ITEM
1. BUSINESS
Corporate
History
The
Company was originally incorporated in the State of Delaware on March 25, 2013 under the name TYG Solutions Corp. Our original
business plan was to develop iPhone and Android smartphone apps for companies who need an app for their internal and external
operations. We subsequently expanded our operations to offering corporate website design services.
On
July 25, 2018, the Company entered into a Share Exchange Agreement with Kannalife Sciences, Inc., a Delaware corporation (“Kannalife
Sciences”), and certain stockholders of Kannalife Sciences (the “Kannalife Sciences Stockholders”). Pursuant
to the terms of the Share Exchange Agreement, the Company acquired substantially all of the issued and outstanding shares of Kannalife
Sciences by means of a share exchange with the Kannalife Sciences Stockholders in exchange for newly issued shares of the common
stock of the Company (the “Share Exchange”). As a result of the Share Exchange, Kannalife Sciences became a 99.7%
owned subsidiary of the Company. The business operations of the Company regarding iPhone and Android smartphone apps was reduced
significantly to focus efforts on target therapeutics and drug discovery, and accordingly, by virtue of the Share Exchange, the
Company acquired the business of Kannalife Sciences including all of its assets. The Share Exchange was accounted for as a reverse
acquisition and change in reporting entity, whereby Kannalife Sciences was the accounting acquirer.
Kannalife
Sciences was incorporated in the State of Delaware on August 11, 2010. Kannalife Sciences is a developmental stage phyto-medical/pharmaceutical
and drug discovery company that specializes in the research, development of cannabinoid and cannabinoid-based therapeutic products
derived from synthetic and botanical sources, including the Cannabis “taxa” (the word “taxa”
is the plural of “taxon,” which defines a group of one or more populations of an organism or organisms to form a unit).
On November 9, 2018, the Company filed an amendment to its certificate of incorporation with the Delaware Secretary of State to
change its name to Kannalife, Inc. The Company concurrently submitted a request to FINRA for approval of the name change as well
as a ticker symbol change to “KLFE,” and such action went effective on January 17, 2019.
On
November 4, 2020, the Company filed an amendment to its certificate of incorporation with the Delaware Secretary of State to change
its name to “Neuropathix, Inc.” The Company concurrently submitted a request to FINRA for approval of the name change
as well as a ticker symbol change from “KLFE” to “NPTX.” The Company’s name change and ticker symbol
change was reviewed and processed by FINRA, and went effective November 6, 2020.
Our
Business
We
are a biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics from our proprietary
synthetic cannabinoid derivatives platform potentially useful for a broad range of inflammatory and neuropathic pain related diseases.
In our eleven (11) years of operations, dating back to August 2010 under the name Kannalife Sciences, Inc. we have been principally
involved in the research and development of new chemical entities (“NCEs”) such as KLS-13019; KLS-13022 (“linoneyldihydroxybenzyl
ethoxycarbonyl azetidine” or “LEA”); its related molecules; and synthetic cannabidiol (“CBD”) therapeutics
through pre-clinical drug discovery and development processes. We have developed our own intellectual property portfolio and established
relationships with third parties who are considered leaders in active pharmaceutical (“API”) contract manufacturing,
formulation; and contract bulk drug manufacturing. All of the operations of the Company to date have been in the pre-clinical
stage of drug discovery.
Our
early research and development efforts began under an exclusive license with National Institutes of Health – Office of Technology
Transfer (“NIH-OTT”) for the use of the U.S. Government Patent 6,630,507 – “Cannabinoids as Antioxidants
and Neuroprotectants” (the “‘507 Patent”). Through the use of the ‘507 Patent, we centered our initial
research into the use of CBD for use in a variety of neurodegenerative and oxidative stress related diseases.
Our
core businesses are comprised of the following:
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A
drug development company focused on the research and development (R&D) of non-opioid based synthetic and chemical-medical
products from:
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naturally
recurring sources, including but not limited to cannabis, hemp, and other similar species
of plantae;
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semi-synthetic
sources; and
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synthetic
and bio-synthetic sources.
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Drug
discovery platform to evaluate and potentially treat neurological and oxidative stress related disorders such as overt hepatic
encephalopathy (“OHE”), Chronic Traumatic Encephalopathy (“CTE”) and Chemotherapy Induced Peripheral
Neuropathy (“CIPN”) with high quality assured, quality controlled cGMP pharmaceutical grade semi-synthetic and
synthetic cannabinoids, CBD, and cannabidiol-like molecules.
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Topical
skincare pre-clinical program designed to some of our patented, proprietary cannabidiol-derived NCEs, for use as topical solutions,
ointments, and creams for disorders such as diabetic neuropathies, diabetic ulcers, and for use as an anti-pruritic. Anti-pruritics
are known as anti-itch drugs and medications that inhibit the itching often associated with a variety of disorders and diseases.
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Cannabinoids
are a class of molecules derived from Cannabis plants. The two primary cannabinoids contained in Cannabis are CBD and D9-tetrahydrocannabinol,
or THC. Clinical and preclinical data suggest that CBD has positive effects on treating refractory epilepsy, FXS and arthritis,
and THC has positive effects on treating pain. Interest in cannabinoid therapeutics has increased significantly over the past
several years as preclinical and clinical data has emerged highlighting the potential efficacy and safety benefits of cannabinoid
therapeutics. The cannabinoid therapeutics market is expected to grow significantly due to the potential benefits these products
may provide over existing therapies.
CBD
is a naturally occurring cannabinoid constituent of cannabis. It was discovered in 1940 and is known to exhibit neuroprotective
properties in many experimental systems. However, our early research and development efforts revealed that there could be obstacles
for CBD as a drug. The FDA approval of EpidiolexÒ, a CBD based drug manufactured by GW Pharmaceuticals Ltd. for the treatment
of Dravet’s Syndrome and Lennox-Gastaut Syndrome, has indicated that there are certain safety issues. We also believe that
the development of CBD as a drug has been confounded by the following: (i) low potency; (ii) a large number of molecular targets;
(iii) marginal pharmacokinetic properties; and (iv) designation as a Schedule 1 controlled substance under the Controlled Substances
Act.
In
the past three years, our most recent research and development efforts have been centered on the use of KLS-13019 as a neuroprotectant
and therapeutic agent to treat chronic and neuropathic pain. There is currently no FDA approved drug to treat CIPN. Our preclinical
efforts in the research and development of treating CIPN with our lead compound KLS-13019 have been fostered by a successful study
grant from National Institutes of Health – National Institute on Drug Abuse (“NIH-NIDA”) that compared KLS-13019
to CBD in the prevention and reversal of neuropathic pain in animal models. As a result of the outcome of this and other preclinical
studies, we believe there is strong evidence to support the use of KLS-13019 as a non-opioid solution to chronic and neuropathic
pain in human clinical trials.
Our
current focus is centered around advancing KLS-13019 as a novel, non-opioid solution for the treatment of chronic and neuropathic
pain.
Our
present work involves comparing the properties of CBD with our patented novel cannabidiol derived molecule, KLS-13019, that has
structural similarities to CBD. The design strategy for KLS-13019 was to increase hydrophilicity while optimizing neuroprotective
potency against oxidative stress toxicity relevant to oxidative stress related diseases and neuro-inflammatory disorders. In early
pre-clinical studies, the responses of CBD and KLS-13019 were compared in dissociated rat hippocampal cultures in a pre-clinical
model for OHE and also CIPN.
HE
is a neuropsychiatric disorder that includes learning deficits and impairment of long-term memory. OHE it is a sub-set of HE.
