential. We believe that our cannabinoid research coupled with our proprietary technologies
and intellectual property positions the Company to play an important role in the rapidly growing medical cannabis marketplace.
Our
core technology is a continuously evolving bioinformatics platform that utilizes high-throughput screening technology, advanced
data analytics, and proprietary methodologies to rapidly examine the physiologic effect
of multiple cannabinoid compounds on tumor cells. This technology enables us to screen thousands of cannabinoid combinations weekly,
generating multiple datasets on the anti-tumor properties of different cannabinoid formulations and ratios. We conduct a broad
range of preclinical research on cannabinoids through our bioinformatics platform, which informs the development of our product
candidates.
Our lead product candidate is RCC-33, an
oral capsule for the treatment of colorectal cancer (“CRC”). RCC-33 contains high concentrations of the cannabinoids
CBDV and CBGA, which have demonstrated complex synergistic anti-tumor activity in our in vitro studies, with minimal
psychoactive effects. We are currently in the early planning stage of a clinical development pathway for RCC-33. We plan to conduct
further preclinical studies to establish the safety and efficacy of RCC-33 in an in vivo murine model of colorectal cancer.
Subject to the results of our preclinical studies, we intend to proceed to phase 1/2a clinical study in the second half of 2022.
Cannabics SR
is a lipid-based capsule containing a standardized formulation of cannabinoids that we are developing as a product candidate for
the treatment of cancer anorexia-cachexia syndrome (“CACS”). With a rapid onset
of action and sustained effects for up to 6-8 hours, we believe that the convenience of once or twice daily oral dosing of Cannabics SR
may improve quality of life and increase patient compliance with treatment regimens, leading to better health outcomes. A two-year
pilot study of Cannabics SR led by Dr. Gil Bar-Sela of the Rambam Hospital Health Care Campus, Division of Oncology, in Haifa,
Israel, demonstrated a clinically significant weight increase in CACS patients treated with Cannabics SR capsules (Source:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6785913/). In the second half of
2021, we intend to commence an additional pilot study in Israel to assess the pharmacokinetics and pharmacodynamics of Cannabics
SR in humans. Data from the study will inform our clinical development plan for Cannabics SR. In the meantime, we anticipate
that the results of these studies may enable us to obtain a permit from the Israeli Ministry of Health to commercialize Cannabics SR
in Israel.
Another
product candidate we are developing is Cannabics CDx, a drug sensitivity test designed to provide innovative decision
support to healthcare providers interested in personalizing cannabinoid-based cancer therapies. Cannabics CDx applies data
analytics and high-content drug sensitivity screening integrated with our proprietary database to measure the effectiveness of
cannabinoid compounds on a patient’s biopsy, suggest preferred alternatives, and alert healthcare providers to cannabinoids
that may be contraindicated. We believe that Cannabics CDx will meet a significant unmet need of the growing population of
cancer patients being treated with cannabis by enabling healthcare providers to more precisely tailor cannabinoid treatments to
a patient’s cancer and clinical profile. We are currently seeking strategic partners for a clinical validation study expected
to commence in 2022 to assess the sensitivity and specificity of Cannabics CDx with a view towards commercializing Cannabics CDx
in Europe, the United States, and other territories.
Cancer and Cannabinoids
Cancer is a general term used to describe
a group of more than 100 related diseases characterized by uncontrolled growth and spread of abnormal cells, leading to the development
of a mass commonly known as a tumor, followed by invasion of the surrounding tissues and subsequent spread, or metastasis, to other
parts of the body. Despite enormous investment in research and the introduction of new treatments, cancer remains a critical area
of unmet medical need. According to the World Health Organization, cancer is the second leading cause of mortality worldwide, responsible
for an estimated 9.6 million deaths in 2018. As of January 1, 2019, there were more than 16.9 million people with a history of
cancer living in the United States, with 1.8 million new cases and 606,520 cancer deaths expected in 2020 (Source: American
Cancer Society. Cancer Facts & Figures 2020).
Over the past decade, there has been growing
interest in the therapeutic value of cannabinoid compounds in oncology. Cannabis has long been suggested as a well-tolerated, safe,
and effective option to help patients cope with cancer related symptoms by reducing nausea and vomiting, alleviating cancer pain,
stimulating appetite, and improving quality of life. Beyond their palliative benefits, however, cannabinoids have also been receiving
increased attention for their anti-cancer potential, which we believe may one day revolutionize cancer therapy.
Cannabinoids are a diverse class of chemical
compounds that occur naturally within cannabis plants and are pharmacologically similar to cannabinoids produced by the human body,
known as endocannabinoids. Endocannabinoids form part of the human endocannabinoid system (ECS), a complex biological network that
also includes cannabinoid receptors and enzymes involved in cannabinoid formation, transport, and degradation. The ECS is regarded
as an important endogenous system implicated in regulation of the most vital biological processes to maintain homeostasis, assisting
the body to remain stable and balanced despite external, or environmental, fluctuations (Source: Current Pharmaceutical Design,
2016;22(12):1756-1766).
Dysregulation of the ECS owing to variation
in the expression and function of cannabinoid receptors or enzymes or the concentration of endocannabinoids has been associated
with several diseases, including cancer (Source: International Journal of Molecular Sciences, 2020;21(3):747). Indeed, the
mechanisms involved in the regulation of the ECS as well as the processes that it regulates include practically every pathway important
in cancer biology. Expression of the ECS is altered in numerous types of tumors, compared to healthy tissue, and this aberrant
expression has been related to cancer prognosis and disease outcome, depending on the origin of the cancer (Source: British
Journal of Pharmacology, 2018;175(13):2566-2580). Recent studies suggest that endocannabinoids contribute to maintaining balance
in cell proliferation and that targeting the ECS can affect cancer growth (Source: Canadian Urological Association Journal,
2017;11(3-4):E138-E142).
Cannabinoids can interact with the cannabinoid
receptors in the ECS, sometimes with a higher affinity than endocannabinoids. As a consequence, all the processes regulated by
endocannabinoids are susceptible to interference by cannabinoids. The ability to use cannabinoids to modulate the ECS encompasses
several attractive pharmacotherapeutic targets for systemic anti-cancer treatment and has sparked considerable research examining
cannabinoid action on cancer cells (Source: Pharmacological Reviews, 2006;58(3):389-462).
Cannabinoids have demonstrated selective
anti-tumor properties in preclinical studies, exerting anti-proliferative, proapoptotic, anti-angiogenic, and anti-metastatic and
anti-inflammatory effects depending on tumor type and specific setting (Source: Cancer Medicine, 2018:7(3):765-775). These
effects appear to be more pronounced when cannabinoids are used together versus being administered separately, a mechanism known
as the entourage effect. We believe, therefore, that cannabinoid combinations may hold promise for an improved anti-proliferative
strategy for cancer management.
In addition to their potential role as
anti-cancer agents, cannabinoids have been observed to act synergistically with some conventional antineoplastic drugs, such as
chemotherapeutic agents, enhancing their effectiveness (Source: Cancer Medicine, 2018;7(3)765-775). This raises the potential
for combinational therapies that may increase the range of chemotherapeutic options available to patients and enable targeting
of tumor progression at different levels while also permitting dosages of cytotoxic drugs to be dramatically reduced without compromising
efficacy.
Figure 1: Synergistic
effects of cannabis extracts and chemotherapies on cancer biopsy after treatment with the same extract and three different chemotherapy
combinations
As of the date of this filing, we are not
aware of any cannabinoid-based therapies approved for the treatment of cancer.
Our Bioinformatics Platform
We have developed a continuously evolving
preclinical bioinformatics platform that enables us to evaluate and classify the physiological impact of multiple cannabinoid compounds
on various cancer cells. Utilizing state-of-the-art high-throughput screening and flow cytometry, our platform is capable of testing
thousands of compounds weekly, allowing us to rapidly and effectively examine their interactions with a growing library of human
cancer cell lines and biopsies. Through the large body of data generated by our platform, we are accumulating in-depth knowledge
of the various therapeutic effects of cannabinoids and patterns of cannabinoid ratios that demonstrate meaningful physiologic impact
on cancer.
Our bioinformatics platform includes the
following:
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high-throughput screening, high content
screening, flow cytometry, machine learning, robotics, and proprietary methodologies;
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a library of human cancer cell lines and
thousands of different combinations and ratios of cannabinoid compounds in a costumed matrix;
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a growing database of biological response
data;
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in-house extraction, processing methodologies,
and analytical techniques that yield well-characterized and standardized extracts;
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collaborations with regulated cannabis
producers that may expand our cannabinoid compound library and provide us with access for future proprietary cultivars;
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fully integrated in-house research and
development; and
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Once a series of potentially active cannabinoids
is identified for a specific cancer type, we then test and confirm their activity through in vitro and ex-vivo evaluation
studies to determine their potential activity. Through this process, we are able to assess their therapeutic potential. The results
of our pre-clinical experiments provide starting points for our clinical development programs.
Biopharmaceutical Collaboration
As medical cannabis
becomes increasingly recognized for its therapeutic potential in the age of personalized medicine and genomics, we believe that
there is a growing global demand by biopharmaceutical companies for research and diagnostic tools that both facilitate and accelerate
the generation of biological information for the development of cannabinoid drugs and formulations. We believe that our bioinformatics
platform will be of benefit to such companies and may therefore represent collaborative opportunities, market potential and downstream
value-creation for the Company.
Finding novel
ways to treat and cure diseases is a fundamental challenge in biomedical research. Unsuccessful clinical trials are the most expensive
obstacle for drug development because of the immense costs and the low success rate. Only 1 out of 10 drugs successfully pass through
clinical development, with 80% of drugs excluded before Phase 3 clinical trials (Source: Biotechnology Innovation Organization,
“Clinical Development Success Rates, 2006-2015). The low clinical target validation success rate reflects a lack of reliable
drug target prediction methods. This is particularly true in the case of research on cancer, which is increasingly being understood
as not just many but thousands of different diseases, requiring more well-defined targets and biomarkers. A 2018 study by MIT found
that trials using biomarkers for patient stratification have higher success rates, especially in the area of oncology, where clinical
trials using biomarkers exhibited almost twice the overall probability of success compared to trials without biomarkers (Source:
Biostatistics, 2019;20(2):273-286).
We believe that
our bioinformatics platform could make the development of cannabinoid-based drugs more successful by providing a more accurate
and reliable drug target prediction method. Our proprietary analytics may benefit biopharmaceutical companies across a range of
applications, including patient selection and recruitment for clinical trials and identification of new targets for drug development.
Development Pipeline
We are currently developing a portfolio
of proprietary technologies and formulations with a variety of research, analytic, and therapeutic applications. Our most advanced
development programs include the following:
Product Candidate
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Indication/Description
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Current Development Status
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Expected Next Steps
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Partner(s)
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RCC-33
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Colorectal Cancer
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Pre-clinical
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Pre-IND meeting with FDA in the second half of 2021.
Phase 1/2a clinical trial expected to commence in the second
half of 2022
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None
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Cannabics SR
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Cancer Anorexia-Cachexia Syndrome
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Phase 0
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Additional pilot studies expected to commence in the second half of 2021
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None
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Cannabics CDx
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Drug sensitivity test for cannabinoid-based cancer therapies.
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Pre-clinical
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Clinical validation study to commence in 2022
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To be determined
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We continue to conduct research and seek
collaborations for new advances in biotechnology that may lead to the development of additional product candidates.
RCC-33 for Colorectal Cancer
Overview
Our lead product candidate is RCC-33, which
we are developing as a treatment for CRC. RCC-33 is an oral capsule containing a proprietary formulation of cannabinoids that have
demonstrated synergistic efficacy in reducing the viability of human colon cancer cell lines in preclinical studies.
Colorectal Cancer
CRC is one of the more common forms of
cancer worldwide, representing a significant challenge to the global healthcare system. According to the World Health Organization,
CRC is the third most diagnosed cancer in the world and the second-leading cause of cancer-related mortality. In the United States,
there were approximately 1,348,087 people living with CRC in 2017 (Source: National Cancer Institute. “Cancer Stat Facts:
Colorectal Cancer”). It is estimated that 147,950 Americans will be diagnosed with CRC in 2020, representing 8.2% of
all new cancer cases, and 53,200 Americans will die from the disease (Source: American Cancer Society. “Cancer Facts &
Figures 2020”).
Most CRCs begin as a noncancerous growth
called a polyp that develops on the inner lining of the colon or rectum. The most common kind of polyp is called an adenomatous
polyp or adenoma. According to the American Cancer Society, an estimated one-third to one-half of all individuals will eventually
develop one or more adenomas. Although all adenomas have the capacity to become cancerous, fewer than 10% are estimated to progress
to invasive cancer. The likelihood that an adenoma will evolve into cancer increases as it becomes larger or when it acquires certain
histopathological characteristics. Adenomas that become cancerous, called adenocarcinomas, comprise nearly 96% of all CRCs (Source:
American Cancer Society. “Colorectal Cancer Facts & Figures 2017-2019”). Adenocarcinomas may grow into blood
vessels or lymph vessels, increasing the chance of metastasis to other anatomical sites.
CRC usually develops slowly, over a period
of 10 to 20 years. The complex sequence of events occurring during initiation, development and propagation of adenocarcinomas is
likely the result of a lifelong accumulation of mutations caused by both genetic and environmental factors known as the adenoma
to carcinoma sequence. While the specific cause of any particular case of CRC is often unknown, more than one-half of all cases
and deaths are attributable to lifestyle and environmental factors, such as smoking, unhealthy diet, high alcohol consumption,
physical inactivity, and excess body weight (Source: American Cancer Society. “Cancer Facts & Figures 2020”).
CRC does not usually cause symptoms until
the disease is advanced, therefore early detection of adenomas by screening is vital. If not treated or removed, an adenoma can
become a potentially life-threatening cancer.
Current Standard of Care
Treatment options for CRC patients depend
on several factors, including the type and stage of cancer, possible side effects, and the patient’s preferences and overall
health. Surgical removal of the tumor is the most common form of treatment, particularly in the early stages of malignancy. Patients
with more advanced stages of CRC may be given adjuvant chemotherapy to kill any cancer cells remaining after surgery, though standard
chemotherapy is associated with severe side effects and provides marginal benefit to the majority of patients. While radiation
therapy is often used to treat rectal cancer, it is not generally recommended for colon cancer patients except in the later stages
of the disease (Source: American Cancer Society. “Treating Colorectal Cancer”).
CRC is a heterogeneous disease with distinct
clinical, molecular, and pathophysiological characteristics. As a result, the response to treatment is variable between patients,
even when they are diagnosed at the same clinical stage. Such heterogeneity remains an obstacle to the optimization of treatment
for each individual. Researchers are continuing to investigate new treatment options, such as immunotherapy and targeted therapy,
that focus upon the genes, proteins, and other factors in a particular tumor (Source: American Cancer Society. “Advances
in Colorectal Research”).