HE is caused by accumulation of toxic substances in the bloodstream that are normally removed by the liver as a result of liver
failure. If left unchecked, HE can progress to hepatic coma (also referred to as coma hepaticum) and ultimately death (Cordoba,
2011). The pathogenesis of HE includes damage to the prelimbic cortex, striatum and the hippocampus (Aria et al., 2013). The hippocampus,
is a major component of the brains of humans and other vertebrates. The hippocampus belongs to the limbic system and plays important
roles in the consolidation of information from short-term memory to long-term memory, and in spatial memory that enables navigation.
It
has been previously demonstrated that impaired liver function and liver disease is associated with the production of free radical
and oxidative stress (Bailey and Cunningham, 1998). The accumulation of these free radicals and oxidative stress contribute to
cognitive impairment, learning deficits, memory impairment, as well as damage and death of neuronal tissue. Cognitive impairment
is when a person has trouble remembering, learning new things, concentrating, or making decisions that affect their everyday life.
Cognitive impairment resulting from H ranges from mild to severe. There is a long felt need for neuroprotective agents that are
both disease-modifying and effective in treating patients that are experiencing HE. Onset of HE symptoms may be gradual or sudden. Other
symptoms may include movement problems, changes in mood, or changes in personality. In the advanced stages, HE can result in a
coma.
CIPN,
is a progressive, enduring and often irreversible condition featuring pain, numbness, tingling and sensitivity to cold in the
hands and free (sometimes progressing to the arms and legs) that affects between 30% and 40% of patients undergoing chemotherapy.
CIPN often causes termination of chemotherapy in cancer patients and presents a two-fold problem, both in the ongoing chemotherapy
treatment regimen and the abundant use of opioids and gabapentinoids as the most widely
used products to treat CIPN.
Comparisons
between CBD and KLS-13019 have been published in peer reviewed articles in ACS Medicinal Chemistry Letters (2016, 7, 424-428)
and Journal of Molecular Neuroscience (14 August 2018). The studies and science referenced in these articles were performed by
Advanced Neural Dynamics (“AND”), a third party provider of preclinical pharmacology services and Iteramed (“Iteramed”),
a third party provider of medicinal chemistry consulting and synthesis. Both AND and Iteramed are operated by Douglas Brenneman,
Ph.D and William A. Kinney Ph.D, respectively. Both Mr. Brenneman and Mr. Kinney are shareholders of the Company, co-inventors
in our intellectual property underlying U.S. Patents 9,611,213 and 10,004,722, and with respect to Mr. Kinney, is our Chief Scientific
Officer. Mr. Brenneman is a member of our scientific advisory board.
In
the ACS abstract and paper, Notably, KLS-13019 was found to be 50-fold more potent and >400-fold safer than CBD and exhibited
an in vitro profile consistent with improved oral bioavailability. In the JOMN abstract and paper, the protective responses of
CBD and KLS-13019 were compared in dissociated rat hippocampal cultures co-treated with toxic levels of ethanol and ammonium acetate.
This comparison revealed that KLS-13019 was 31-fold more potent than CBD in preventing neuronal toxicity from the combined toxin
treatment, while both compounds exhibited protective efficacy back to control values. While results of the Company’s preclinical
studies on KLS-13019 have shown preclinical efficacy via in vitro studies in CIPN and HE, KLS-13019 will require
human clinical trials to determine both safety and efficacy and such matters are subject to clinical trial endpoints and FDA review,
with ultimate approval coming at the end of a successful human clinical trial study and new drug application (“NDA”).
Our
lead target drug candidate, KLS-13019, is part of an estate of new chemical entities (“NCEs”) underlying U.S. Patent
9,611,213 titled “Functionalized 1,3 Benzene-diols and their Method of Use for the Treatment of Hepatic Encephalopathy.”
This patent is part of a divisional patent application by the Company to the United States Patent and Trademark Office (“USPTO”)
whereby we sought claims for composition of matter, covered in Pat. 9,611,213, and separate claims for method for treatment, covered
by U.S. Patent 10,004,722 titled “Method for Treating Hepatic Encephalopathy or a Disease Associated with Free Radical Mediate
Stress and Oxidative Stress with Novel Functionalized 1,3 Benzene-diols.”
KLS-13019
and its related molecules under the aforementioned patents describe novel functionalized 1,3-benzenediols (“Cannabidiol
Derived Molecules”) and methods that may be useful and have potential for the treatment of HE and related conditions. The
present invention further describes (i) a novel chemotype that may be useful and have potential for the treatment of diseases
associated with HE, and (ii) a novel chemotype that may be useful and have potential as neuroprotective agents. The Cannabidiol
Derived Molecules under the present invention may be useful and have potential for treating and preventing diseases associated
with free radical mediated stress and oxidative stress including, for example, HE, Parkinson’s disease, Alzheimer’s,
Huntington’s disease, traumatic head injury, stroke, epilepsy, neuropathic pain, CTE, Post Cardiac Arrest Hypoxic Ischemic
Encephalopathy, and Epileptic Encephalopathy.
We
intend to study KLS-13019 in patients with chemotherapy induced neuropathic pain. We believe that the claims made in the Pat.
9,611,213 and Pat. 10,004,722 sufficiently cover the use of the novel molecule KLS-13019 in the treatment of neuropathic pain,
which is broadly defined and includes chemotherapy induced neuropathic pain (a/k/a: chemotherapy induced peripheral neuropathy).
To
date, we have synthesized, pre-clinically tested and patented our proprietary CBD like NCEs, including KLS-13019, and also formulated
a new CBD based molecule, KLS-13023. KLS-13023 is a target drug candidate that includes a synthetic CBD formulated in a gel capsule
designed for potential use in humans, which is intended to enable more effective delivery of CBD. The formulation of this product
is proprietary and currently held as a trade secret of the Company. CBD is the primary non-psychoactive component of cannabis.
KLS-13023 has undergone a manufacturing feasibility study to improve some of the limitations associated with CBD, including but
not limited to CBD’s low bioavailability and limited drug like properties and improvement of the delivery of CBD through
the first pass in the gut and into the circulatory system. We intend to study KLS-13023 in patients with mild traumatic brain
injury. In addition, we expect that KLS-13023 will be classified by the FDA as an NCE. In our preclinical animal studies, KLS-13023
demonstrated effective intervention of neurodegeneration in the OHE disease state.
We
believe these product candidates will provide new treatment options for patients, as well as additional treatment options for
patients not currently receiving adequate relief from current treatment regimens.
We
are still conducting pre-clinical studies and have not yet commenced our clinical program or tested KLS-13019 or KLS-13023 in
humans. For KLS-13019, we plan to conduct Phase 1, and possibly Phase 2, clinical trials in either the U.S. or Australia, subject
to applicable regulatory approval. We plan to conduct our Phase 1 clinical trials for KLS-13023 in either the U.S. or Australia,
subject to applicable regulatory approval. We plan to submit New Drug Applications (“NDAs”) for KLS-13019 and KLS-13023
to the FDA upon completion of Phase 3 clinical trials, regardless of where the Company conducts Phase 1 and Phase 2 clinical trials.
We expect to initiate clinical trials for KLS-13019 and KLS-13023 in the first half of 2022.
We
plan to conduct our Phase 1, and possibly Phase 2, clinical trials for KLS-13019 in the U.S. or Australia, subject to applicable
regulatory approval, and do not expect at this time to file an investigational new drug application, or IND, with the U.S. Food
and Drug Administration, or the FDA, prior to the commencement of those clinical trials. We must file an IND with the FDA and
receive approval from the U.S. Drug Enforcement Agency, or DEA, prior to commencement of any clinical trials in the United States.
In
preclinical studies performed pursuant to a small business technology transfers (“STTR”) agreement between us, and
Temple University, funded by the National Institutes of Health – National Institute on Drug Abuse (“NIH-NIDA”),
our research, the subject of two peer reviewed scientific publications in the Journal of Molecular Neuroscience, described how
KLS-13019, was superior to CBD and morphine in the potential to prevent and reverse neuropathic pain caused by paclitaxel, a chemotherapeutic
agent used to treat breast, ovarian and non-small cell lung cancer. (See: Business – Preclinical Studies for more information).
Upon
completion of all requisite preclinical studies, we expect to open an Investigational New Drug Application, or IND, to pursue
a clinical development program with either the U.S. Food and Drug Administration (“FDA”) in the U.S. or the Therapeutic
Goods Administration (“TGA”), the regulatory body for therapeutic goods (including medicines, medical devices,
gene technology, and blood products) in Australia.
In
mid 2019, we began screening and conducting preliminary research and development of some of our patented, proprietary cannabidiol-derived
NCEs for use as active pharmaceutical ingredients (APIs) in topical solutions, ointments, and creams for various skin disorders
such as eczema, psoriasis, radiation dermatitis and excessive UVB radiation.
These
disorders generally lead to symptoms including neuropathies, inflammation and itch. The Company believes that successful development
of its topical APIs can be useful as anti-pruritics, also known as anti-itch drugs and medications that inhibit the itching often
associated with a variety of disorders and diseases.
We
are considering commercialization routes that include, but are not limited to, filing an FDA Monograph and/or pursing a path to
the marketplace through International Nomenclature of Cosmetic Ingredients (“INCI”) certification and registration
with the Personal Care Products Council (“PCPC”).
In
preclinical testing, KLS-13022, a molecule covered under Pat. 9,611,213 was screened for neuroprotection and may have the potential
mechanism of action for reducing inflammation, neuropathic pain and itch. This molecule indicated that it is more soluble than
CBD, also deemed a neuroprotectant with potential anti-inflammatory properties. A molecule that is potentially more water soluble
than CBD in this regard may be good candidate(s) for use in topical applications.
To
date there has been only one cannabidiol based medicament, Epidiolex®, approved for use in humans by the FDA. The drug,
Epidiolex®, is used to treat seizures due to certain medical conditions (such as Lennox-Gastaut syndrome
and Dravet syndrome). It is not known how this medication works for these seizures. CBD belongs to a class of drugs
known as cannabinoids. Additionally, the FDA’s Office of Orphan Products Development (“OOPD”) has designated
cannabidiol twenty six times since 2013 for a multitude of diseases ranging from rare forms of epilepsy to prevention of reperfusion
injury due to organ transplantation to glioblastoma multiforme to autoimmune hepatitis. While our primary indications of OHE and
CIPN have not, heretofore, been targeted by CBD-based or CBD-derived drugs and cleared by the FDA or other foreign regulatory
agency, neither have the aforementioned twenty six orphan designated indications targeted by CBD.
OTC
Cosmetic Skin Care – KLS-13022
Since
mid 2019, the Company has been screening and conducting preliminary research and development of some of its patented, proprietary
cannabidiol-derived new chemical entities (“NCEs”), for use as topical solutions, ointments, and creams for disorders
such as diabetic neuropathies, diabetic ulcers, and for use as an anti-pruritic. (see: Business – Neuropathix Intellectual
Properties)
In
preclinical testing, certain molecules under Patent 9,611,213 were screened for neuroprotection and may have the potential mechanism
of action for reducing inflammation and neuropathic pain. These molecules indicate that they are more soluble than cannabidiol,
also deemed a neuroprotectant with potential anti-inflammatory properties. A molecule that is potentially more water soluble than
cannabidiol in this regard may be good candidate(s) for use in topical applications.
The
Company has completed the following relating to KLS-13022:
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Preclinical
screening for consumer OTC cosmetic use under CFR 21.
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Application
to International Nomenclature of Cosmetic Ingredients (INCI) completed to receive a compound
nomenclature for KLS-13022 - Limonenyldihydroxybenzyl Ethoxycarbonyl Azetidine (LEA).
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Received
a registered trademark from the U.S. Patent and Trademark Office (“USPTO”)
for Atopidine®, to be used as a branded product as a relief cream, containing
LEA, to treat inflammatory disorders like eczema, psoriasis, radiation dermatitis and
excessive UVB radiation (post sun burn).
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Based
on preclinical testing of LEA versus CBD (cannabidiol) in cultured human epidermal keratinocytes:
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LEA
provided better anti-inflammatory activity compared to CBD for TNFa, IL-6 and significantly
more potent that CBD for IL-1b inhibition in UVB irradiation induced inflammation.
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LEA
decreased CXCL5 levels by 100% after UVB irradiation with IC50 of 0.05 mM. (CXCL5 is
a small cytokine belonging to the chemokine family known as epithelial-derived neutrophil-activating
peptide 78 (ENA-78). It is produced following the stimulation of cells with the inflammatory
cytokines TNFa and IL-1b.)
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LEA
decreases levels of four (4) inflammatory mediators at concentrations > 65 times less
than toxic levels.
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LEA
is an antioxidant that does not exhibit cellular irritation and is locally restricted
in its action (antioxidant activity of EC50 at 25 mM).
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The
Company has completed formulation of a topical relief cream for use as an OTC cosmetic skin care product to be marketed under
the trade name of Atopidine®.
Opioid
Crisis in America
In
2019, nearly 50,000 people in the United States died from opioid-involved overdoses (CDC/NCHS, National Vital Statistics
System, Mortality 2019). The misuse of and addiction to opioids—including prescription pain relievers, heroin,
and synthetic opioids such as fentanyl – is a serious national crisis that affects public health as well as
social and economic welfare. The Centers for Disease Control and Prevention estimates that the total economic burden of prescription
opioid misuse alone in the United States is $78.5 billion a year, including the costs of healthcare, lost productivity, addiction
treatment, and criminal justice involvement. (Med Care 2016; 54(10).
Since
February 2020, the Company’s lead compound, KLS-13019 has been in the preclinical screening program for pain (PSPP) at the
National Institutes of Health – National Institute of Neurological Disorders and Stroke (NIH-NINDS). This program is part
of the NIH HEAL (Helping to End Addiction Long-term) Initiative. With NIH-HEAL support, NINDS has developed the PSPP program to
facilitate the identification of potential non-addictive treatments (small molecules, biologics, devices, or natural products)
for acute and chronic pain conditions.
More
than 25 million Americans live with daily chronic pain and lack effective and safe non-opioid options for pain management. Research
offered by the PSPP will be a key step in transitioning HEAL preclinical programs into clinical programs, directly aligned with
the HEAL Initiative goal of accelerating the discovery and pre-clinical development of non-addictive pain treatments (NINDS –
Preclinical Screening Platform for Pain – ninds.nih.gov).
The
Company’s lead compound, KLS-13019, has already gone through Tier 1 evaluation under the PSPP which, among other things,
assesses targets and pharmacokinetics (PK) of KLS-13019 – compared against morphine and diazepam. Certain results from the
Tier 1 screening report under the PSPP indicate that KLS-13019 has a low abuse potential and acceptable PK to move to Tier 2 studies
for animal model assessment in pain and guardian behavior; wound healing and ability to recover; and Irwin testing for CNS toxicity.
Additionally,
the Company is currently awaiting a response from NIH-NINDS regarding its re-submission of its application for a Phase 2 SBIR
study grant. The re-resubmission of its original study grant application included new data on a novel inflammatory sentinel and
a revised budget, boosting the grant request to approximately $2.9 million. The Company anticipates a response from NIH-NINDS
sometime in May 2021.