Immunotherapy uses the body’s own
immune system to kill cancer cells. There are already several FDA-approved immunotherapy options for CRC, such as pembrolizumab
(Keytruda®), nivolumab (Opdivo®), and ipilimumab (Yervoy®). Many immunotherapies that have shown promise in addressing
other types of cancer are also being tested for CRC. While immunotherapy has had some encouraging results, significant limitations
remain. Its efficacy is often unpredictable and the treatment can lead to the body becoming resistant or result in off-target toxicities
where the body’s immune system attacks healthy tissue. Immunotherapy may take longer than other protocols and it is substantially
more expensive than classical treatments (Source: Pharmacy & Therapeutics, 2017;42(8):514-521).
Targeted therapy uses drugs to target specific
molecules inside cancer cells or on their surface to slow the growth of cancer, destroy cancer cells, and relieve cancer symptoms.
There are different types of targeted therapy drugs, each working differently depending on what molecule the drug is targeting.
A treatment is chosen based on the types of molecules expressed on the patient’s tumor cells, which allows doctors to tailor
cancer treatment for each person. Several targeted therapy drugs, such as bevacizumab (Avasin®) and cetuximab (Erbitux®),
are already used to treat advanced CRC. Despite showing clinical promise, targeted therapy has challenges, such as tumor heterogeneity,
off-target toxicity, and acquired resistance (Source: Medical Research Journal, 2019;4(2):99-105). The lack of biomarkers
by which to identify patients having a high probability of response is also a particularly significant obstacle. As with immunotherapy,
the cost of targeted therapy is substantially higher than classical treatments.
We believe that there is no “magic
bullet” to cure cancer and that a personalized combination of cancer treatments may be the best course for long term survival
benefits in each case. To that end, the development of more prevention strategies and novel agents will be essential.
Cannabinoids and Colorectal
Cancer
One area of increasing interest in the
treatment of CRC lies in the development and use of cannabinoid therapeutics. The ECS is regarded as an important regulatory system
in the gastrointestinal tract, being involved in several important functions such as motility, secretion, sensation, inflammation,
and carcinogenesis. Recent studies advocate that the ECS plays a critical role in the development of CRC and should therefore be
considered as an appropriate target for CRC inhibition (Source: Frontiers in Pharmacology, 2016;7:361). The expression of
ECS components in CRC has been found to be increased and associated with poorer prognosis and advanced stages of disease (Source:
Cannabis and Cannabinoid Research, 2018, 3(1):272-281). For example, cannabinoid receptors have been found to be overexpressed
in tumor cells of the colon and this up-regulation has been postulated to be an indicator of cancer outcome (Source: British
Journal of Pharmacology, 2018; 175(13): 2566-2580).
Research on the effects of cannabinoid
compounds on CRC has demonstrated an ability to reduce the viability of CRC cell lines in vitro (Source: Cancer Medicine,
2018;7(3):765-775), while there is also convincing scientific evidence that cannabinoids are able to prevent or reduce carcinogenesis
in different animal models of colon cancer (Source: Expert Review of Gastroenterology & Hepatology, 11:10, 871-873).
We
believe that cannabinoids are a promising therapeutic agent for the treatment of CRC. We have conducted several in vitro
unpublished studies using our bioinformatics platform to confirm that cannabinoids cause necrosis in colon cancer cells. While
many cannabinoids demonstrate levels of toxicity on cancer cells, we have found that certain cannabinoid extracts and combinations
show increased levels of toxicity relative to other isolated or combined cannabinoids. These findings have spurred the development
of RCC-33, our product candidate for the treatment of CRC.
Figure
2: Synergistic effects of different cannabinoid combinations
on viability of a colon cancer cell line.
RCC-33
We are developing RCC-33 as an oral capsule
containing high concentrations of the cannabinoids CBDV and CBGA in a novel formulation, which we believe may be effective in the
treatment of adenocarcinomas of the colon. The cannabinoids in RCC-33 have demonstrated complex
synergistic anti-tumor effects in combination, with no psychoactive effect. In our preclinical in vitro studies evaluating
the influence of 15 different cannabinoids on human colon cancer cell lines
(RKO, HCT116), alone and in combination, RCC-33 demonstrated clear efficacy in reducing
the viability of colon cancer cells versus alternative cannabinoid combinations.
Development Plan
We
are currently in the early planning stage of a clinical development pathway for RCC-33. We plan to conduct further preclinical
studies to establish the safety and efficacy of RCC-33 before proceeding with first-in-human clinical testing.
Preclinical Studies
We
intend to conduct a proof of concept non-clinical study in a murine model for colon adenocarcinoma to validate the results obtained
in our cell-based assays. In addition, we plan to conduct non-clinical safety studies following Good Laboratory Practice (GLP)
to evaluate the systemic and local toxicity of escalating doses of RCC-33 and establish dosing parameters. The results of
these preclinical studies, which are expected in the fourth quarter of 2020, will guide our planned Phase 1/2a clinical trial.
The non-clinical requirements to support the development program will be verified with the FDA at a pre-IND meeting expected to
take place in the second half of 2021. Such studies may include repeated dose toxicity studies, male and female fertility studies,
embryofetal development studies, animal abuse related studies, pharmacokinetics studies, drug-drug interaction studies, and others.
Clinical Trials
We plan to evaluate the safety, tolerability,
and pharmacokinetic properties of RCC-33 in a Phase 1/2A ascending dose clinical trial in CRC patients, commencing in the second
half of 2022. The clinical trial will examine the tolerability, pharmacokinetics, pharmacodynamics, and efficacy of multiple doses
of RCC-33 in CRC patients. We are currently identifying potential contract research organizations and clinical trial centers to
conduct the Phase 1/2a human proof of concept study, which is estimated to cost $1,000,000. We believe that the Company’s
currently available funds will be sufficient to obtain all regulatory approvals necessary to conduct the Phase 1/2a trial. As at
the date of this filing, however, the Company does not have sufficient funds to complete the Phase 1/2a study.
Subject to the results from our Phase 1
trials, we plan to submit an IND to the FDA for RCC-33 with the clinical protocol for a Phase 2 double-blind placebo controlled
clinical trial evaluating RCC-33 in patients with CRC at various dosing levels versus placebo. The outcomes from the planned Phase
2 human proof of concept trial will inform our decision regarding further steps in the clinical development of RCC-33.
At this time, we do not expect to independently
develop RCC-33 up to regulatory approval. Instead, we plan to seek a pharmaceutical partner or partners to continue our commercialization
efforts. However, we may also seek to further advance the RCC-33 program with additional human clinical trials prior to finding
a suitable pharmaceutical partner or partners. We estimate that it will take more than five years to bring RCC-33 to market, if
at all, at a cost of more than $10 million.
Cannabics SR for Cancer Anorexia-Cachexia
Syndrome
Overview
We are developing
Cannabics SR as a product candidate for the treatment of CACS. Cannabics SR is a sustained-release oral capsule containing
a standardized compound of cannabinoids that has demonstrated a clinically significant weight increase in CACS patients in a peer-reviewed
pilot study conducted by Dr. Gil Bar-Sela of the Rambam Hospital Health Care Campus, Division of Oncology, in Haifa, Israel. Our
patent-pending technology provides for a convenient, once or twice daily administration, with rapid onset and a steady state of
therapeutic effect for a 6 to 8-hour duration.
Cancer Anorexia-Cachexia Syndrome
CACS is a common
complication of cancer associated with high morbidity and mortality. It is a complex metabolic syndrome in which a persistently
elevated basal metabolic rate is not compensated for by adequate calorie or protein intake, causing involuntary and progressive
weight loss leading to increasing functional impairment in cancer patients, especially in advanced stages of the disease. Once
established, CACS cannot presently be reversed using available pharmacological or nutritional support techniques.
Unlike starvation,
body-weight loss in CACS patients arises mainly from loss of muscle mass, characterized by increased catabolism of skeletal muscle
and decreased protein synthesis. This weight loss is associated with important clinical outcomes such as increased morbidity, diminished
effectiveness of chemotherapy, muscle wasting, inflammation, fatigue, and reduced survival expectations. The impact of CACS on
the patient is not, however, limited to the effect of weight loss. Quality of life, functional abilities, symptoms, psychological
outcomes, and social aspects are all affected by CACS.
According to the
National Cancer Institute, nearly one-third of cancer deaths can be attributed to the severe weight loss and “metabolic mutiny”
associated with CACS, and more than 50% of patients with cancer die with cachexia being present. The overall prevalence of CACS
is currently estimated to range from 40% at cancer diagnosis to 70-80% in advanced phases of the disease (Source: Critical Reviews
in Oncology/Hematology, 2013;88(3):625-636), while the overall prevalence of weight loss in cancer patients may be as high
as 86% in the last 1-2 weeks of life (Source: Journal of Pain and Symptom Management 2007;34:94–104).
The cause and
subsequent development of CACS is still poorly understood, but several factors and biological pathways are known to be involved,
including inflammation, decreased secretion of anabolic hormones, and altered metabolic response. While there have been important
advances in the study of CACS over the past decade, including progress in understanding its mechanisms and the development of promising
pharmacologic and supportive care interventions, there is presently no effective pharmacologic therapy for CACS.
Current treatments
for CACS are generally based on nutritional support and CACS pathophysiology-modulating drugs, with the most common being the progestogens,
megestrol and medroxyprogesterone, and corticosteroids. Progestogens appear to stimulate appetite and improvements in body weight
by increasing adipose tissue, but have not been confirmed to augment lean body mass. Megestrol also carries an increased risk of
mortality and thromboembolism. Nonetheless, megestrol is the only FDA approved treatment option for CACS and no drug to date has
been shown to be superior to it in efficacy and tolerability. Corticosteroids are also considered effective in stimulating appetite
and reducing fatigue but should only be used for short periods and in selected cases because of side effects from longer term use,
such as insulin resistance, fluid retention, steroidal myopathy, skin fragility, adrenal insufficiency, and sleep and cognitive
disorders. Other drugs are being investigated or are in development. Given the dearth of approved therapies, we believe that CACS
remains a significant area of unmet medical need.
Cannabinoid Therapies for CACS
Cannabis has long
been suggested as a well-tolerated, safe, and effective option to help patients cope with cancer related symptoms with fewer serious
side effects than most prescription drugs currently used as anti-emetics, analgesics, and the like. As such, cannabinoids are finding
application in palliative care for reducing nausea and vomiting, alleviating cancer pain, and stimulating appetite, as well as
improving quality of life in cancer patients. Dronabinol (Marinol®) and nabilone (Cesamet®), two drugs based on synthetic
cannabinoids, have each been approved by the FDA for the treatment of chemotherapy-related nausea in patients who do not respond
to conventional antiemetic therapy. Another drug, nabiximols (Sativex®), a specific cannabis extract, is approved in Canada
and the United Kingdom for symptomatic relief of pain in advanced cancer patients.
Despite interest
in cannabinoid-based therapies as a treatment for CACS, their use has been limited by impediments beyond the legal status of cannabis.
The most significant obstacle is the lack of clinical research demonstrating their efficacy. While there is evidence that cannabinoids
improve appetite, body weight, body fat level, caloric intake, mood, and quality of life in cancer patients, the few studies on
these effects have yielded mixed and inconclusive findings. In addition, some of these studies have suffered from methodological
constraints that limit any ability to draw firm conclusions.
The therapeutic
use of cannabinoids has also been inhibited by limitations associated with traditional administration routes that reduce their
effectiveness. Smoking and ingestion of cannabis suffer from wide variability in potency due to a lack of standardized and reproducible
formulations. The ingestion of unformulated cannabis has also been associated with poor absorption and low bioavailability versus
other administration routes, requiring higher doses and a greater risk of negative side effects. Additionally, the lack of available
information on cannabinoid strains has made it difficult for healthcare providers to establish dosing rates. In our experience,
however, the principal concern of patients with respect to medical cannabis lies in the undesirable side effects, such as disorientation
and dizziness, which result from significant variability in peak blood levels of active cannabinoids soon after administration.
We further believe that these side effects, which are common among immediate release methods, are a significant factor in the failure
of patients to adhere to recommended treatment regimens and are therefore a pervasive threat to their health and wellbeing.
Cannabics SR
Cannabics SR is an oral composition
in the form of a hydroxypropylmethylcellulose (HPMC) capsule containing a patent-pending formulation of cannabinoid extracts suspended
in a lipid emulsion. It provides a relatively rapid onset of action, typically within 30-40 minutes, followed by a gradual and
sustained release of active cannabinoids, resulting in a steady state level of beneficial effects for up to 6 to 8 hours with each
capsule. Cannabics SR provides a consistent, predictable concentration of cannabinoids with an absorption profile and bioavailability
of active ingredients that we believe to be superior to other oral cannabinoid administrations. We believe that the multifactorial
benefits of the active pharmaceutical ingredients in Cannabics SR address an unmet medical need for a safe and effective treatment
of CACS, leading to improved patient adherence and better health outcomes.
Cannabics SR capsules contain only
food grade materials without any artificial additives. The active ingredients of each capsule are standardized in composition,
formulation, and dose, and are comprised of only pure, natural extracts of active cannabinoids from selected strains of medical
cannabis. All excipients are recognized by the FDA as Generally Regarded as Safe.
In addition to the therapeutic potential
of Cannabics SR as a treatment for CACS, we believe that our SR technology may be formulated to serve the unique needs of
patients suffering from other indications for which a sustained release of a cannabinoid formulation may be beneficial.
Clinical Development
In 2016, we commenced a two-year pilot
study to evaluate the influence of Cannabics SR capsules on CACS, and, in particular, on weight loss in advanced cancer patients.
The study was led by Professor Gil Bar-Sela, the former Deputy Director of the Division of Oncology at Rambam Health Care Campus,
Head of the Palliative and Supportive Oncology Unit, and Head of Service for Melanoma and Sarcoma Patients.
Patients were administered 2 × 10
mg of Cannabics SR per 24 hours for six months. During the study, after some patients reported several psychoactive side effects,
the dosage of each capsule was reduced to 5 mg. Almost no side effects were reported with the 5 mg dosage. Participants were weighed
at each physician visit. The primary objective of the study was a weight gain of ≥10% from baseline. Of 24 patients who agreed
to participate in the study, 17 started the Cannabics SR treatment, but only 11 received the capsules for more than two weeks.
Three of six patients who completed the study period met the primary end-point. The remaining three patients had stable weights.