Corporate
Strengths and Weaknesses
We
believe that we offer the following key distinguishing characteristics:
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We
believe we are the first commercial drug discovery company in the cannabinoid therapeutics
space to successfully synthesize CBD derived new chemical entities and pre-clinically
test lead NCEs for potential treatment of oxidative stress related diseases, including
OHE and CIPN.
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We
were the only commercial drug discovery company in the cannabinoid therapeutics space
to license the ‘507 Patent, prior to its expiration, from NIH on two separate occasions.
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We
have completed pharmacokinetic and pharmacodynamic pre-clinical studies with high purity
scale, pharmaceutical grade CBD and KLS-13019 for potential treatment of oxidative stress
related disease – OHE and CIPN.
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We
anticipate commencing a Phase 1 trial in CIPN sometime in the 1st or 2nd
quarter of 2022.
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We
anticipate commencing a Phase 1 trial in OHE sometime in the 3rd or 4th
quarter of 2022.
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We
anticipate commencing a Phase 1 trial in Mild Traumatic Brain Injury in the 1st
or 2nd quarter of 2023.
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We
have a firm understanding of the mechanism of action of CBD and KLS-13019 in certain
oxidative stress related disorders.
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We
believe we have a strong next generation intellectual property estate on cannabidiol
derived NCEs. On this basis, we believe we can expand the approved indications KLS-13019
and develop additional cannabinoid therapeutic agents to add to our IP portfolio.
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We
believe that our pre-clinical drug development program points to a significant opportunity
in cancer pain, a large market.
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We
believe that our pre-clinical drug development program points to a significant opportunity
in opioid replacement / reduction market.
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We
have not moved beyond pre-clinical studies of our drug candidates to date, and there can be no assurances that we will do so in
the near future, if ever. While we believe that we are well positioned to be competitive in advancing non-opioid solutions for
chronic and neuropathic pain, as well as the cannabinoid like therapeutics space, we also believe that we will face significant
challenges in successfully completing one or more clinical trials. In addition, there is a competitive landscape that exists in
the market for the Company’s target indications of OHE and CIPN. The competitive landscape is challenging. Competition in
the OHE and CIPN spaces is well established, and many companies have significantly greater resources than we do, some of which
are viewed as leaders in the current standard of care for these diseases.
The
current standard of care for patients suffering with OHE is 550mg of XifaxanÒ, originally an antibiotic useful in treating
traveler’s diarrhea and irritable bowel syndrome. Its exact mechanism of action is not known; however, it is theorized that
XifaxanÒ clinical activity may be attributed to effects on metabolic function of gut microbiota, rather than a change
in the relative bacterial abundance. Currently, there is no drug in the market for OHE that is being used to treat the toxic effects
on the hippocampus, the cognitive and behavioral dysfunction associated with OHE, and the action of neuroprotection from ammonia
and ethanol toxicity.
Given
the competitive landscape in OHE, we believe we can participate in the OHE market with primary and adjunctive therapeutics currently
under pre-clinical development, and potentially obtain orphan drug designation for one or more of our target therapeutic agents.
With
respect to competitive landscape for CIPN, nearly a dozen agents have been studied in randomized controlled trials for the
treatment of CIPN, but there has been limited success. The characteristics and results of these studies are summarized in the
study and abstract “Management of Chemotherapy Induced Peripheral Neuropathy” (Physician’s Education Resource
LLC, Meghna S. Trivedi, MD; Dawn L. Hershman, MD, MS; Katherine D. Crew, MD, MS). Clinical trials of the antiepileptic agents
gabapentin and lamotrigine and the antidepressants nortriptyline and amitriptyline have all been negative.
Additionally,
there have been several small placebo-controlled trials which have shown that intravenous administration of glutathione with platinum-based
chemotherapy regimens can decrease the incidence of neurotoxicity without diminishing the effect of chemotherapy. A North
Central Cancer Treatment Group / Alliance trial conducted in 2014 studied the use of glutathione with carboplatin and paclitaxel
for treatment of CIPN, and found no improvement in neurotoxicity symptoms, suggesting that glutathione may not help in taxane-induced
CIPN.
Furthermore,
the continuous use of opiates in the current standard of care to treat CIPN have resulted in mixed results, addiction problems
and dose tolerance problems.
We
believe that, while the current standard of care is well positioned in the market, there is an unmet need for the treatment of
CIPN in the reduction of use of opiates. We believe that this presents us with an opportunity to participate in the market with
a novel therapeutic agent to treat CIPN.
Clinical
Timelines
As
a result of the unprecedented effects of COVID-19, we have updated our clinical timelines to give effect to the significant interruption
to business and financial operations worldwide as a result of the COVID-19 crisis. We will continue to monitor the progress of
the shutdowns currently in effect, and revise our clinical timelines accordingly.
Product
Candidate
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Target
Indication
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Delivery
Method
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Current
Development
Status
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Expected
Next Steps
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KLS-13019
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Chemotherapy
Induced
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Oral
Gel Capsule
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Preclinical
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2Q22:
Initiate Phase 1
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Peripheral
Neuropathy
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Mild
Traumatic Brain Injury
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Oral
Gel Capsule
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Preclinical
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1Q23:
Initiate Phase 1
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KLS-13023
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Overt
Hepatic Encephalopathy
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Oral
Gel Capsule
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Preclinical
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4Q22:
Initiate Phase 1
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Mild
Traumatic Brain Injury
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Oral
Gel Capsule
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Preclinical
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1Q23:
Initiate Phase 1
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With
respect to certain other proprietary compounds underlying Pat. 9,611,213, we plan on pursuing topical solutions as potential relief
creams and/or ointments for neuropathic pain, anti-inflammation, anti-pruritic and skin ulcers. We are considering commercialization
routes that include, but are not limited to, filing and FDA Monograph and/or pursing a path to the marketplace through INCI certification
and registration with the PCPC. In preclinical testing, certain molecules under Pat. 9,611,213 were screened for neuroprotection
and may have the potential mechanism of action for reducing inflammation and neuropathic pain. These molecules indicate that they
are more soluble than CBD, also deemed a neuroprotectant with potential anti-inflammatory properties. A molecule that is potentially
more water soluble than CBD in this regard may be good candidate(s) for use in topical applications.
We
believe that we will be able to raise sufficient capital to proceed forth with a Phase 1 human safety trial for the treatment
of Chemotherapy Induced Peripheral Neuropathy. All preclinical work in this indication, including animal toxicity studies, are
expected to be completed before the end of the first quarter 2022. We plan on entering into clinical trials sometime in the second
quarter 2022.
Additionally,
we believe that we will be able to raise sufficient capital to proceed forth with a Phase 1 human safety trial for the treatment
of Overt Hepatic Encephalopathy. All preclinical work in this indication, including animal toxicity studies, are expected to be
completed before the end of the third quarter 2022. We plan on entering into clinical trials sometime in the fourth quarter
2022.
We
intend to seek additional capital to proceed with our business plan regarding additional drug pipeline opportunities.
We
believe that our current relationships with Purisys, LLC (formerly known as Noramco) (“Purisys”), a supplier of bulk
active pharmaceutical ingredients (APIs), specifically pharmaceutical grade CBD, and Catalent Pharma Solutions (“Catalent”),
a manufacturer of formulated and packaged pharmaceuticals, will enable us to meet our objectives in the production of target drug
candidates that can be used in clinical trials and, beyond successful clinical trials, meet patient demand in commercial sales
for each of our target disease indications.