In quality of life questionnaires patients reported less appetite loss after the Cannabics SR treatment (p=0.05). According
to patients’ self-reports, improvement in appetite and mood as well as a reduction in pain and fatigue was demonstrated.
Despite various limitations, the preliminary
study demonstrated a weight increase of ≥10% in 3 out of 17 (17.6%) of patients with doses of 5 mg × 1 or 5 mg ×
2 capsules daily, without significant side effects. The remaining patients had stable weights. Also, all patients who remained
in the study for at least 4.5 months reported an increase in appetite, as did 83% of the patients who completed the study. For
50% of the patients who completed the study, there were reports of pain reduction and sleep improvement. Additional results showed
a significant decrease of appetite loss complaints among 83% of the patients who completed the study. (See Bar-Sela, Gil et
al. “The Effects of Dosage-Controlled Cannabis Capsules on Cancer-Related Cachexia and Anorexia Syndrome in Advanced Cancer
Patients: Pilot Study.” Integrative Cancer Therapies vol. 18 (2019): 1534735419881498. doi:10.1177/1534735419881498.)
Figure 3: Appetite loss
among the six patients who completed Cannabics SR treatment, as reported on European Organization of Research and Treatment
of Cancer Quality of Life Questionnaire (EORTC QLC-C30)
We intend to conduct additional pilot studies
in Israel to assess the pharmacokinetics and pharmacodynamics of Cannabics SR in humans. These studies are expected to commence
in 2021 at an anticipated cost of $250,000. Data from the pilot studies will guide our decisions
regarding further clinical development and may better inform the design of our anticipated Phase 1 trials.
Commercialization
The results of
our planned pilot studies may permit us to commercialize Cannabics SR in Israel under license by the Israeli Ministry of Health.
If we are granted such a permit, we intend to engage a GMP manufacturer in Israel to produce Cannabics SR capsules for national
distribution.
On May 13, 2020,
the Israeli Ministry of Economy signed a Free Export Order, authorizing the export of GMP certified medical cannabis products from
Israel. We are currently evaluating our export opportunities and optimal commercialization path for Cannabics SR across all
available international markets, particularly with regard to the European Union, Canada, and Australia.
In 2019, we signed
a letter of intent with NewCanna Hub to establish a joint venture for the production and marketing of Cannabics SR capsules
in Colombia. NewCanna Hub specializes in genetic registration, large scale cultivation, research and development, manufacturing,
and distribution. Under the joint venture, Cannabics SR capsules are expected to be produced in various formulations at NewCanna's
Good Manufacturing Practice (GMP) certified facility in Columbia. The intention of the joint venture will be to seek international
distribution agreements for Cannabics SR in relevant regulated territories.
Cannabics CDx Drug Sensitivity Test
Overview
Cannabics CDx
is an ex-vivo drug sensitivity test that we are developing as a product candidate to provide healthcare providers with clinical
decision support data from which they can identify, for a particular cancer patient undergoing cannabinoid therapy, which cannabinoids
or cannabinoid combinations may have the most beneficial anti-cancer effects and which cannabinoids may be contraindicated.
Cancer and Personalized Medicine
The normal behavior
of each cell in the human body is controlled by its genetic material, comprised of chains of deoxyribonucleic acid (DNA), units
arranged in a particular order and packaged into condensed structures called chromosomes, inside the cell’s nucleus. The
order of the DNA units as well as their three-dimensional structure dictates which protein and how much of it is made by each cell.
Alterations in the DNA sequence, referred to as mutations, can disrupt normal protein function and are the leading cause of cancer
development. Each person’s cancer has a unique combination of mutations, and as a cancer progresses, additional mutations
accumulate. The number of cells within a growing tumor that carry a given mutation depends on when the mutation was acquired during
tumor growth. Thus, even within the same tumor, different cancer cells often have different genetic mutations. This variation,
or heterogeneity, within a tumor or between a primary and metastatic tumor, is a leading cause of resistance to treatment and thereby
disease progression.
Comprehensive
analyses of human cancer genomes over the past decade have revealed numerous genetic mutations that are associated with a variety
of cancers. These discoveries have led to the development of molecular therapies targeted at rectifying the cellular changes that
arise due to the mutations. While such therapeutics have improved patient outcomes, tumor heterogeneity among patients has limited
the efficacy of these drugs to specific patient subtypes and contributed to relapse. In addition, intra-tumor heterogeneity leads
to the emergence of drug resistant sub-populations of cancer cells, particularly while under sudden selective pharmacological pressure
(such as chemotherapy) and further limits the efficiency of cancer treatment.
The diversity
of cancer patients, including their biological characteristics and lifestyle factors, as well as the complex milieu of tumor cells
within a single patient, has led to a novel, more personalized approach toward drug development and diagnosis. Personalized medicine
aims to tailor each person’s health care to the prevention and treatment strategies most likely to be of benefit, sparing
each person the cost of and potential harms from interventions and treatments that are unlikely to be of benefit. It has the potential
to transform medical interventions by providing effective, tailored therapeutic strategies based on the genomic, epigenomic, and
proteomic profile of a patient in the context of their personal situation. Personalized medicine may also improve health outcomes
by reducing healthcare costs, drug-development costs, and time.
Cannabinoids and Personalized
Medicine
While preclinical
research during the last decade has stimulated interest in the therapeutic potential of cannabinoid compounds in oncology, one
of the challenges facing healthcare providers and patients in selecting a cannabinoid based therapy has been the diversity of the
cannabis plant, which encompasses thousands of distinct profiles, each with its own chemical composition and effects. After decades
of highly restrictive regulation, there is presently a lack of clinically relevant information as to which cannabinoids are best
suited to the unique medical needs of a patient across multiple lines of therapy. The result has left healthcare providers and
patients at a loss as to which cannabinoids may be best suited to treat the unique cancer profiles of individual patients.
Cannabics CDx
We believe that
the success of personalized medicine depends on the development of accurate and reliable diagnostics. Our goal is to expand the
scope of personalized medicine across the cancer care continuum to include cannabinoid-based therapies and enable clinicians to
make better informed decisions leading to improved clinical outcomes and lower healthcare costs. To that end, we are developing
Cannabics CDx as a product candidate to provide clinical decision support data to healthcare providers interested in personalizing
cannabinoid-based cancer therapies. We believe that by making cannabinoid therapy selection more accurate and accessible, Cannabics
CDx may play a significant role in ushering medical cannabinoids into the mainstream of oncology.
Cannabics CDx
is an innovative drug screening system that measures the effectiveness of cannabinoid compounds on a patient’s biopsy, identifies
alternatives, and alerts healthcare providers to cannabinoids that may be contraindicated. Biopsied samples are delivered by courier
to our laboratory, where we perform novel cannabinoid sensitivity tests on them using our high-content drug sensitivity screening
integrated with our bioinformatics platform. We then apply advanced analytics to the test results and other relevant biological
and clinical information provided by each patient’s healthcare provider to derive clinical support data from which healthcare
providers can make better informed treatment decisions.
Figure 4:
Sample personalized patient report produced by Cannabics CDx
By enabling healthcare providers to more
precisely tailor cannabinoid therapies to a patient’s cancer and clinical profile, we believe that Cannabics CDx will
meet a significant unmet need of the growing population of cancer patients being treated with cannabis.
Validation
We are currently planning a clinical validation
study expected to commence in 2022 to assess the sensitivity and specificity of Cannabics CDx. We are currently seeking strategic
partners to collaborate on the validation and commercialization process.
Commercialization
Upon completion of our planned validation
study, we will evaluate our options for commercializing Cannabics CDx with a view towards maximizing our return while expanding
our collaborative network and opportunities in the rapidly emerging sector of pharmaceutical development. Consistent with our policies,
we will not offer Cannabics CDx in any jurisdiction where it is not permitted or where it might otherwise be construed as
a violation of law. In particular, we will not offer Cannabics CDx in the United States while cannabis is listed by the DEA
as a Schedule I controlled substance.
Other Research and Development Programs
Our bioinformatics platform enables us
to conduct a broad range of preclinical research and development activities to explore other uses of cannabinoids in the treatment
of human diseases with unmet medical needs. While our current research focus is on the development of cannabinoid therapies and
other technologies for the treatment of cancer, particularly cancers of the gastrointestinal tract, other areas of research include
Alzheimer’s disease and auto immune diseases. These other programs are at various early stages of development and their continued
progress is subject to available resources and our ability to secure necessary funding. We will determine which programs to continue
based on several strategic factors, including economic potential and available resources. We may choose to partner with external
parties for some or all of these programs.
Strategic Partnerships
We continue
to explore and establish strategic partnerships with prominent companies and leading-edge research institutions in areas where
we believe such relationships will benefit the further development of our product candidates and technologies. We may also out-license
our product candidates and technologies to collaborative partners for the development of therapies of low strategic interest to
the Company. We believe that these partnerships will enhance the value of our intellectual property and allow us to retain selected
interests in such therapies without having to acquire the resources needed for in-house development.
Maripharm
On September 1, 2020, we entered into a
memorandum of understanding with Maripharm Production B.V., a Dutch company that develops and grows unique cannabis strains, for
a collaboration on a proof of concept evaluation of certain oil extracts from Maripharm’s cannabis strains whereby we will
perform certain HTS screening to determine the necrolic and apoptotic effects of these strains upon cancer cell lines.
NewCanna Hub
On February 24, 2020, we entered into a
collaboration agreement with NewCanna Hub for the purpose of examining the potential anti-tumor properties of five cannabinoid
strains found in indigenous Colombian landraces on various gastrointestinal cancer cell lines. NewCanna has amassed one of the
world's most extensive assortments of legally registered landraces and hybrid cannabis cultivars, including several landraces,
unique to Colombia. The cannabis landraces to be studied as part of the collaboration are native plant populations that have grown
for centuries, adapting to the environmental conditions of their geographical location, resulting in the development of unique
characteristics over time.
RCKMC Ltd.
On February 5, 2020, we entered into a
memorandum of understanding with RCKMC Ltd., an Israeli company specializing in the breeding of tailor-made strains of medical
cannabis and the production of reliably homogeneous cannabis hybrid-seeds. The memorandum contemplates a research collaboration
whereby RCKMC will provide raw cannabis flowers containing approximately 10-15 separate cannabinoid profiles to the Company, from
which we will extract the resin and perform high-throughput screening for necrotic and apoptotic effects of extracts on gastrointestinal
cancer cell lines. Subject to positive results from such research, the memorandum contemplates that the parties will enter into
a joint venture agreement for the development of specific chemovars of medical cannabis specifically targeting gastro-intestinal
cancers.
On
March 11, 2020, we announced that our analysis of the cannabinoid profiles provided by RCKMC identified two specific cultivars
demonstrating increased necrotic effects on gastric adenocarcinoma cells. The results will be used to further breed the selected
cultivars as a possible source of active pharmaceutical ingredients in the development of pharmaco product candidates for the treatment
of gastrointestinal and other forms of cancer.
Cannomed Medical Cannabis Industries
Ltd.
On June 9, 2020, we entered into a memorandum
of understanding with Cannomed Medical Cannabis Industries Ltd., a publicly traded Israeli company engaged in the production and
distribution of medical cannabis. The memorandum contemplates a research collaboration whereby Cannomed Medical Cannabis Industries
will provide the Company with raw cannabis plants representing 17 unique strains from which we will extract the resin and perform
full high-throughput screening to determine their necrotic and apoptotic effects on cancer cell lines. If both parties are satisfied
with the screening results, the memorandum further contemplates that they will enter into a joint venture agreement for the development
of specific strains of medical cannabis with elevated chemovars specifically targeting cancers.
Commercial Operations
We have not established a sales, marketing,
or product distribution infrastructure. We plan to commercialize any drugs we develop through licensing arrangements and strategic
partnerships with established companies in the pharmaceutical industry having strong marketing capabilities and distribution networks.
We generally intend to advance our drug candidates through Phase 1 and Phase 2 clinical trials as appropriate in order to establish
their clinical and commercial potential before negotiating the terms of any licensing or collaboration. For other product candidates,
such as Cannabics CDx, we may seek strategic partnerships earlier in their clinical development to accelerate the approval process,
facilitate commercialization and mitigate risk. We believe that this approach will achieve the fullest marketing and distribution
potential of any drugs or other products that we may develop in the short term.
Competition
The biotechnology and pharmaceutical industries
are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We believe
that our scientific knowledge, experience, technology and development capabilities provide us with competitive advantages, but
we face competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies,
academic institutions, governmental agencies and public and private research institutions. Many of our current and potential competitors
have longer operating histories and substantially greater financial, scientific, technical, intellectual property, regulatory and
human resources than we have, as well as greater experience in developing and commercializing products, including obtaining FDA
and other regulatory approvals.
As the medical use of cannabis increasingly
receives government approval worldwide, we face growing competition from many new and existing companies seeking to develop cannabinoid-based
therapies. Companies currently known to be developing cannabinoid-based human therapeutics include GW Pharmaceuticals PLC, Cannabis
Science Inc., InMed Pharmaceuticals Inc., Emerald Bioscience Inc., Corbus Pharmaceuticals Holdings Inc., Zynerba Pharmaceuticals
Inc., PharmaCyte Biotech, Inc., Tetra Bio-Pharma Inc,. and Cure Pharmaceutical Holding Corp.
Many of our competitors are conducting
research targeting the same technologies, applications, and markets as we are. Consequently, they may develop products for the
same indications we are pursuing or may pursue in the future that are more effective, better tolerated, more widely-prescribed
or accepted, more useful, and less costly. Any products that we successfully develop and commercialize will compete with existing
products, as well as those currently in development or that may become available in the future.
In addition to competing for market position,
we will also compete in terms of recruiting and retaining qualified personnel, acquiring intellectual property, establishing clinical
trial sites, and enrolling patients for clinical trials and in obtaining funding.
Given the rapid changes affecting the global,
national, and regional economies in general and cannabis-related medical research and development in particular, we may not be
able to create and maintain a competitive advantage in the marketplace. Time-to-market is a critical factor in our industry and
our success will depend on our ability to timely develop innovative technologies that will be accepted by patients. Our competitors
may be better able to react to market changes, respond more rapidly to new regulations, or allocate greater resources to the development
of their products than we can, which may result in our technologies and products becoming obsolete before we are able to enter
the market, recover the expenses incurred to develop them, or generate significant revenue. Our success will depend, in part, upon
our ability to develop our product candidates in a timely manner, keep our future products current with advancing technologies,
achieve market acceptance of our future products, gain name recognition and a positive reputation in the healthcare industry, and
establish successful marketing, sales, and distribution efforts. We cannot be certain that we will be able to compete against current
or future competitors or that competitive pressure will not seriously harm our business prospects.
Our Research and Development:
To address these problems and improve clinical
outcomes Cannabics focuses on the development of diagnostics that monitor cancer progression and cannabinoid-cancer sensitivity
tests to tailor treatment of cancer with cannabinoid medicine. Utilizing novel High-Throughput Screening (HTS) methods to perform
studies on cancer cell lines and on circulating tumor cells (CTC) derived from cannabis medicated patients.
We aim to treat a wide scope of cancers
both as the main treatment and as a conjugate to conventional chemotherapy. We believe a significant need remains for novel oral
and natural drugs for patients who do not respond to existing therapies or for whom these therapies bear undesirable side effects.
We are currently exploring several formulations containing active compounds from the cannabis plant, including the psychoactive
cannabinoid -THC and non-psychoactive cannabinoids - CBD, CBDA, THCA, THVC, CBN, CBG, CBGA and CBC. We recognize the potential
therapeutic applications of the synergistic effects of these active compounds thus building the methodology and procedures that
decipher specific ratios of active compounds in regard to their antitumor activity. Following successful research and development,
we intend to license cannabinoid-based products and treatments that will be standardized in composition, formulation and dose,
administered by means of an appropriate and efficient delivery system, and tested in properly controlled pre-clinical and clinical
studies.
Our government licensed laboratory operates
a unique, custom designed and built research and development laboratory which combines high throughput screening, (HTS) capabilities
with the most advanced data tools allowing us to enable miniaturization and automation of a variety of biological assays. The automated
system is comprised of:
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1.
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High Content Screening (HCS) Platform, which is an automated cellular imaging and analysis platform designed for quantitative microscopy.
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2.
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Flow Cytometry, which enables multi-parametric single cell analysis.
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Automated workstation, for liquid handling for dispensing accurate and reproducible volumes of liquids and compounds.
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Multimode microplate reader, designed for fast measurements of numerous biological reactions/processes.
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The integration of these instruments is
enabled via a robotic arm, which allows a continuous process which utilizes all instruments.
Readouts generated from these instruments
provide us with insights to the effect of our cannabinoid library on parameters such as, proliferation inhibition, apoptosis induction,
angiogenesis prevention and toxicity on cancerous cells.
These experiments will produce multiplexed
data composed of images of cells, cell specific markers and the extent/signal of the biological response. The biological response
will be measured using different concentration of cannabinoids and their combinations, thus determining the most effective cannabinoid
treatment for a specific cancer type.
Invitro Studies – Drug Screening
We have a proprietary procedure of high
throughput screening (HTS) and high content screening (HCS) for the detection of correlations between cannabinoid ratios, dosages
and anti-tumor activity using a growing library of human cancer cell lines and creating an enlarged variety of Cannabis-based compounds.
We examine the biological activity of these compounds on tumor cell lines of distinct tissue lineage and creating a highly valuable
therapeutic data. We Screen for the most potent cannabinoid/natural extracts. Our goal in the invitro studies is to build a library
of both purified and natural cannabinoid extracts and to reveal their biological impact on a library of cancer cell lines. The
HTS technology enables us to gain this data base in a faster manner and to reveal more mechanisms of action that are related to
the genetics of the cancer. We are now in the process of merging our data with sophisticated data mining to help find meaningful
insights of both treatment and outcome.
Personalized Cannabis Medicine - The
Opportunity
With minor side effects and no toxicity,
the only barrier to millions of cancer patients is worldwide regulation. Current changes in legislated cannabis legality and public
support are creating a unique situation in which this highly potent drug is now being consumed by hundreds of millions of people
seeking therapy in a wide spectrum of indications. One of the major groups are cancer patients who are mainly treated with chemotherapy
or radiation, however, are now more exposed to the option of using cannabis for its palliative properties. This new industry permeates
the pharmaceutical, nutraceutical and food supplement markets and brings many different products i.e. high CBD/high THC, oral/sublingual,
dosage and purity. However, doctors are still not educated to differentiate between strains/products and subscribe cannabis generally.
Hence, the growing unmet need is to better understand the biology of cannabinoids and the clinical outcome of such products.
Intellectual Property
Our success depends in significant part
on our ability to protect the proprietary nature of our Product Prospects, technology and know-how, to operate without infringing
on the proprietary rights of others; and to defend challenges and oppositions from others and prevent others from infringing on
our proprietary rights, including our provisional patents described below.
We plan to continue to seek patent protection
in the United States and other countries for our proprietary technologies. To date, our intellectual property portfolio includes
three provisional patents, filed with the USPTO, related to our line of activity (pharmaceutical formulations; drug delivery; therapeutic
uses of cannabinoids and other cannabis compounds and personalized cannabinoid diagnostics), as well as know-how and trade secrets.
The Company’s current patent applications:
Title
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|
Application Type
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|
Country
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|
Status
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Filing Date
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System and Method for High-throughput Screening of Cancer Cells
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Non-provisional Utility patent application
(national Phase)
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United States
|
|
Published, Pending
|
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17/09/2017
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System and Method for High-throughput Screening of Cancer Cells
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|
National Phase Patent application
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|
China
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Published, Pending
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|
27/11/2017
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System and Method for High-throughput Screening of Cancer Cells
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|
National Phase Patent application
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|
Japan
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Published, Pending
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|
27/11/2017
|
System and Method for High-throughput Screening of Cancer Cells
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|
National Phase Patent application
|
|
Canada
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Pending, (not Published)
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|
13/09/2017
|
System and Method for High-throughput Screening of Cancer Cells
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National Phase Patent application
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|
India
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|
Published, Pending
|
|
15/09/2017
|
System and Method for High-throughput Screening of Cancer Cells
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|
National Phase Patent
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|
Israel
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Granted
|
|
18/09/2017
|
System and Method for High-throughput Screening of Cancer Cells
|
|
National Phase Patent application
|
|
Australia
|
|
Pending, (not Published)
|
|
19/09/2017
|
System and Method for High-throughput Screening of Cancer Cells
|
|
National Phase Patent application
|
|
Europe
|
|
Published, Pending
|
|
04/10/2017
|
System and Method for High-throughput Screening of Cancer Cells
|
|
National Phase Patent application
|
|
Brazil
|
|
Published, Pending
|
|
10/10/2017
|
System and Method for High-throughput Screening of Cancer Cells
|
|
National Phase Patent application
|
|
Mexico
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|
Pending, (not Published)
|
|
10/10/2017
|
System and Method for High-throughput Screening of Cancer Cells
|
|
National Phase Patent
|
|
South Africa
|
|
Granted
|
|
13/10/2017
|
System and Method for High-throughput Screening of Cancer Cells
|
|
National Phase Patent application
|
|
Hong Kong
|
|
Pending, (not Published)
|
|
11/10/2018
|
Cannabinoid Compositions, Methods of Manufacture and Use Thereof
|
|
National Phase Patent application
|
|
Israel
|
|
Published, Pending
|
|
24/02/2016
|
Cannabinoid Compositions, Methods of Manufacture and Use Thereof
|
|
Patent Co-operation Treaty, International patent application
|
|
Israel
|
|
Published, Pending
|
|
23/02/2017
|
Cannabinoid Compositions, Methods of Manufacture and Use Thereof
|
|
Non-provisional Utility patent application
(national Phase)
|
|
United States
|
|
Pending, (not Published)
|
|
23/08/2018
|
The Effects of Dosage-Controlled Cannabis Capsules on Cancer- Related Cachexia and Anorexia Syndrome Among Advanced Cancer Patients
|
|
Provisional patent application
|
|
United States
|
|
Filed, Pending, (not Published)
|
|
25/10/2018
|
Method for Sensitivity Testing of Cannabinoids on Patient-Derived Tumor Biopsies and CTCs
|
|
Patent Co-operation Treaty, International patent application
|
|
Israel
|
|
Filed, Pending, (not Published)
|
|
02/01/2018
|
Novel System and Method for Microbiome Profiling and Modulation by Means of Cannabis Administration
|
|
Non-provisional Utility patent application
(national Phase)
|
|
United States
|
|
Pending, (not Published)
|
|
07/11/2018
|
A System and Method for Providing or Growing a Personalized Cannabis Product
|
|
Provisional patent application
|
|
United States
|
|
Filed, Pending, (not Published)
|
|
17/09/2018
|
A System and Method for Providing Magnetic Targeting of Cannabinoids to Cancer Patients
|
|
Provisional patent application
|
|
United States
|
|
Filed, Pending, (not Published)
|
|
28/11/2018
|
Personalized Cannabimetic Compositions Modeling and Production System and Methods Thereof
|
|
Provisional patent application
|
|
United States
|
|
Filed, Pending, (not Published)
|
|
28/11/2018
|
A System and Method for Providing a Personalized Cannabis Derived Product for an Alcohol Withdrawal Syndrome (AWS) Patient
|
|
Provisional patent application
|
|
United States
|
|
Filed, Pending, (not Published)
|
|
27/12/2018
|
A System and Method for Providing a Personalized Cannabis Derived Product for a Psychogenic Non-Epileptic Seizures (PNES) Patient
|
|
Provisional patent application
|
|
United States
|
|
Filed, Pending, (not Published)
|
|
07/01/2019
|
We anticipate that we will file additional
patent applications in conjunction with our research, testing, and development of our cannabis-based Product Prospects.
Our policy is to seek patent protection for the technology,
inventions and improvements that we consider important to the development of our business, but only in those cases where we believe
that the costs of obtaining patent protection is justified by the scientific and commercial potential of the technology, and typically
only in those jurisdictions that we believe present significant commercial opportunities. We anticipate that we will file additional
patent applications in conjunction with our research, testing, and development of our cannabis-based products.
Competitive Factors
The Pharmaceutical industry is highly competitive
and we will be competing with many other and better financed companies.
We are an early stage pharmaceutical company,
with relatively deminimis cash flow. We compete with other early stage bio-tech and pharmaceutical companies for financing from
a limited number of investors that are prepared to make investments in early stage development companies. The presence of competing
early stage pharmaceutical companies may impact on our ability to raise additional capital in order to fund our research and development
if investors are of the view that investments in competitors are more attractive based on their subjective analysis of our company,
the general market conditions and the price of the investment offered to investors.
Regulations
Cannabics Pharmaceuticals Inc. is purely
a Bio-Technology Pharmaceutical company which licenses use of its Intellectual Property, it does not produce, manufacture or provide
any product in any location. We are duly licensed by the Israeli Health Ministry for our research in Israel. Beyond the Israeli
Health Ministry (by whom we are licensed), we are not under the aegis of any Federal or State regulatory scheme as we have no manufacturing
activity. Any licensee whom we engage must be duly licensed and certified according to all pertinent local government regulations
in their jurisdiction.
Employees
As of August 31, 2020, the Company had
nine employees, three of which were our Directors Gavriel Yariv, Itamar Borochov and Eyal Barad, which along with our counsel and
CFO were given monthly salaries. 4 of whom were employed in research and development and 1 of whom employed in administration and
business development. These employees are in Israel.
Israeli labor laws principally govern the
length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance
pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other
conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death
or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar
to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with applicable Israeli
legal requirements, which also include the mandatory pension payments required by applicable law and allocations for severance
pay.
Item 1A. Risk Factors
Risk Factors
You should consider carefully the risks
and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. If any of the
following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely
affected. The risks described below are not the only risks facing the Company. Risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations
and prospects.
Risks Related to Our Company and Business
Our independent auditors have expressed
substantial doubt about our ability to continue operating as a going concern, which could prevent us from obtaining new financing
on reasonable terms or at all.
Our independent registered public accountants
have expressed substantial doubt about our ability to continue as a going concern. This opinion could materially limit our ability
to raise additional funds by issuing new debt or equity securities or otherwise. If we fail to raise sufficient capital when needed,
we will not be able to complete our proposed business. As a result we may have to liquidate our business and investors may lose
their investments. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish our plan
of operations described in this filing, obtain financing and eventually attain profitable operations. Investors should consider
our independent registered public accountant’s comments when deciding whether to invest in the Company.
We have not generated any significant revenue
since our inception and we may never achieve profitability.
We are an early stage biotechnology company
and have not generated any significant revenue since we commenced our present operations in April 2014. At the present time, Cannabics
SR is the only product that we have commercialized. To date, we have financed our operations primarily through private placements
of common stock, warrants, and direct equity investments. As we continue our research and development of cannabinoid-based diagnostics,
our expenses are expected to increase significantly. Accordingly, we will need to generate significant revenue to achieve profitability.
Even as we begin to commercialize our technologies, we expect our losses to continue as a result of ongoing research and development
expenses. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total
assets and stockholders’ equity. Because of the numerous risks and uncertainties associated with product development and
commercialization efforts, we are unable to predict at what stage the Company will become profitable. We may never become profitable.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If
we are unable to achieve and then maintain profitability, our business, financial condition and results of operations will be negatively
affected and the market value of our common stock will decline.
Since we have a limited operating history
in our business, it is difficult for potential investors to evaluate our business.
We commenced operations
as a biotechnology company in April 2014, and therefore have a relatively short operating history upon which an evaluation of our
future success or failure can objectively be made. Our business is a highly speculative undertaking and involves a substantial
degree of risk. We have not demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered
by early-stage companies in new and rapidly evolving competitive fields, including under-capitalization, cash shortages, limitations
with respect to personnel, financial, and other resources and lack of revenue. The likelihood of our success must be considered
in light of the early stage of our operations. There is no assurance that our business will ever be successful or that we will
be able to attain profitability. Any failure by the Company to report profits may adversely affect the price of our common stock.
We will need to raise additional capital
to meet our business requirements in the future, which may be costly or difficult to obtain and could dilute our stockholders’
ownership interests.
The Company has not yet generated significant
revenue and will require additional capital to continue its research and development activities, conduct clinical trials, commercialize
its products and otherwise fund its operations. Our ability to secure required financing will depend in part upon investor perception
of our ability to create a successful business. Capital market conditions and other factors beyond our control may also play important
roles in our ability to raise capital. There can be no assurance that debt or equity financing will be available or sufficient
for our requirements or for other corporate purposes, or if debt or equity financing is available, that it will be on terms acceptable
to us. Moreover, future activities may require us to alter our capitalization significantly. Our inability to access sufficient
capital for our operations could have a material adverse effect on our financial condition, results of operations and prospects.
If we are unable to obtain additional funding as needed, we may be required to reduce the scope of our research and development
activities, which could harm our business plan, financial condition and operating results, or we may be required to cease our operations
entirely, in which case, our investors will lose all of their investment.
Any additional capital raised through the
sale of equity or equity-backed securities may dilute our stockholders’ ownership percentages and could also result in a
decrease in the market value of our equity securities. The terms of any securities issued by us in future capital transactions
may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other
derivative securities, which may have a further dilutive effect on the holders of our securities then outstanding. Any debt financing
secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational
matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.