We
have estimated that the cost of a Phase 1 trial, limited to 80 patients in CINP and 80 patients in the OHE, indication will cost
approximately $1,300,000 and $1,600,000, respectively. As part of our plans to initiate Phase 1 clinical trials in the U.S. or
Australia. The benefit of commencing Phase 1 clinical trials in Australia is that the Australian government has provided incentives
that provide for research and development rebates.
Research
& Development tax incentives offered by the government actively encourage overseas sponsors to conduct research in Australia.
These incentives have also made it attractive for global companies to access Australian research facilities, as holding the intellectual
property within Australia is not mandatory. Sponsors wishing to be eligible for this benefit can either establish an affiliate
company in Australia (which may take from 1 week to 1 month) or choose a Contract Research Organization (“CRO”) to
act on their behalf.
Controlled
Substances Laws and Regulations
Our
drug candidates contain controlled substances as defined in the Controlled Substances Act (“CSA”). Controlled substances
that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things,
certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered
by the DEA.
Despite
recent approvals by the FDA and DEA for a newly approved medication that contains CBD, the scheduling of these substances, many
of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market KLS-13019
or KLS-13023. Moreover, because our business is almost entirely dependent upon these two product candidates, any such setback
in our pursuit of regulatory approval would have a material adverse effect on our business and prospects. See our full description
of the impact-controlled substances laws and regulations have on our business in the “Risk Factors” section of this
annual report.
KLS-13019
does not contain CBD and is a new chemical entity that would not fall under the CSA or be deemed a Schedule 1 controlled substance.
A new chemical entity (“NCE”) is a molecule developed by the innovator company in the early drug discovery stage,
which, after undergoing clinical trials, could translate into a drug that could be a treatment for some disease. Under the Food
and Drug Administration Amendments Act of 2007, all NCE’s must first be reviewed by an advisory committee before the FDA
can approve these products.
KLS-13023
is a formulation that does contain CBD. At present, CBD is deemed a Schedule 1 controlled substance by the U.S. Drug Enforcement
Agency (“DEA”) under the CSA. Like the drug molecule EpidiolexÒ, which was recently approved by the FDA for
marketing and sale for use in treating Dravet’s Syndrome and Lennox-Gasteau Syndrome (forms of child epilepsy), KLS-13023
would need to follow the guidance set forth by the CSA, complete a successful human clinical trial, and apply for rescheduling,
as was the case with EpidiolexÒ, now a Schedule 5 drug, before it can be sold and marketed to the public.
On
January 14, 2019, we received written notice from the DEA and Chemical Evaluation Section, as follows: “Please be advised
that your material meets the definition of ‘Hemp’ and is not regulated under the CSA, as long as it consists of high
purity Cannabidiol (CBD) that contains approximately 0.1% delta-9- THC. (However, if it contains more than 0.3% delta-9 THC, it
is considered ‘Marihuana’ and would be in Schedule 1 of the CSA).” While this notice is an official notice from
the DEA regarding the scheduling of high purity CBD, we will continue to abide by the CSA in all respects with regards to its
treatment and handling of CBD.
The
active pharmaceutical ingredient (“API”) found in KLS-13023 is highly purified synthetic CBD produced by Purisys.
Purisys has been manufacturing cannabidiol since 2016 (DMF33223). Today, through our partnership with Purisys, we have the ability
to produce on the largest commercial scale. Purisys’ ultra-high purity CBD (“Purisys CBD”) is attractive for
drug development projects and falls significantly below the 0.3% THC limits set in the 2018 Farm Bill for use in consumer products. Purisys’
patent-protected manufacturing process produces a consistently odorless, tasteless white powder highest-purity form of CBD that
exhibits:
•
|
|
No
heavy metals (e.g. lead) from soil;
|
•
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No
environmental influences on quality such as rain, sunlight & soil nutrients;
|
•
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No
plant impurities to remove;
|
•
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No
microbial or mold proliferation; and
|
•
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No
structural (or stereo chemical) differences exist between an active cannabinoid ingredient
manufactured by Purisys and those that are chemically extracted and isolated from plants.
They are, in effect, nature-identical.
|
Purisys
currently has a drug master file (“DMF”) for its ultra-high purity CBD with the FDA. In November 2019, Purisys received
advise notice from the DEA that the Purisys CBD has been removed from Schedule 1 of the CSA.
U.S.
Food and Drug Administration (FDA)
The
FDA is responsible for advancing the public health by helping to speed innovations that make medicines safer and more effective
and by helping the public get the accurate, science-based information it needs to use medicines to maintain and improve public
health. In 2004, the FDA provided a guidance document for innovations, challenges, and solutions for new drug products that examine
the critical path needed to bring therapeutic products to completion, and how the FDA can collaborate in the process, from laboratory
to production to end use, to make medical breakthroughs available to those in need as quickly as possible.
FDA
Approval – What It Means
FDA
approval of a drug means that data on the drug’s effects have been reviewed by the Center for Drug Evaluation and Research,
and the drug is determined to provide benefits that outweigh its known and potential risks for the intended population. The drug
approval process takes place within a structured framework that includes:
•
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Analysis
of the target condition and available treatments—FDA reviewers analyze the
condition or illness for which the drug is intended and evaluate the current treatment
landscape, which provide the context for weighing the drug’s risks and benefits.
For example, a drug intended to treat patients with a life-threatening disease for which
no other therapy exists may be considered to have benefits that outweigh the risks even
if those risks would be considered unacceptable for a condition that is not life threatening.
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•
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Assessment
of benefits and risks from clinical data—FDA reviewers evaluate clinical benefit
and risk information submitted by the drug maker, taking into account any uncertainties
that may result from imperfect or incomplete data. Generally, the agency expects that
the drug maker will submit results from two well-designed clinical trials, to be sure
that the findings from the first trial are not the result of chance or bias. In certain
cases, especially if the disease is rare and multiple trials may not be feasible, convincing
evidence from one clinical trial may be enough. Evidence that the drug will benefit the
target population should outweigh any risks and uncertainties.
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•
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Strategies
for managing risks—All drugs have risks. Risk management strategies include
an FDA-approved drug label, which clearly describes the drug’s benefits and risks,
and how the risks can be detected and managed. Sometimes, more effort is needed to manage
risks. In these cases, a drug maker may need to implement a Risk Management and Mitigation
Strategy (“REMS”).
|
Although
many of the FDA’s risk-benefit assessments and decisions are straightforward, sometimes the benefits and risks are uncertain
and may be difficult to interpret or predict. The agency and the drug maker may reach different conclusions after analyzing the
same data, or there may be differences of opinion among members of the FDA’s review team. As a science-led organization,
the FDA uses the best scientific and technological information available to make decisions through a deliberative process.
Accelerated
Approval
In
some cases, the approval of a new drug is expedited. Accelerated Approval can be applied to promising therapies that treat a serious
or life-threatening condition and provide therapeutic benefit over available therapies. This approach allows for the approval
of a drug that demonstrates an effect on a “surrogate endpoint” that is reasonably likely to predict clinical benefit,
or on a clinical endpoint that occurs earlier but may not be as robust as the standard endpoint used for approval. This approval
pathway is especially useful when the drug is meant to treat a disease whose course is long, and an extended period of time is
needed to measure its effect. After the drug enters the market, the drug maker is required to conduct post-marketing clinical
trials to verify and describe the drug’s benefit. If further trials fail to verify the predicted clinical benefit, FDA may
withdraw approval.
Since
the Accelerated Approval pathway was established in 1992, many drugs that treat life-threatening diseases have successfully been
brought to market this way and have made a significant impact on disease course. For example, many antiretroviral drugs used to
treat HIV/AIDS entered the market via accelerated approval, and subsequently altered the treatment paradigm. A number of targeted
cancer-fighting drugs also have come onto the market through this pathway.