In addition, we may incur substantial costs
in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection
with certain securities we issue, such as convertible notes and warrants, which may have an adverse impact on our financial condition.
We are highly dependent on the success
of cannabinoid technology, and we may not be able to develop the technology, successfully obtain regulatory or marketing approval
for, or successfully commercialize, our products or product candidates.
Our business is focused entirely upon the
research, development and commercialization of cannabinoid-based technologies for the detection and treatment of cancer. Our success
is dependent upon the viability of this technology and the development of cancer diagnostics and therapies.
Neither we nor any other company has received
regulatory approval from the United States Food and Drug Administration (the “FDA”) to market any diagnostics or therapeutics
based on botanical cannabinoids, though the FDA has approved two drugs that contain a synthetic substance that acts similarly to
cannabis compounds but is not present in the cannabis plant.
The scientific evidence underlying the
feasibility of developing cannabinoid-based technologies for the detection and treatment of cancer is both preliminary and limited.
In 2017, an ad hoc committee of the National Academies of Sciences, Engineering, and Medicine determined that while there
is conclusive or substantial evidence that oral cannabinoids are effective antiemetics in the treatment of chemotherapy-induced
nausea and vomiting, there was insufficient evidence to make any statement about the efficacy of cannabinoids as a treatment for
cancer. The ad hoc committee went on to state that further clinical research into the anti-cancer effects of cannabinoids
needs to be conducted.
If our cannabinoid technology is found
to be ineffective or unsafe in humans, or if it never receives regulatory approval for commercialization, we may never be able
bring our product candidates to market and may never become profitable. Further, our current business strategy, including all of
our research and development, is focused on utilizing cannabinoid technology to detect and treat cancer. This lack of diversification
increases the risk associated with the ownership of our common stock. If we are unsuccessful in developing and commercializing
our cannabinoid-based technology and its application to the detection and treatment of cancer, we may be required to alter our
scope and direction and steer away from the intellectual property we have developed as well as the core capabilities of our management
team and advisory board. Without successful commercialization of our products and product candidates, we may never become profitable,
which would have a material adverse effect on our business, results of operations and financial condition.
Our success depends upon our ability to
retain our senior management and our ability to attract, retain and motivate other qualified personnel.
We are an early stage biotechnology company.
As of August 30, 2020, we had five employees and several key consultants. Our success materially depends upon the efforts of our
management and other key personnel, including but not limited to Dr. Eyal Ballan, our Chief Technology Officer and a Director.
If we lose the services of Dr. Ballan or any other executive officers or significant employees, our business would likely be materially
and adversely affected. At this time, we do not currently have “key man” life insurance for Dr. Ballan or any other
executive officer.
Because of the specialized scientific and
managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial
personnel. The competition for qualified personnel in the biotechnology industry is intense. Due to this intense competition, we
may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit
suitable replacement personnel. Any difficulties in obtaining and retaining qualified officers, employees and consultants could
have a material adverse effect on our operations.
The relative lack of public company experience
by our management team may put us at a competitive disadvantage.
As a company with a class of securities
registered under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are subject
to reporting and other legal, accounting, corporate governance, and regulatory requirements imposed by the Exchange Act and rules
and regulations promulgated under the Exchange Act. With the exception of our CFO, Uri Ben-Or, our management team lacks significant
public company experience, which could impair our ability to comply with these legal, accounting, and regulatory requirements.
Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior
management may not be able to implement and effect programs and policies in an effective and timely manner that adequately respond
to such increased legal and regulatory compliance and reporting requirements. Our failure to do so could lead to the imposition
of fines and penalties and further result in the deterioration of our business.
If we are unable to enter into acceptable
sales, marketing and distribution arrangements with third parties or establish sales, marketing and distribution capabilities,
we may not be successful in commercializing any product candidate that we develop if and when a product candidate is approved.
We do not have any sales, marketing or
distribution infrastructure and have no experience in the commercialization of biotechnology. To achieve commercial success for
any product, we must develop a sales and marketing organization, outsource these functions to third parties or license our products
to others.
In the United States, we intend to only
commercialize our products by licensing them to organizations having greater resources and experience than we do. While we have
already licensed our Cannabics SR medical cannabis capsules in Colorado to Mountain High Products LLC, and in states outside of
Colorado to the Cima Group LLC, there can be no assurance that such licensing efforts will be successful, or that we will be able
to license any future products on satisfactory terms, or at all. We do not presently have any other agreement or arrangement for
the commercialization of our products in the United States or elsewhere.
While we generally intend to adopt a licensing
model for the commercialization of our products, we may also seek one or more strategic partners for commercialization of our products
outside the United States. As a result of entering into arrangements with third parties to perform sales, marketing and distribution
services, our product revenue or the profitability of our product revenue may be lower, perhaps substantially lower, than if we
were to directly market and sell products in those markets. Furthermore, we may be unsuccessful in entering into the necessary
arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we may have little or
no control over such third parties and any of them may fail to devote the necessary resources and attention to sell and market
our product candidates effectively.
If we do not license our products or outsource
our commercialization efforts, we will be required to develop our own sales, marketing and distribution capabilities, which will
require substantial resources and will be time-consuming, and could delay any product launch. Moreover, we may not be able to hire
or retain a sales force that is sufficient in size or has adequate expertise in the consumer health markets that we plan to target.
If we are unable to establish or retain a sales force and marketing and distribution capabilities, our operating results may be
adversely affected.
If we do not successfully license our products
or establish sales and marketing capabilities, either on our own or in collaboration with third parties, it is likely that we will
be unable to commercialize any of our products.
We face intense competition, often from
companies with greater resources and experience than we have, which may result in others developing or commercializing competing
products before us or more successfully.
The market for cancer diagnostics and therapies
is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities
of industry participants. Our competitors include large multinational corporations and their operating units, including Abbott
Laboratories Inc., Cepheid Inc., Philips, GE Healthcare, Siemens, Gen-Probe Incorporated, MDxHealth SA, EpiGenomics AG, Roche Diagnostics,
Exact Sciences Corporation, Sequenom, Inc. and several others. We also compete against pharmaceutical companies, specialty pharmaceutical
companies and biotechnology companies worldwide, as well as smaller and other early-stage companies. Other potential competitors
include academic institutions, government agencies and other public and private research organizations that conduct research, seek
patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Many of our competitors and potential competitors
have or will have substantially greater financial, technological, managerial and research and development resources and experience
than we have, and many have been engaged in the biotechnology industry for a much longer time than we have. Many of our competitors
spend significantly more funds on research, development, promotion and sale of new and existing products than we do, and may therefore
be able to react more quickly to new or emerging technologies, shifting market conditions and regulatory changes.
There can be no assurance that any
of our current or future products and technologies will have a competitive advantage in the marketplace, or that they will remain
competitive following the introduction of competing products or technologies. Our commercial opportunity could be reduced or eliminated
if our competitors develop and commercialize products that are safer, more effective, more convenient or less expensive. There
can be no assurance that we will be successful in the face of increasing competition from new technologies or products introduced
by existing companies in the industry or by new companies entering the market.
If we are unable to compete successfully,
there may be a material and adverse effect on our business, financial condition and results of operations.
If the marketplace does not accept the
products in our development pipeline or any other diagnostic products we might develop, we may be unable to generate sufficient
revenue to sustain and grow our business.
Even if we are able to successfully develop
and obtain regulatory approval of a product candidate, our ability to generate significant revenue will depend on the acceptance
of our products by physicians and patients. Physicians, hospitals, clinical laboratories, researchers or others in the healthcare
industry may not use our current or future diagnostic product candidates unless they are determined to be an effective and cost-efficient
means of detecting and diagnosing cancer. Market acceptance of our current or future therapeutic products will depend on a number
of factors, including the indication statement and warnings approved by regulatory authorities in the product label, continued
demonstration of efficacy and safety in commercial use, physicians’ willingness to prescribe the product, reimbursement from
third-party payers such as government healthcare systems and insurance companies, the price of the product, the nature of any post-approval
risk management plans mandated by regulatory authorities, competition, marketing and distribution support. In addition, we will
need to expend a significant amount of resources on marketing and educational efforts to create awareness of our products and to
encourage their acceptance and adoption. If the market for our products does not develop sufficiently or the products are not accepted,
our revenue potential will be harmed.
We do not presently have any product liability
insurance coverage and there is no assurance that we will be able to obtain such insurance at an affordable price or that it will
be sufficient to cover all liabilities that we may incur.
We are exposed
to potential product liability risks that are inherent in the testing, manufacturing and marketing of cancer diagnostics, pharmaceuticals
and dietary supplements. While we do not presently carry any product liability insurance coverage, we intend to obtain such insurance
in amounts we believe to be commercially reasonable for our current level of activity and exposure. There is no assurance, however,
that we will be able to obtain or maintain insurance coverage that will be adequate to cover our potential liabilities, or that
premiums will be commercially justifiable. Furthermore, insurance that might otherwise be readily available, may be more difficult
for us to find and more expensive because we work with medicinal cannabis. If we are the subject of a successful product liability
claim that exceeds the limits of, or is not otherwise covered by our insurance, or if we incur such liability at a time when we
are not able to obtain liability insurance, we may incur substantial charges that adversely affect our earnings and require the
commitment of capital resources that might otherwise be available for the development and commercial launch of our product programs.
If we fail to protect our intellectual
property rights, our ability to pursue the development of our technologies and products would be negatively affected.
Our success will depend in part on our
ability to protect our intellectual property. This is done, in part, by obtaining patents and trademarks and then maintaining adequate
protection of our technologies, tradenames and products. If we do not adequately protect our intellectual property, competitors
may be able to use our technologies to produce and market products in direct competition with us and erode our competitive advantage.
Some foreign countries lack rules and methods for defending intellectual property rights and do not protect proprietary rights
to the same extent as the United States. Many companies have had difficulty protecting their proprietary rights in these foreign
countries. We may not be able to prevent misappropriation of our proprietary rights.
We are currently seeking patent protection
for several processes and finished products. However, the patent process is subject to numerous risks and uncertainties, and there
can be no assurance that we will be successful in protecting our products by obtaining and defending patents. These risks and uncertainties
include the following:
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•
|
patents that may be issued or licensed may be challenged, invalidated, or circumvented, or otherwise may not provide any competitive advantage;
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|
•
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our competitors, many of which have substantially greater resources than us and many of which have made significant investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our products and product candidates either in the United States or in international markets;
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•
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there may be significant pressure on the United States government and other international governmental bodies to limit the scope of patent protection both inside and outside the United States for treatments that prove successful as a matter of public policy regarding worldwide health concerns;
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|
•
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countries other than the United States may have less restrictive patent laws than those upheld by United States courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products.
|
Any patents issued to us may not provide
us with meaningful protection, and third parties may challenge, circumvent or narrow them. Third parties may also independently
develop products similar to our products or product candidates, duplicate our unpatented product or product candidates, and design
around any patents on product candidates we may develop.
Additionally, extensive time is required
for development, testing and regulatory review of product candidates. While extension of a patent term due to regulatory delays
may be available, it is possible that before any of our product candidates can be commercialized, any related patent, even with
an extension, may expire or remain in force for only a short period following commercialization, thereby reducing any advantages
of the patent.
In addition, the United States Patent and
Trademark Office (the “USPTO”), and patent offices in other jurisdictions have often required that patent applications
concerning biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified
in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents may be substantially narrower than anticipated.
In addition to patents, we rely on a combination
of trade secrets, confidentiality, nondisclosure and other contractual provisions, and security measures to protect our confidential
and proprietary information. These measures may not adequately protect our trade secrets or other proprietary information. If they
do not adequately protect our rights, third parties could use our technology, and we could lose any competitive advantage we may
have. In addition, others may independently develop similar proprietary information or techniques or otherwise gain access to our
trade secrets, which could impair any competitive advantage we may have.
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
as a result of 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 USPTO to determine priority of invention,
which could result in substantial uncertainties and costs, even if the eventual outcome were favorable to us. We could also 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 litigation
or other proceeding relating to our patents or patent applications, 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 might claim that we are using
inventions claimed by their patents and might go to court to stop us from engaging in our normal operations and activities, such
as research, development and the sale of any future products. Such lawsuits are expensive and would consume time and other resources.
There is a risk that the court will decide that we are infringing the third party’s patents and will order us to stop the
activities claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses (which may not be
available on commercially reasonable terms). In addition, there is a risk that a court will order us to pay the other party damages
for having infringed their patents.
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 products, technologies or other matters.
Failure in our information technology or
storage systems could significantly disrupt our operations and our research and development efforts, which could adversely impact
our revenues, as well as our research, development and commercialization efforts.
Our ability to execute our business strategy
depends, in part, on the continued and uninterrupted performance of our information technology (“IT”), systems, which
support our operations and our research and development efforts, as well as our storage systems. Due to the sophisticated nature
of the technology we use in our products and service offerings, we are substantially dependent on our IT systems. IT systems are
vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural
disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical
or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to
prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability
to generate and maintain data, could adversely affect our ability to operate our business.
We will need to grow the size of our organization,
and we may experience difficulties in managing any growth we may achieve.
As of the date of this filing, we have
two full-time employees. As our development and commercialization plans and strategies progress, we expect to need additional research,
development, managerial, operational, sales, marketing, financial, accounting, legal and other resources. Future growth would impose
significant added responsibilities on our management, which may not be able to accommodate those added responsibilities. If we
fail to effectively manage our future growth, it could delay the execution of our business plan and disrupt our operations.
We are subject to financial reporting and
other requirements that place significant demands on our resources.
We are subject to reporting and other obligations
under the Securities Exchange Act of 1934, as amended, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Section 404 requires us to conduct an annual management assessment of the effectiveness of our internal controls over financial
reporting. These reporting and other obligations place significant demands on our management, administrative, operational, internal
audit and accounting resources. The costs of preparing and filing annual and quarterly reports, proxy statements and other information
with the SEC and furnishing audit reports to stockholders causes our expenses to be higher than they would be if we remained a
privately-held company. The increased costs associated with operating as a public company may decrease our net income or increase
our net loss, and may cause us to reduce costs in other areas of our business or increase the prices of our product to offset the
effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business
concerns, they could have a material adverse effect on our business, financial condition and results of operations.
Our disclosure controls and procedures
and internal controls over financial reporting were determined not to be effective for the prior fiscal year ended August 31, 2020,
and may not be effective in future periods.
Effective internal controls are necessary
for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide
reasonable assurance with respect to our financial reports and effectively prevent fraud, our reputation and operating results
could be harmed. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a report by management on internal control
over financial reporting, including management’s assessment of the effectiveness of such control. Internal control over financial
reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error,
the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable
assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation
of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls,
or if we experience difficulties in their implementation, our business and operating results could be adversely impacted, we could
fail to meet our reporting obligations, and our business and stock price could be adversely affected.