Drug
Development Designations
The
FDA also employs several approaches to encourage the development of certain drugs, especially drugs that may represent the first
available treatment for an illness, or ones that have a significant benefit over existing drugs. These approaches, or designations,
are meant to address specific needs, and a new drug application may receive more than one designation, if applicable. Each designation
helps ensure that therapies for serious conditions are made available to patients as soon as reviewers can conclude that their
benefits justify their risks.
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Fast
Track is a process designed to facilitate the development and advance the review
of drugs that treat serious conditions, and fill an unmet medical need, based on promising
animal or human data. Fast tracking can get important new drugs to the patient earlier.
The drug company must request the Fast Track process.
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•
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Breakthrough
Therapy designation expedites the development and review of drugs that are intended
to treat a serious condition, and preliminary clinical evidence indicates that the drug
may demonstrate substantial improvement over available therapy. A drug with Breakthrough
Therapy designation is also eligible for the Fast Track process. The drug company must
request a Breakthrough Therapy designation.
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•
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Priority
Review means that FDA aims to take action on an application within six months,
compared to 10 months under standard review. A Priority Review designation directs attention
and resources to evaluate drugs that would significantly improve the treatment, diagnosis,
or prevention of serious conditions. More information about Priority Review is here.
|
FDA
Human Clinical Trials
Phase
I studies assess the safety of a drug or device. This initial phase of testing, which can take several months to complete,
usually includes a small number of healthy volunteers (20 to 100), who are generally paid for participating in the study. The
study is designed to determine the effects of the drug or device on humans including how it is absorbed, metabolized, and excreted.
This phase also investigates the side effects that occur as dosage levels are increased. About 70% of experimental drugs pass
this phase of testing.
Phase
II studies test the efficacy of a drug or device. This second phase of testing can last from several months to two years,
and involves up to several hundred patients. Most Phase II studies are randomized trials where one group of patients receives
the experimental drug, while a second “control” group receives a standard treatment or placebo. Often these studies
are “blinded,” which means that neither the patients nor the researchers know who has received the experimental drug.
This allows investigators to provide the pharmaceutical company and the FDA with comparative information about the relative safety
and effectiveness of the new drug. Approximately one-third of experimental drugs successfully complete both Phase I and Phase
II studies.
Phase
III studies involve randomized and blind testing in several hundred to several thousand patients. This large-scale testing,
which can last several years, provides the pharmaceutical company and the FDA with a more thorough understanding of the effectiveness
of the drug or device, the benefits and the range of possible adverse reactions. Approximately 70% to 90% of drugs that enter
Phase III studies successfully complete this phase of testing. Once Phase III is complete, a pharmaceutical company can request
FDA approval for marketing the drug.
Phase
IV studies, often called Post Marketing Surveillance Trials, are conducted after a drug or device has been approved for consumer
sale. Pharmaceutical companies have several objectives at this stage: (1) to compare a drug with other drugs already in the market;
(2) to monitor a drug’s long-term effectiveness and impact on a patient’s quality of life; and (3) to determine the
cost-effectiveness of a drug therapy relative to other traditional and new therapies. Phase IV studies can result in a drug or
device being taken off the market or restrictions of use could be placed on the product depending on the findings in the study.
Therapeutic
Goods Administration (TGA) – Australia
Clinical
trials conducted in Australia are subject to various regulatory controls to ensure the safety of participants. The TGA regulates
the use of therapeutic goods supplied in clinical trials in Australia under the therapeutic goods legislation.
Clinical
trial sponsors must be aware of the requirements to import, export, manufacture and supply therapeutic goods in Australia. The
following avenues provide for the importation into and/or supply in Australia of ‘unapproved’ therapeutic goods for
use in a clinical trial:
•
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|
Clinical
Trial Notification (CTN) scheme; and
|
•
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Clinical
Trial Exemption (CTX) scheme.
|
The
CTN Scheme is a notification process involving the following:
•
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The
Australian clinical trial sponsor must notify the TGA of the intent to sponsor a clinical
trial involving an ‘unapproved’ therapeutic good. This must take place before
starting to use the goods. The notification form must be submitted online and accompanied
by the relevant fee.
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•
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The
TGA may give the sponsor of the trial written notice to provide specified information
relating to goods notified in the CTN form.
|
•
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The
TGA does not evaluate any data relating to the clinical trial at the time of submission.
The Human Research Ethics Committee (“HREC”) reviews the scientific validity
of the trial design, the balance of risk versus harm of the therapeutic good, the ethical
acceptability of the trial process, and approves the trial protocol. The HREC is also
responsible for monitoring the conduct of the trial.
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•
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The
institution or organization at which the trial will be conducted, referred to as the
‘Approving Authority,’ gives the final approval for the conduct of the trial
at the site, having due regard to advice from the HREC.
|
•
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It
is the responsibility of the sponsor to ensure that all relevant approvals are in place
before supplying the ‘unapproved’ therapeutic goods in the clinical trial.
|
The
CTX Scheme is an approval process involving the following:
•
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A
sponsor submits an application to the TGA seeking approval to supply ‘unapproved’
therapeutic goods in a clinical trial. The application must be accompanied by the relevant
fee.
|
•
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The
TGA evaluates summary information about the product including relevant, but limited,
scientific data (which may be preclinical and early clinical data) prior to the start
of a trial.
|
•
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The
HREC is responsible for considering the scientific and ethical issues of the proposed
trial protocol.
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•
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The
sponsor must notify us of each trial conducted using the unapproved therapeutic good(s)
approved in the CTX application.
|
Clinical
trials that do not involve ‘unapproved’ therapeutic goods are not subject to requirements of the CTN or CTX schemes.
It is the responsibility of the Australian clinical trial sponsor to determine whether a product is considered an ‘unapproved’
therapeutic good.
Clinical
trials that do not involve ‘unapproved’ therapeutic goods are not subject to requirements of the CTN or CTX schemes.
It is the responsibility of the Australian clinical trial sponsor to determine whether a product is considered an ‘unapproved’
therapeutic good.
In
Australia, in 2014, the Advisory Council on Medicines Scheduling recommended rescheduling CBD from a prohibited substance to being
a prescription medicine because, according to the Advisory Council on Medicines Scheduling, “there is a low risk of misuse
or abuse as cannabidiol does not possess psychoactive properties.” The TGA accepted this recommendation, and the decision
took effect in July 2015.
CBD
is one of the cannabinoids which may be extracted as a therapeutic good from cannabis. From June 1, 2015, CBD has been included
under Schedule 4 (S4) Prescription Only Medicine of the Poisons Standard when preparations for therapeutic use contain 2% or less
of other cannabinoids found in cannabis.
In
February 2016, the Australian Federal Government passed legislation that amended the Narcotic Drugs Act, allowing the supply of
suitable medicinal cannabis products for the management of painful and chronic conditions. This legislation does not relate to
the decriminalization of cannabis for general cultivation or recreational use and it does not include the provision of medicinal
grade herbal cannabis, but rather only covers processed, non-smokable medicinal grade products.
Much
of the detail remains unclear. For example, the legislation does not specify which products will be covered under the amendment,
and it does not specify which particular conditions or symptoms will be eligible for treatment with cannabis-based products. Before
products can be prescribed, they must be registered with the TGA or, in rare circumstances, receive special approval from the
TGA. The registration process requires evidence of testing and efficacy and it is therefore unlikely Australia will see a TGA
registered medicinal cannabis product that GPs can prescribe any time soon.
Whilst
there are currently no cannabis-based products that are lawfully produced in Australia, the medicinal use of pharmaceutical products
containing cannabinoids is not prohibited, as long as authorization for prescribing is granted from the Commonwealth Therapeutic
Goods Administration and at this point in time, NSW Health.