At August 31, 2020, our Chief Executive
Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and concluded that, subject to the inherent limitations identified
in Item 9A of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, our disclosure controls and
procedures were not effective due to the existence of material weaknesses in our internal control over financial reporting arising
from inadequate segregation of duties over authorization, review and recording of transactions, as well as the financial reporting
of such transactions, the lack of an audit committee, insufficient documentation of review procedures and insufficient information
technology procedures. Our independent auditors issued an adverse attestation report regarding the effectiveness of our internal
control over financial reporting as at August 31, 2020.
We believe we have taken appropriate and
reasonable steps to make the necessary improvements to remediate these deficiencies, however we cannot be certain that our remediation
efforts will ensure that our management designs, implements and maintains adequate controls over our financial processes and reporting
in the future or that the changes made will be sufficient to address and eliminate the material weaknesses previously identified.
Our inability to remedy any additional deficiencies or material weaknesses that may be identified in the future could, among other
things, have a material adverse effect on our business, results of operations and financial condition, as well as impair our ability
to meet our quarterly, annual and other reporting requirements under the Exchange Act in a timely manner, and require us to incur
additional costs or to divert management resources.
Risks Related to Cannabis
Our failure to comply with controlled substance
legislation could restrict or harm our ability to develop and commercialize our products.
Our business is, and will be, subject to
wide-ranging laws and regulations of Israel, the United States (federal and state), the European Community and other governments
in each of the countries where we may develop and market our products. We must comply with all regulatory requirements if we expect
to be successful.
Most countries are parties to the Single
Convention on Narcotic Drugs of 1961 as amended by the 1972 Protocol, which governs international trade and domestic control of
narcotic substances, including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that
creates a legal obstacle to us obtaining marketing approval in those countries for any cannabinoid-based products we develop. These
countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed,
or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar
obstacles, we would be unable to market our product candidates in countries in the near future or perhaps at all if the laws and
regulations in those countries do not change.
Any cannabinoid-based product candidate
that we may develop for use in the United States, will be subject to U.S. controlled substance laws and regulations that will require
us, along with our collaborators and licensees, to expend time, money and effort in all areas of regulatory compliance, including,
if applicable, manufacturing, production, quality control and assurance and clinical trials. Any failure to comply with these laws
and regulations, or the cost of compliance with these laws and regulations, could adversely affect the results of our business
operations and our financial condition.
The constant evolution of laws and regulations
affecting the research and development of cannabis-based diagnostics and therapies could detrimentally affect our business. Laws
and regulations related to the therapeutic uses of cannabis are subject to changing interpretations. These changes may require
us to incur substantial costs associated with legal and compliance fees and 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,
including our ability to conduct clinical trials that are prerequisite to our ability to commercialize our cannabis-based medical
products and therapies. 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.
Cannabis remains illegal under U.S. federal
law, and any change in the enforcement priorities of the federal government could render our current and planned future operations
unprofitable or even prohibit such operations.
We are a biotechnology company focused
on the research and development of cannabinoid-based diagnostics, anti-cancer pharmaceuticals and palliative therapies. The commercial
viability of our products and technologies in the United States depends, in part, on state laws and regulations; however, Cannabis
remains illegal under federal law.
The United States federal government regulates
drugs through the Controlled Substances Act, which places controlled substances, including cannabis, on one of five schedules.
Cannabis is currently classified as a Schedule I controlled substance, which is viewed as having a high potential for abuse and
no currently accepted medical use in treatment in the United States. No prescriptions may be written for Schedule I substances,
and such substances are subject to production quotas imposed by the United States Drug Enforcement Administration. Because of this,
doctors may not prescribe cannabis for medical use under federal law, although they can recommend its use under the First Amendment.
Currently, twenty-eight U.S. states
and the District of Columbia allow the use of medical cannabis. Eight states and the District of Columbia also allow its recreational
use. Because cannabis is a Schedule I controlled substance, however, the development of a legal cannabis industry under the laws
of these states is in conflict with the Federal Controlled Substances Act, which makes cannabis use and possession illegal on a
national level. The United States Supreme Court has confirmed that the federal government has the right to regulate and criminalize
cannabis, including for medical purposes, and that federal law criminalizing the use of cannabis pre-empts state laws that legalize
its use.
In 2014, the United States House of Representatives
passed an amendment (the “Rohrabacher-Farr Amendment”) to the Commerce, Justice, Science, and Related Agencies Appropriations
Bill, which funds the United States Department of Justice (the “DOJ”). The Rohrabacher-Farr Amendment prohibits the
DOJ from using funds to prevent states with medical cannabis laws from implementing such laws. In August 2016, a Ninth Circuit
federal appeals court ruled in United States v. McIntosh that the Rohrabacher-Farr Amendment bars the DOJ from spending
funds on the prosecution of conduct that is allowed by state medical cannabis laws, provided that such conduct is in strict compliance
with applicable state law. In March 2015, bipartisan legislation titled the Compassionate Access, Research Expansion, and Respect
States Act (the “CARERS Act”) was introduced, proposing to allow states to regulate the medical use of cannabis by
changing applicable federal law, including by reclassifying cannabis under the Controlled Substances Act to a Schedule II controlled
substance and thereby changing the plant from a federally-criminalized substance to one that has recognized medical uses.
Although these developments have been met
with a certain amount of optimism in the scientific community, the CARERS Act has not yet been adopted, and the Rohrabacher-Farr
Amendment, being an amendment to an appropriations bill, must be renewed annually. The currently enacted Commerce, Justice, Science,
and Related Agencies Act, which includes the Rohrabacher-Farr Amendment, is effective, by passage of a short-term continuing resolution,
through April 28, 2017. The federal government could at any time change its enforcement priorities against the cannabis industry.
We do not grow or distribute cannabis, but our current and planned business operations involve licensing cannabinoid-based products
and technology. Any change in enforcement priorities could render such operations unprofitable or even prohibit such operations.
Our ability to earn revenue through licensing
our product in the United States is dependent on additional states legalizing medical marijuana.
We are engaged in the business developing
and commercializing cannabinoid-based products for the detection and treatment of cancer. Our ability to commercialize our products
in the United States is dependent upon the continued progress of legislative authorization of cannabis at the state level for medical
purposes and, in certain states, based on the specifics of the legislation passed in that state. Any number of factors could slow
or halt the progress. Furthermore, progress, while encouraging, is not assured. The legislative process normally encounters set-backs
before achieving success. While there may be ample public support for legislative proposals, there must be political will in the
legislative committee or a bill may never advance to a vote. Numerous factors impact the legislative process. Any one of these
factors could slow or halt the progress and adoption of cannabis for medical purposes, which would limit the market for our products
and negatively impact our business and revenues.
Changes in consumer preferences and acceptance
of medical cannabis, or any negative trends, will adversely affect our business.
Our business is substantially dependent
on market acceptance of medical cannabis. Market perception of medical cannabis can be significantly influenced by a number of
social, political and economic factors that are beyond our control, including scientific research or findings, regulatory investigations,
litigation, media attention and other publicity regarding such products and treatments. There can be no assurance that future scientific
research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable
to the market for any of our current or future cannabinoid-based diagnostics or therapies. Future research reports, findings, regulatory
proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier
research reports, findings or publicity could have a material adverse effect on the demand for our products, as well as our business,
results of operations, financial condition and cash flows.
We believe that as cannabis-based biotechnology
becomes more widely accepted by the U.S. medical community and the public at large, the stigma associated with medical cannabis
will moderate and, as a result, consumer demand will likely continue to grow. There is, however, no assurance that such increase
in demand will occur, that we will benefit from any demand increase or that our business will ever become profitable. We cannot
predict the future growth rate and size of the market, assuming that the regulatory climate permits, of which there can be no assurance.
Any negative outlook on medical cannabis will adversely affect our business prospects.
We also believe that large, well-funded
pharmaceutical and other related businesses and industries may have economic reasons to oppose cannabinoid-based therapies. The
pharmaceutical industry is well-funded with a strong and experienced lobby presence at both the federal and state levels, as well
as internationally, that surpasses financial resources of the current group of medical cannabis research and development companies.
Any effort by the pharmaceutical lobby to halt or delay cannabinoid-based medical products and therapies could have a detrimental
impact on our business.
Risks Related to Product Development
If we fail to successfully develop and
commercialize diagnostics, pharmaceutical or therapies, we may be unable to execute our plan of operations.
Our current business strategy focuses on
discovering, developing and commercializing cannabinoid-based diagnostics, anti-cancer pharmaceuticals and palliative therapies.
To date, we have only commercialized Cannabics SR, our non-pharmaceutical extended release capsules for palliative therapy. The
success of our business will depend upon our ability to fully develop and commercialize the diagnostics and therapeutic product
candidates in our current development pipeline as well as to continue the discovery and development of other products and technology.
Prior to commercializing our product candidates,
we will be required to undertake time-consuming and costly development activities with uncertain outcomes, including conducting
clinical studies and obtaining regulatory clearance or approval in Israel, the United States, the European Union and other countries
where we may develop and market our product candidates. Delays in obtaining approvals and clearances could have material adverse
effects on us and our ability to fully carry out our plan of operations. We have limited experience in taking products through
these processes and there are considerable risks involved in these activities. The science and methods that we are employing are
innovative and complex, and it is possible that our development programs will ultimately not yield products suitable for commercialization
or government approval. Product candidates that appear promising in early development may fail to be validated in subsequent studies,
and even if we achieve positive results, we may still fail to obtain the necessary regulatory clearances or approvals. Few research
and development projects result in commercial products, and perceived viability in early clinical studies often is not replicated
in later studies. At any point, we may abandon development of a product candidate, or we may be required to expend considerable
resources obtaining additional clinical and nonclinical data, which would adversely impact the timing for generating potential
revenue from those products. Further, our ability to develop and launch product candidates is dependent on our receipt of substantial
additional funding. If our discovery and development programs yield fewer commercial product candidates than we expect, we may
be unable to execute our business plan, and our business, financial condition and results of operations may be adversely affected.
If we fail to maintain or establish satisfactory
arrangements for the supply of raw materials or the manufacture of our product candidates for preclinical or clinical trials, or
if we experience an interruption of supply, we might not have sufficient quantities of our product candidates at an acceptable
cost, which could delay, prevent or impair our development or commercialization efforts
We do not produce medical cannabis, and
therefore our ability to research, develop and commercialize our cannabinoid-based diagnostics and therapeutic product candidates
is dependent upon a sufficient supply of medical cannabis strains. Any significant interruption or negative change in the availability
or economics of the supply chain for medical cannabis could materially impact our business, financial condition and operating results.
Some strains of medical cannabis may only be available from a single supplier or a limited group of suppliers. If a sole source
supplier were to go out of business, we might be unable to find a replacement source in a timely manner or at all. If a sole source
supplier were to be acquired by a competitor, that competitor might elect not to supply us. Any inability to secure required supplies
of medical cannabis or to do so on appropriate terms could have a materially adverse impact on our business, financial condition
and operating results.
Our clinical diagnostics may never be validated.
The FDA regulates the sale and distribution,
in interstate commerce, of in vitro diagnostic test kits, reagents and instruments used to perform diagnostic testing. To
the extent that any diagnostic test we develop is regarded as an in vitro diagnostic test rather than as a Laboratory Developed
Test (“LDT”), we will be subject to increased FDA regulation that will delay and add to the cost of commercialization
of our diagnostic product candidates, which will have a material adverse effect on our business, results of operations and financial
condition.
We are also subject to the United
States Clinical Laboratory Improvement Amendments of 1988 (“CLIA”), federal regulatory standards that apply to all
clinical laboratories that perform testing on specimens derived from humans in the United States for the purpose of providing information
for the diagnosis, prevention or treatment of disease. CLIA is intended to ensure the quality and reliability of clinical laboratories
in the United States by mandating specific standards in the areas of personnel qualifications, administration, and participation
in proficiency testing, patient test management, quality control, quality assurance and inspections. Accreditation by the College
of American Pathologists (“CAP”), one of six CLIA-approved accreditation organizations, is sufficient to satisfy the
requirements of CLIA.
The validation for CLIA or CAP is a two-step
process. The first step is optimization of all of the steps of the test protocol to show that the test is able to produce repeatable
and consistent results. The second step is the clinical validation, in which statistically significant sensitivity and specificity
of the test on the appropriate human samples are determined. Overall, the purpose of the validation process is to determine the
accuracy, precision, sensitivity and specificity of the test. The time and cost to complete the validation process can vary widely,
and it is possible that we would be unable to complete the validation process along the timeline and within the budget as planned.
As of the date of this filing, our clinical
diagnostics have not yet been validated for commercialization in a CLIA or CAP laboratory, and we have not yet begun the validation
process. We may be unable to enter into an agreement with a CLIA or CAP laboratory on favorable terms, or at all. Although we may
be able to validate the tests, they might have sensitivity and specificity that is insufficient to bring the product to market.
Any delays or incurrence of greater costs than budgeted in validating these tests may have a material adverse effect on our business,
results of operations and financial condition.
The Federal Food and Drug Administration
may impose additional regulatory obligations and costs upon the development of our diagnostics.
On October 3, 2014, the FDA issued draft
guidance regarding oversight of LDTs, titled “Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs).”
According to this guidance, the FDA plans to take a phased-in risk-based approach to regulating LDTs. The FDA plans to phase in
enforcement of LTD premarket review, quality system oversight and adverse event reporting over a number of years. The FDA would
require that laboratories providing LDTs, subject to certain limited exemptions, within six months after the guidance documents
are finalized to comply with (i) either a new notification procedure in which the laboratory must provide the FDA with certain
basic information about each LDT offered by their laboratory or the FDA’s device registration and listing requirements, and
(ii) the medical device reporting, or MDR, requirements for LDTs offered by that laboratory. Under this new risk-based approach,
it is possible that some level of pre-market review may be required for our LDTs, which may require us to obtain additional clinical
data.
The FDA draft guidance was subject to public
comment until February 2, 2015. On January 13, 2017, the FDA issued a discussion paper on LDTs that does not represent the formal
position of FDA and is not enforceable, but is intended to advance public discussion on future LDT oversight. At the present time,
we cannot assess what the additional costs and regulatory burdens of any FDA final guidance or FDA enforcement will be, or the
impact it may have on our business and operations.
If the FDA requires us to seek clearance
or approval for any of our diagnostic products (as opposed to simply licensing our technology to a CLIA lab), we may not be able
to obtain such approvals on a timely basis, or at all. The cost of conducting clinical trials and otherwise developing data and
information to support any applications may be significant. Failure to comply with applicable regulatory requirements of the FDA
could result in enforcement action, including receiving untitled or warning letters, fines, injunctions, or civil or criminal penalties.