Neuropathix
Intellectual Properties
Neuropathix
PCT Patent – PCT/US2015/010827
On
January 13, 2014, we filed for a provisional patent with the USPTO for our “Novel Functionalized 1, 3-Benzene-diols and
Their Treatment of Hepatic Encephalopathy”, under application number 61/926,869.
On
January 9, 2015, we filed a non-provisional patent application Patent Cooperation Treaty (“PCT”) Application under
application number PCT/US2015/010827 titled, “Novel Functionalized 1,3-Benzene Diols and Their Method of Use for the Treatment
of Hepatic Encephalopathy” (the “PCT Patent”). Under the PCT Patent, the present invention describes novel functionalized
1,3-benzenediols (“Cannabidiol Derived Molecules”) and methods that may be useful and have potential for the treatment
of HE and related conditions. The present invention further describes a novel chemotype that may be useful and have potential
for the treatment of diseases associated with HE. The present invention further describes a novel chemotype that may be useful
and have potential as neuroprotective agents.
We
believe that the Cannabidiol Derived Molecules under the present invention have potential for treating and preventing diseases
associated with free radical mediated stress and oxidative stress including, for example, HE, Parkinson’s disease, Alzheimer’s,
Huntington’s disease, traumatic head injury, stroke, epilepsy, neuropathic pain, traumatic head injury, stroke, CTE, Post
Cardiac Arrest Hypoxic Ischemic Encephalopathy, and Epileptic Encephalopathy.
The
present invention addresses the need to prevent free radical mediated stress and oxidative stress, as well as to prevent the neural
damage associated with HE. The present invention further addresses the need to prevent cognitive impairment, learning deficits,
memory impairment, as well as damage and death of neuronal tissue associated with HE.
On
November 29, 2016, as part of our patent cooperation treaty global patent application, the USPTO granted allowance on the composition
of matter portion, covering claims 1 through 14 of the Company’s PCT Patent covering claims of our novel cannabidiol derived
molecule.
In
January 2017, we filed a divisional application with the USPTO to cover the method claims, which were originally covered in claims
15 through 22 of the original PCT Patent. We currently hold a valid allowance in the United States on the composition of matter
for a new cannabidiol derived molecules.
On
April 4, 2017, we were awarded U.S. Patent 9,611,213 titled “Functionalized 1,3 Benzene-diols and their Method of Use for
the Treatment of Hepatic Encephalopathy”. This patent is part of a divisional patent application by the Company to the USPTO
whereby we sought separate claims for composition of matter, covered in Pat. 9,611,213, and separate claims for method for treatment.
On
June 26, 2018, we were awarded U.S. Patent 10,004,722 titled “Method for Treating Hepatic Encephalopathy or a Disease Associated
with Free Radical Mediate Stress and Oxidative Stress with Novel Functionalized 1,3 Benzene-diols.”
We
have patent pending status of the same PCT Patent in Canada, the European Union, Brazil, Russia, India, China, Japan and Australia.
National
Institutes of Health – Office of Technology Transfer (NIH-OTT) – Patent 6,630,507
On
June 12, 2010, we filed an application for an exclusive license with the NIH-OTT for the development and commercialization of
a target drug candidate to be used in the treatment of patients suffering with HE. The application for exclusive license was made
for the license and use of U.S. patent 6,630,507 “Cannabinoids as Antioxidants and Neuroprotectants, ‘507 Patent.
On
November 17, 2011, we received notice of publication in the Federal Register of NIH-OTT’s Prospective Grant of Exclusive
License – Development of Cannabinoid(s) and Cannabidiol(s) Based Therapeutics to treat hepatic encephalopathy
in humans.
On
June 12, 2012, we entered into an exclusive license with NIH-OTT for the use of the ‘507 Patent in the commercialization
of one or more cannabinoid therapeutics to treat HE.
In
addition to the exclusive use of the ‘507 Patent for the treatment of hepatic encephalopathy, on July 16, 2014, we formally
entered into a second license agreement with NIH-OTT for the non-exclusive license of the ‘507 Patent for the treatment
of CTE.
Prior
to the expiration of the ‘507 Patent, we were the only company that had use of the ‘507 Patent and corresponding licenses
from NIH-OTT. The jurisdictions in which the ‘507 Patent is valid are: the U.S., the U.K., Ireland, the E.U., and Australia.
The patent life in these jurisdictions expired on April 21, 2019.
Although
we properly maintained and paid all of the minimum annual royalties and past prosecution fees underlying our two licenses of the
‘507 Patent during its lifetime and met the additional financial benchmarks set forth in the NIH licenses L-113-2012/0 and
L-302-2014/0, we were not able to secure the necessary funds to advance our drug discovery efforts into human clinical trials.
Our financial obligations to NIH-OTT terminated in 2019, effective upon expiration of the ‘507 Patent.
A
summary of the Company’s patents and status to each such patent is as set forth below:
TITLE
|
APPLICATION
NUMBER
|
DATE
FILED
|
COUNTRY
|
STATUS
|
NOVEL
FUNCTIONALIZED 1,3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
2015204609
|
Jan
9, 2015
|
AU
|
Issued
|
NOVEL
FUNCTIONALIZED 1,3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
BR1120160161386
|
Jan
9, 2015
|
BR
|
Pending
|
NOVEL
FUNCTIONALIZED 1,3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
2936506
|
Jan
9, 2015
|
CA
|
Allowed
|
FUNCTIONALIZED
1, 3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
2015800136466
|
Jan
9, 2015
|
CN
|
Issued
|
NOVEL
FUNCTIONALIZED 1,3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
157348707
|
Jan
9, 2015
|
Europe
|
Issued
|
NOVEL
FUNCTIONALIZED 1,3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
2016133213
|
Jan
9, 2015
|
RU
|
Issued
|
FUNCTIONALIZED
1,3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
J4044
|
Jan
9, 2015
|
MO
|
Pending
|
NOVEL
FUNCTIONALIZED 1,3-BENZENE DIOLS AND THEIR METHOD OF USE FOR THE TREATMENT OF HEPATIC ENCEPHALOPATHY
|
2936506
|
Jan
9, 2015
|
CA
|
Allowed
|
PROCESS
FOR SYNTHESIZING CANNABINOIDS AND DERIVATIVES THEREOF
|
|
|
US
|
Unfiled
|
USE
OF CERTAIN PHOSPHATIDYLCHOLINES CONTAINING LONG CHAIN POLYUNSATURATED FATTY ACIDS AS NEUROPROTECTIVE AGENTS
|
PCTUS2020039860
|
Jun
26, 2020
|
WO
|
Pending
|
METHOD
FOR TREATING PERIPHERAL NEUROPATHIC PAIN
|
|
|
US
|
Unfiled
|
GPR55
ANTAGONISTS AND ANTI-INFLAMMATORY THERAPY USING SAME
|
|
|
US
|
Unfiled
|
PRE-CLINICAL
DRUG DISCOVERY
Since
inception in 2010, our primary drug discovery plans have revolved around neuroprotection and the use of CBD as well as the development
of proprietary CBD-derived molecules as target drug candidates to treat neurodegenerative and oxidative stress related diseases.
Conceptual
Drug Discovery of Cannabidiol Derived Molecules
An
emerging concept is that blockade of free radical mediated stress and oxidative stress will prevent the neural damage associated
with HE and prevent cognitive impairment, learning deficits, memory impairment, as well as damage and death of neuronal tissue
associated with HE. Cannabidiol Derived Molecules may have the potential of acting as neuroprotective agents by blocking the damage
caused by free radicals and oxidative stress, may prevent the neural damage associated with HE, and may also prevent cognitive
impairment, learning deficits, memory impairment, as well as damage and death of neuronal tissue associated with HE.