In addition, we could be subject to a recall or seizure of products, operating restrictions, partial suspension or total shutdown
of production. Any such enforcement action would have a material adverse effect on our business, financial condition and operations.
Changes in laws and regulations concerning
clinical diagnostic tests may adversely affect our business, financial condition and results of operations.
The clinical laboratory testing industry
is highly regulated, and failure to comply with applicable regulatory, supervisory or licensing requirements may adversely affect
our business, financial condition and results of operations. In particular, the laws and regulations governing the marketing and
research of clinical diagnostic testing are extremely complex and in many instances there are no clear regulatory or judicial interpretations
of these laws and regulations, which increase the risk that we may be found to be in violation of these laws.
The regulatory environment in which
we operate may change significantly and adversely in the future. The molecular diagnostics industry as a whole is a growing industry
and regulatory agencies such as the FDA may also apply heightened scrutiny to new developments in the field of molecular diagnostics.
Should we be deemed to not be in compliance with regulatory requirements or any changes thereto, we may be subject to sanctions
which could include required changes to our operations, adverse publicity, substantial financial penalties and criminal proceedings.
Any change in the laws and the regulations relating to our business, whether in the form of new or amended laws or regulations
or regulatory policies, or the application of any of the above, may adversely affect our business, financial condition and results
of operations by increasing our costs to comply with the new laws or constraining our ability to develop, market and commercialize
our diagnostic tests.
For example, a development affecting our
industry is the increased enforcement of the federal False Claims Act and, in particular, actions brought pursuant to the False
Claims Act's "whistleblower" or " qui tam " provisions. The False Claims Act imposes liability on any
person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment
by a federal governmental payer program. The qui tam provisions of the False Claims Act allow a private individual to bring
civil actions on behalf of the federal government for violations of the False Claims Act and permit such individuals to share in
any amounts paid by the defendant to the government in fines or settlement. When an entity is determined to have violated the False
Claims Act, it is subject to mandatory damages of three times the actual damages sustained by the government, plus mandatory civil
penalties ranging from $5,500 to $11,000 for each false claim. In addition, various states have enacted false claim laws analogous
to the federal False Claims Act, and in some cases go even further because many of these state laws apply where a claim is submitted
to any third-party payer and not merely a governmental payer program.
In addition, there has been a recent trend
of increased U.S. federal and state regulation of payments made to physicians, which are governed by laws and regulations including
the Stark Law. Among other requirements, the Stark Law requires laboratories to track, and places a cap on, non-monetary compensation
provided to referring physicians. While we have a compliance plan to address compliance with applicable fraud and abuse laws and
regulations, the evolving commercial compliance environment and the need to build and maintain robust and expandable systems to
comply with multiple jurisdictions with different compliance and reporting requirements increases the possibility that we could
violate one or more of these requirements.
All of our diagnostics and therapeutic
product candidates are in clinical and preclinical development, the validation of which may not be successful and may be subject
to delays, which would have a material adverse effect on our business, results of operation and financial condition.
To date, we have devoted our resources
towards developing the technology upon which we are building our clinical diagnostics and therapeutic product candidates. Our clinical
diagnostic product candidates have yet to be validated and our clinical therapeutic product candidates are currently in a preclinical
development phase. As of the date of this filing, only Cannabics SR, our non-pharmaceutical palliative therapy, has been commercialized.
We may be unable to successfully complete
the clinical validation process for our diagnostic product candidates due to several factors, including our ability to acquire
enough samples for full validation and the procurement of materials necessary to conduct testing.
We may not be able to successfully complete
the preclinical testing necessary to advance our therapeutic product candidates into clinical development, including animal pharmacology
and toxicity studies. The results of any preclinical work may indicate that our therapeutic product candidates do not have the
safety or efficacy necessary to file an Investigational New Drug (“IND”) with the FDA in order to move our product
on to the clinical development process.
Once we initiate the clinical development
of our product candidates, it may be difficult to identify and qualify patients to participate in future clinical trials for our
product candidates, and the timing of our clinical trials depends on the speed at which we can recruit patients to participate
in testing as well as completion of required follow-up periods. If patients are unwilling to participate in our clinical trials
due to concerns over the safety of the product candidate or for other reasons, the timeline for conducting the trials and obtaining
regulatory approval may be delayed. Furthermore, we may also compete for patients with other companies conducting similar clinical
trials. Any delays in our future clinical trials could result in increased costs, delays in product development or termination
of the clinical trials altogether.
Any of these events could have a material
adverse effect on our business, results of operations and financial condition.
We may fail to demonstrate the safety
and efficacy of our therapeutic product candidates in accordance with regulatory standards and may incur delays and substantial
costs in our clinical trials.
In order to commercialize our therapeutic
product candidates, we must conduct extensive clinical trials demonstrating the safety and efficacy of our product candidates in
humans. The clinical testing process is expensive, difficult to design and implement, takes many years to complete and is unpredictable
in both its duration and outcome. A failure of one or more clinical trials can occur at any stage of testing. There is a high failure
rate for drugs and biological products proceeding through clinical trials. The research, testing, manufacturing, labeling, packaging,
storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject
to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations
differ from country to country. We are not permitted to market our therapeutic product candidates as a prescription pharmaceutical
product in the United States until we receive approval of a New Drug Application (“NDA”), from the FDA, or in any foreign
countries until we receive the requisite approval from such countries. In the United States, the FDA generally requires the completion
of pre-clinical testing and clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development
to ensure its quality before an NDA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of
the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer
are eventually approved for commercialization. We have not submitted an NDA to the FDA or comparable applications to other regulatory
authorities. Preclinical and clinical data is often susceptible to varying interpretations and types of analyses and regulatory
authorities may fail to approve our product. In addition, even if we successfully complete early clinical trials, such results
may not be indicative of the success or results of our later clinical trials.
Our successful completion of clinical trials
may be materially adversely affected by many factors, including:
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ineffective trial design and disagreement with the FDA on final trial design;
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imposition of a clinical hold following an inspection of our clinical trial operations by the FDA or other regulatory authorities;
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difficulties or delays in reaching an agreement with a contract research organization, and clinical trial sites;
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delays in obtaining required institutional review board approval for each trial site;
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data collected from clinical trials may not be sufficient to support the submission of a NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
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delays or difficulties in recruiting suitable patients to participate in clinical trials;
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delays in manufacturing or delivering products and materials to clinical trial sites;
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delays or difficulties caused by lack of patient adherence to treatment or post-treatment follow-up;
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delays caused by patients dropping out of a trial and the need for recruiting additional patients; and
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delays caused by clinical sites dropping out of the trial and the time required to recruit a new site.
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Any of these delays or difficulties could
cause us to be delayed in obtaining marketing approval from regulatory authorities, if at all, or allow us to obtain approval for
specific indications or patient populations that are not as broad as currently targeted. In addition, such delays or difficulties
may cause our development costs or our time to bring our product candidates to market to increase, may weaken our competitive positioning
in the market and may have a material adverse effect on our business, results of operations and financial condition.
We cannot predict if or when we will receive
regulatory approval to commercialize a therapeutic product candidate.
We cannot commercialize a therapeutic product
candidate until the appropriate regulatory authorities, such as the FDA or a state regulating authority, have reviewed and approved
the product candidate. Even if our therapeutic product candidates demonstrate safety and efficacy in clinical trials, regulatory
agencies may not complete their review processes in a timely manner, and we may not be able to obtain timely regulatory approval.
We may never be able to receive regulatory approval for our therapeutic product candidates at all. Additional delays may result
if an FDA advisory committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we
may experience delays or rejections based upon additional government regulation from future legislation or administrative action,
or changes in regulatory agency policy during the period of product development, clinical trials and the review process. Regulatory
agencies may also approve a product candidate for fewer or more limited indications than requested or may grant approval subject
to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary
or desirable for the successful commercialization of our product candidates. Delays or failure to obtain necessary regulatory approvals
could have a material adverse effect on our business, results of operations and financial condition.
Even if we obtain regulatory approval for
a therapeutic product candidate, we will remain subject to extensive regulatory scrutiny.
Even if we obtain regulatory approval in
the United States for our therapeutic product candidates, the FDA and other appropriate regulatory agencies may still impose significant
restrictions or delays, including restriction of patient population or indications or additional costly studies. Any changes to
the approved product or its labeling or manufacturing process would require FDA approval. Any advertisements or promotions must
comply with FDA regulations and are subject to FDA review as well as state and federal laws. Drug product manufacturers are subject
to continual review and inspection by the FDA and other regulatory authorities to comply with Current Good Manufacturing Practice
standards. If the FDA or other regulatory authority finds previously undiscovered compliance issues with products, such as unanticipated
adverse effects or issues with the manufacturing facility, the FDA or other regulatory authority may:
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issue a warning letter asserting that we are in violation of law;
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impose civil or criminal penalties or monetary fines;
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suspend or withdraw regulatory approval;
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suspend currently ongoing clinical trials;
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refuse any pending applications;
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prohibit us from entering into beneficial or necessary contracts such as supply or government contracts.
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Any government investigation of alleged
violations of law could require us to expend significant time and resources in response, could result in litigation and litigation-related
expense and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability
to commercialize our therapeutic product candidates and generate revenue, which would have a material adverse effect on our business,
results of operations and financial condition.
In addition, even if we obtain regulatory
approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our therapeutic product candidates
successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the
ability to develop competing products or establish market dominance. Any regulatory approval that we ultimately obtain may be limited
or subject to restrictions or post-approval commitments that render our products not commercially viable. For example, regulatory
authorities may approve our therapeutic product candidates for fewer or more limited indications than we request, may not approve
the price we intend to charge for our therapeutic product candidates, may grant approval contingent on the performance of costly
post-marketing clinical trials, or may approve our therapeutic product candidates with a label that does not include the labeling
claims necessary or desirable for the successful commercialization of that indication. Further, the FDA may place conditions on
approvals including potential requirements or risk management plans and the requirement for a Risk Evaluation and Mitigation Strategy
(“REMS”) to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit
a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides,
physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and
other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution,
prescription or dispensing of our therapeutic product candidates. Moreover, product approvals may be withdrawn for non-compliance
with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could
materially harm the commercial success of our product candidates and have a material adverse effect on our business, results of
operations and financial condition.
We may fail to obtain orphan drug status
for our therapeutic product candidates.
We intend to seek orphan drug status from
the FDA for those anti-cancer therapeutic product candidates we are presently developing to the extent such product candidates
are eligible for orphan drug status under the Orphan Drug Act of 1983. The orphan drug status gives the manufacturer specific financial
incentives to develop a pharmacological agent. If a product that has an orphan drug designation receives the first FDA approval
for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA
may not approve any other applications to market the same medication for the same indication, except in very limited circumstances,
for seven years. Failure to obtain an orphan drug designation for our product candidates may have a material adverse effect on
our business, results of operations and financial condition.
Any of our therapeutic product candidates
may cause adverse effects or have properties that could delay or prevent their regulatory approval or limit the scope of any specific
indications or market acceptance.
Adverse events caused by our therapeutic
product candidates could cause interruptions, delays or the halting of our clinical trials. If adverse effects are observed in
any clinical trials for our therapeutic product candidates, we may be unable to obtain timely, or any, regulatory approval of our
therapeutic product candidates. Adverse effects caused by our therapeutic product candidates could also subject us to litigation
and liability, which could have a material adverse effect on our business, results of operations and financial condition.
In addition, if any of our therapeutic
product candidates are approved for commercialization and are found to cause serious or unpredicted side effects, serious consequences
may result, including but not limited to, the withdrawal of marketing approval by regulatory authorities, restrictions on distribution
by regulatory authorities, the need to conduct additional clinical trials, litigation and potential liability for personal injury
to patients and damage to our reputation. Furthermore, our ability to achieve and maintain profitability may be permanently impaired.
Any of these events could have a material adverse effect on our business, results of operations and financial condition.
Our dietary supplements are subject to
government regulation, both in the United States and internationally, which could increase our costs significantly and limit or
prevent the sale of our dietary supplements.
The manufacture, packaging, labeling,
advertising, promotion, distribution and sale of Cannabics SR, and any other dietary supplements that we may develop and commercialize,
is subject to regulation by numerous national and local governmental agencies in the United States and other countries, including
the FDA and Federal Trade Commission in the United States, and the Ministry of Health in Israel. Failure to comply with these regulatory
requirements may result in various types of penalties or fines. These include injunctions, product withdrawals, recalls, product
seizures, fines and criminal prosecutions. Individual states also regulate dietary supplements. A U.S. state may interpret claims
or products presumptively valid under federal law as illegal under that state’s regulations. In markets outside the United
States, we will likely be required to obtain approvals, licenses, or certifications from a country’s ministry of health or
comparable agency, as well as labeling and packaging regulations, all of which vary from country to country. Approvals or licensing
may be conditioned on reformulation of products or may be unavailable with respect to certain products or product ingredients.
Any of these government agencies, as well as legislative bodies, can change existing regulations, or impose new ones, or could
take aggressive measures, causing or contributing to a variety of negative consequences, including:
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requirements for the reformulation of certain or all products to meet new standards;
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the recall or discontinuance of certain or all products;
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additional record keeping;
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expanded documentation of the properties of certain or all products;
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expanded or different labeling;
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adverse event tracking and reporting; and
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additional scientific substantiation.
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Any or all of these requirements could
have a material adverse effect on us. There can be no assurance that the regulatory environment in which we operate will not change
or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.
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 cannabinoid-based products may depend on how the healthcare systems of the United States, the European Union and other governments
provide coverage or reimbursement. Reimbursement and healthcare payment systems in international markets vary significantly by
country, and include both government sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in
some countries, we may be required to produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness
of our products to other available therapies. We may not obtain international reimbursement or pricing approvals in a timely manner,
if at all. Our failure to receive international reimbursement or pricing approvals would negatively impact market acceptance of
our products in the international markets in which those approvals are sought.
We believe that future reimbursement may
be subject to increased restrictions in the United States, the European Union and in other international markets. There is increasing
pressure by governments worldwide to contain health care costs by limiting both the coverage and the level of reimbursement for
therapeutic products and by refusing, in some cases, to provide any coverage for products that have not been approved by the relevant
regulatory agency. Future legislation, regulation or reimbursement policies of third-party payers may adversely affect the demand
for our product candidates currently under development and limit our ability to sell our product candidates on a profitable basis.
In addition, third party payers continually attempt to contain or reduce the costs of healthcare by challenging the prices charged
for healthcare products and services. If reimbursement for our products is unavailable or limited in scope or amount or if pricing
is set at unsatisfactory levels, market acceptance of our products candidates will be impaired and future revenues, if any, will
be adversely affected.
Risks Related to Our Dependence on Third
Parties
We rely and expect to continue to rely
heavily on third parties to conduct our preclinical studies and clinical trials, and those third parties may not perform satisfactorily,
including failing to meet deadlines for the completion of such studies and trials.
We do not have in-house research facilities
and, as a consequence, we must currently rely on third parties to conduct our clinical trials. We expect to continue to rely heavily
on third parties, such as contract research organizations, clinical data management organizations, medical institutions, clinical
investigators and others to conduct our clinical trials. Our agreements with these third parties generally allow the third party
to terminate our agreement with them at any time. If we are required to enter into alternative arrangements because of any such
termination, the introduction of our product candidates to market could be delayed.
Our reliance on third parties for research
and development will reduce our control over such activities but will not relieve us of our responsibilities. Likewise, our reliance
on third parties whom we do not control does not relieve us of our responsibility to comply with regulatory requirements to use
Current Good Clinical Practice standards when conducting, recording and reporting the results of clinical trials in order to ensure
that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants
are protected. We are also required to register ongoing clinical trials and post the results of completed clinical trials on a
government-sponsored database of regulatory agencies within specified timeframes. Failure to do so can result in fines, adverse
publicity and civil and criminal sanctions.
The third parties on whom we rely may also
have relationships with other entities, some of whom may be our competitors. If these third parties do not successfully carry out
their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with the requirements of a regulatory
agency or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product
candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
Collaboration agreements that we may enter
into in the future may not be successful, which could adversely affect our ability to develop and commercialize our diagnostics
and therapeutic product candidates.
We may enter into collaboration agreements
with pharmaceutical companies and biotechnology institutions for the development or commercialization of our cannabinoid-based
diagnostics and therapeutic product candidates, which agreements may contain provisions based upon, among other things, the merits
of retaining certain rights. We will face significant competition in seeking appropriate collaborators and in negotiating agreements
at acceptable terms, if at all. We may not be successful in our efforts to enter, implement and maintain collaboration agreements.
Disagreements stemming from collaboration agreements concerning development, intellectual property, regulatory or commercialization
matters can lead to delays and, in some cases, termination of our collaboration agreements or otherwise result in the potentially
significant costs and fees in seeking to enforce or protect our rights, if any. Any such disagreements can be difficult if, in
fact, neither of the parties has final decision-making authority. The resulting outcome of any disputes or disagreements would
in all likelihood adversely affect our business.
Data provided by collaborators and others
upon which we rely that has not been independently verified could turn out to be false, misleading, or incomplete.
We rely on third-party vendors, scientists,
and collaborators to provide us with significant data and other information related to our projects, clinical trials, and our business.
If such third parties provide inaccurate, misleading, or incomplete data, our business, prospects, and results of operations could
be materially adversely affected.
Our business model is substantially dependent
on third party licensees to market and sell our products, which will subject us to a number of risks.
We depend on third party licensees to sell,
market, and service our products and current and future products in our intended markets. We are subject to a number of risks associated
with reliance upon third party licensees, including:
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lack of day-to-day control over the activities of licensees;
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third party licensees may not commit the necessary resources to market and sell our current and future products to our level of expectations;
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third party licensees may terminate their arrangements with us on limited or no notice or may change the terms of these arrangements in a manner unfavorable to us; and
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disagreements with our future licensees could result in costly and time-consuming litigation or arbitration which we could be required to conduct in jurisdictions with which we are not familiar.
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If we fail to establish and maintain satisfactory
relationships with our future third party licensees, our revenue and market share may not grow as anticipated, and we could be
subject to unexpected costs which could harm our results of operations and financial condition.
Risks Related To Operating In Israel
Failure to secure the necessary Israeli
licenses to use cannabis for medical research could limit our ability to execute our research and development activities, delay
the launch of our products and adversely affect the results of our business operations.
To date, we have only conducted our research
in Israel and, in fact, have limited our operations to Israel. The biotechnologies that we are developing contain cannabis, a “controlled
substance” as defined in the Israeli Dangerous Drugs Ordinance [New Version], 5733 - 1973. In Israel, licenses to cultivate,
possess and to use cannabis for medical research are granted by the Ministry of Health, Israel Medical Cannabis Unit (“IMCU”),
on an ad hoc basis. We have obtained all IMCU licenses that are necessary for us to carry out our research. Even though
we have an established track record of successfully obtaining the requisite licenses as required, there can be no assurance that
we will continue to be able to secure licenses in the future. If we fail to comply with Israeli rules and regulations related to
the licensing of cannabis, we may not be able to research and develop our product candidates as we intend or at all.
We may become subject to claims for remuneration
or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our
business.
A significant portion of our intellectual
property has been developed by our Israeli employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967
(the “Israeli Patent Law”), inventions conceived of by an employee during the term and as part of the scope of his
or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific
agreement between the employee and employer giving the employee service invention rights. The Israeli Patent Law also provides
that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “C&R
Committee”), a body constituted under the Israeli Patent Law, shall determine whether the employee is entitled to remuneration
for his or her inventions. The C&R Committee (decisions of which have been upheld by the Israeli Supreme Court) has held that
employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further,
the C&R Committee has not yet set specific guidelines regarding the method for calculating this remuneration or the criteria
or circumstances under which an employee’s waiver of his or her right to remuneration will be disregarded. We generally enter
into intellectual property assignment agreements with our employees pursuant to which such employees assign to us all rights to
any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to
us service invention rights and have specifically waived their right to receive any special remuneration for such assignment beyond
their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence
of such claims, we could be required to pay additional remuneration or royalties to our current or former employees, or be forced
to litigate such claims, which could negatively affect our business.
We expect that our results of operations
will be subject to fluctuations in currency exchange rates because a substantial portion of our anticipated revenue will be generated
in U.S. dollars and Euros while a significant portion of our expenses will be incurred in New Israeli Shekels.
We expect a substantial portion of our
revenue will be generated in U.S. dollars and Euros, while a significant portion of our expenses, principally salaries and related
personnel expenses, is paid in New Israeli Shekels, or NIS. As a result, we are exposed to the risk that the rate of inflation
in Israel will exceed the rate of devaluation of the NIS in relation to the Euro or the U.S. dollar, or that the timing of this
devaluation will lag behind inflation in Israel. Because inflation has the effect of increasing the U.S. dollar and Euro costs
of our operations, it would therefore have an adverse effect on our dollar-measured results of operations. The value of the NIS,
against the Euro, the U.S. dollar, and other currencies may fluctuate and is affected by, among other things, changes in Israel’s
political and economic conditions. Any significant revaluation of the NIS may materially and adversely affect our cash flows, revenues
and financial condition. Fluctuations in the NIS exchange rate, or even the appearance of instability in such exchange rate, could
adversely affect our ability to operate our business.
We may not be able to enforce covenants
not-to-compete under current Israeli law.
We have non-competition agreements with
most of our employees, all of which are governed by Israeli law. These agreements generally prohibit our employees from competing
with us or working for our competitors for a specified period following termination of their employment. However, Israeli courts
are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to enforce those provisions for relatively
brief periods of time in restricted geographical areas and only when the employee has unique value specific to that employer’s
business and not just regarding the professional development of the employee. Any such inability to enforce non-compete covenants
may cause us to lose any competitive advantage arising from confidential information known to such former employees.
It may be difficult for investors in the
United States to enforce any judgments obtained against us or some of our directors or officers.
The majority of our assets are located
outside the United States. In addition, certain of our officers are nationals or residents of countries other than the United States,
and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult
for investors to enforce within the United States any judgments obtained against us or any of our non-U.S. officers, including
judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. It may
also be difficult to assert claims under United States securities law in actions originally instituted outside of the United States.
Moreover, Israeli courts may refuse to hear a United States securities law claim because Israeli courts may not be the most appropriate
forums in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law, and
not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, certain content of applicable U.S. law
must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed
by Israeli law. Consequently, our investors may be effectively prevented from pursuing remedies under U.S. federal and state securities
laws against us or any of our non-U.S. directors or officers.
If there are significant shifts in the
political, economic and military conditions in Israel and its neighbors, it could have a material adverse effect on our business
relationships and profitability.
All of our research facilities and certain
of our key personnel are located in Israel. Our business is directly affected by the political, economic and military conditions
in Israel and its neighbors. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred
between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity, has caused security and economic
problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and various agreements with the Palestinian
Authority, there has been a marked increase in violence, civil unrest and hostility, including armed clashes, between the State
of Israel and the Palestinians since September 2000. The establishment in 2006 of a government in the Gaza Strip by representatives
of the Hamas militant group has created heightened unrest and uncertainty in the region. In mid-2006, Israel engaged in an armed
conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June 2007, there was an escalation in violence
in the Gaza Strip. From December 2008 through January 2009 and again in November and December 2012, Israel engaged in an armed
conflict with Hamas, which involved missile strikes against civilian targets in various parts of Israel and negatively affected
business conditions in Israel. In July 2014, Israel launched an additional operation against Hamas operatives in the Gaza strip
in response to Palestinian groups launching rockets at Israel. Recent political uprisings and social unrest in Syria are affecting
its political stability, which has led to the deterioration of the political relationship between Syria and Israel and have raised
new concerns regarding security in the region and the potential for armed conflict. Similar civil unrest and political turbulence
is currently ongoing in many countries in the region. The continued political instability and hostilities between Israel and its
neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our operations
in Israel and adversely affect the market price of our shares of common stock. In addition, several countries restrict doing business
with Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or curtailment of trade
between Israel and its present trading partners could adversely affect our business, financial condition and results of operations.
Risks Related To Our Stock
There can be no assurance of an active,
liquid and orderly trading market for our common stock or that investors will be able to sell their shares of common stock.
At present, our common stock is quoted
on the OTCQB tier of the marketplace maintained by OTC Markets Group Inc., under the symbol “CNBX.” There is only a
limited, liquid public trading market for our common stock. There can be no assurance that a liquid market for our common stock
will continue. 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. There is no assurance
that any such awareness will be generated or sustained. Therefore, 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. Moreover, 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 particular
time if ever. Our common stock should be purchased only by investors who have no immediate need for liquidity in their investment
and who can hold our common stock, possibly for a prolonged period of time.
The price of our common stock is volatile,
and the value of your investment could decline.
The market price of our common stock has
been highly volatile. Between September 1st, 2020, and August 31st, 2020, the sales price of our stock on
the OTCQB ranged from a low of $0.08 per share to a high of $0.57 per share. Accordingly, it is difficult to forecast the future
performance of our common stock. The market price of our common stock may be higher or lower than the price you pay, depending
on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could
cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price
of our common stock include the following:
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technological innovations or new products and services by us or our competitors;
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regulatory developments at the federal, state or local level;
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additions or departures of key personnel;
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our ability to execute our business plan;
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operating results that fall below expectations;
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loss of any strategic relationship;
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economic, political and other external factors; and
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period-to-period fluctuations in our financial results.
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The stock market generally and in particular,
the market for stocks of biotechnology companies with lower market capitalizations, like us, have from time to time experienced,
and likely will again experience significant price and volume fluctuations that are unrelated to the operating performance of a
particular company. The trading price of our common stock might decline in reaction to events that affect other companies in our
industry, even if these events do not directly affect us.
Periods of volatility in the market price
of a company’s securities have often been followed by securities class action litigation against that company. If our stock
price continues to be volatile, we may become the target of securities litigation, which could result in substantial costs and
divert our management’s attention and resources from our business. This could have a material adverse effect on our business,
operating results and financial condition.
We may never pay any dividends to our shareholders.
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,
our 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.
Our principal stockholders and management
own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As at August 31, 2020, Cannabics Inc.,
a Delaware corporation, owns 64% of our common stock. Our three Directors are also holders of shares in Cannabics Inc., and therefore
have substantial influence over it. Accordingly, the Company (and our management) may be able to control the outcome of stockholder
votes, including votes concerning the election of directors, amendment of our organizational documents, approval of mergers, sales
of assets and other significant corporate transactions. This concentration of ownership in Cannabics Inc. (and our management)
may have the effect of delaying or preventing a change in our management and voting control of Cannabics Inc., including preventing
or discouraging unsolicited acquisition proposals or offers for our common stock that some of our stockholders may believe is in
their best interest.
We may issue shares of preferred stock
with greater rights than our common stock, which may entrench management and result in dilution of our stockholders' investment.
Our Articles of Incorporation authorize
the issuance of up to 100 million shares of preferred stock, par value $0.0001 per share. The authorized but unissued preferred
stock may be issued by our board of directors from time to time on any number of occasions, without stockholder approval, as one
or more separate series of shares comprised of any number of the authorized but unissued shares of preferred stock, designated
by resolution of our board of directors stating the name and number of shares of each series and setting forth separately for such
series the relative rights, privileges and preferences thereof, including, if any, the: (i) rate of dividends payable thereon;
(ii) price, terms and conditions of redemption; (iii) voluntary and involuntary liquidation preferences; (iv) provisions of a sinking
fund for redemption or repurchase; (v) terms of conversion to common stock, including conversion price, and (vi) voting rights.
Such preferred stock may enable our board of directors to hinder or discourage any attempt to gain control of the Company by a
merger, tender offer at a control premium price, proxy contest or otherwise. Consequently, the preferred stock could entrench our
management. The market price of our common stock could be depressed by the existence of the preferred stock.
Nevada law and certain provisions of our
Articles of Incorporation and bylaws may discourage mergers and other transactions.
Provisions of Nevada law, such as its business
combination statute, and certain provisions of our Articles of Incorporation and by-laws could make it more difficult for someone
to acquire control of the Company and limit the price that certain investors might be willing to pay for shares of our common stock.
These provisions may make it more difficult for stockholders to take certain corporate actions and could delay or prevent someone
from acquiring our business. The provisions could be beneficial to our management and the board of directors in a hostile tender
offer, and could have an adverse impact on stockholders who might want to participate in such tender offer, or who might want to
replace some or all of the members of the board of directors.
Our common stock may be subject to penny
stock rules, which may make it more difficult for our investors to sell their common stock.
Our common stock is presently considered
to be a "penny stock" and is subject to SEC rules and regulations that impose limitations upon the manner in which such
shares may be publicly traded, and regulate broker-dealer practices in connection with transactions in "penny stocks."
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information
about penny stocks and the 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 in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock, the broker-dealer 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. These
disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that
becomes subject to the penny stock rules which may increase the difficulty investors may experience in attempting to liquidate
such securities. These requirements could also hamper our ability to raise funds in the primary market for our shares of common
stock.