Around
1900, Moses Gomberg, a chemistry professor, discovered that prevention of free radical mediated stress and oxidative stress can
prevent damage and death of neuronal tissue, as well as prevent cognitive impairment, learning deficits, and memory impairment
associated with damage and death of neuronal tissue. Without wishing to be limited by theory, it is believed that the neuroprotective
agents of the disclosure can ameliorate, abate, and otherwise cause to be controlled, diseases associated free radical mediated
stress and oxidative stress.
Free
radical mediated stress and oxidative stress is also known to contribute to additional pathological conditions including, but
not limited to, epilepsy, neuropathic pain, traumatic head injury, stroke, CTE, Post Cardiac Arrest Hypoxic Ischemic Encephalopathy,
Epileptic Encephalopathy, and neurodegenerative diseases such as Parkinson’s disease, Alzheimer’s, Huntington’s
disease, and amyotrophic lateral sclerosis (“ALS”). Under the present invention, these Cannabidiol Derived Molecules
may be capable of acting as neuroprotective agents, and may be useful for the treatment of epilepsy, neuropathic pain, traumatic
head injury, stroke, CTE, Post Cardiac Arrest Hypoxic Ischemic Encephalopathy, Epileptic Encephalopathy, and neurodegenerative
diseases such as Parkinson’s disease, Alzheimer’s, Huntington’s disease, and ALS.
Current
Pre-clinical Discovery Efforts
Our
research and development efforts at the Pennsylvania Biotechnology Center are centered on the creation of novel synthetic cannabinoid
and cannabinoid-like molecules, the pre-clinical and in vitro efficacy of CBD, a non-psychotropic molecule, and
the testing and control of our lead target drug candidates alongside CBD for the treatment of OHE and CTE. As part of our research
and development efforts, we have sought to establish the pre-clinical efficacy of CBD, which, along with our novel and proprietary
lead target molecules, have shown to have neuroprotective properties. We are currently conducting preclinical evaluation and formulation
of our CBD based target drug candidate, KLS-13023, and the subject of our ongoing feasibility study with Catalent Pharma Solutions
(“Catalent”). While we have evaluated CBD on its own, in a highly purified form, we plan on bringing a CBD based target
drug therapeutic revolve around a formulated product in oral dose administration capsule (KLS-13023), which is currently the subject
of our ongoing feasibility study with Catalent Pharma Solutions (“Catalent”).
As
of October 2013, we had performed six distinct pre-clinical studies on murine specimens, including functional assay screens on
twenty-four viable analogues and pre-clinical studies against CBD as a therapeutic control. Analogues are compounds or molecules
having a structure similar to that of another compound or molecule, but differing from it in respect to a certain component.
As
a result of the screening process, we found that there were four target candidates along with CBD that were screened for final
pre-clinical in vitro testing for pharmacokinetics (“PK”), CACO permeability, lethal dose (“LD”), EC50
and IC90 testing. PK relate to the branch of pharmacology concerned with the movement of drugs within the body. Factors in PK
studies include CACO permeability, which relates to assays that measure the ability of a drug to be absorbed from the gastrointestinal
tract and thereby to evaluate whether the drug can be suitably dosed via an oral route. EC50 and IC90 relate to the concentration
of a drug, antibody or toxicant which induces a response halfway between the baseline and maximum after a specified exposure time.
It is commonly used as a measure of a drug’s potency (EC50), and the concentration of a medication in the blood that
will inhibit the replication of a specified percentage of microorganisms (IC90).
Our
lead target drug candidate was then analyzed using a mouse model to determine, among other things, blood brain barrier concentrations,
tissue and organ distribution, bioavailability, administration (IV vs. Oral), spinal fluid concentration, and blood plasma concentration. A
route of “administration” in pharmacology and toxicology is the path by which a drug, fluid, poison, or other substance
is taken into the body. “Bioavailability” is a subcategory of absorption and relates to a fraction of an administered
dose of a drug that reaches systemic circulation in the body. “Blood plasma concentration,” otherwise known as volume
of distribution, is a theoretic concept that relates the amount of drug in the body (dose) to the concentration (C) of drug
that is measured (in blood, plasma, and unbound in tissue water).
In
May 2014, we commissioned the first of two animal behavioral studies via research pact with Temple University. The aim of the
study was to test the effects of CBD and KLS-13019 on cognitive function in a mouse model of OHE in support of the identification
of molecules with in vivo efficacy. An established model of OHE, the thioacetamide model (TAA, 200 mg/kg i.p.), was used to assess
the effect of CBD (5.0 mg/kg i.p.) and KLS-13019 (0.5 – 5.0 mg/kg i.p.) on learning and memory in male C57Bl6 mice.
The autoshaping procedure, an operant learning and memory assay that rapidly assesses acquisition and retention of a simple task,
was the primary cognitive assay used. The task is an operant conditioning task wherein food restricted mice are placed in experimental
chambers and must learn how to make a behavioral response to gain access to food rewards.
In
summary, thioacetamide induced a robust, but variable, toxicity associated with cognitive impairment, morbidity, and mortality.
KLS13019, administered in the absence of thioacetamide, produced no negative behavioral or general health effects, and actually
appeared to improve cognitive functioning in the behavioral task. The 5.0 mg/kg dose of KLS 13019 also significantly prevented
thioacetamide-induced cognitive performance deficit, and the lower dose of 1.0 mg/kg showed a trend in this direction.
Pharmacokinetic
and Pharmacodynamic Comparison Between KLS-13019 and CBD
Results
from PK and PD studies performed in evaluating CBD versus KLS-13019 (molecule name 16), has shown KLS-13019 to be superior in
aqueous solubility (potential for drug absorption after oral administration); Log P (ratio which measures difference in solubility
in two phases); bioavailability (proportion of the drug that enters the circulation); and C max at 10 mg/kg, p.o. (peak serum
concentration).
Results
from our pre-clinical efforts in the potential treatment of OHE and the potential treatment of CIPN have shown a marked improvement
over 99.7% pure pharmaceutical grade synthetic CBD in side by side pre-clinical comparison. In a pre-clinical comparison for neuroprotection
between CBD and KLS-13019, results indicated increased potency for the new molecule (KLS-13019) as determined by six assays, while
both molecules exhibited efficacy in preventing oxidative stress-related toxicities back to control values. Treatment with KLS-13019
alone, however, was 5-fold less toxic than CBD. Previous studies suggested that CBD targeted the Na+ Ca2+ (sodium-calcium)
exchanger in mitochondria to regulate intracellular calcium levels, an important determinant of neuronal survival. After treatment
with an inhibitor, the mNCX inhibitor (“CGP-37157”), no detectable neuroprotection from ethanol toxicity was observed
for either CBD or KLS-13019. Furthermore, AM630 (a CB2 antagonist) significantly attenuated CBD-mediated neuroprotection, while
having no detectable effect on KLS-13019 neuroprotection. Our studies indicated KLS-13019 was more potent and less toxic than
CBD. Both molecules can act through mNCX. Based on these results, amongst other things, we believe that KLS-13019 may provide
an alternative to CBD as a therapeutic candidate to treat disease associated with oxidative stress.
As
previously noted, comparisons between CBD and KLS-13019 have been published in peer reviewed articles in ACS Medicinal Chemistry
Letters (2016, 7, 424-428) and Journal of Molecular Neuroscience (14 August 2018).
Additional
follow on studies recently published on May 10, 2019 in the Journal of Molecular Neuroscience have further advanced
our studies on the mechanism of action for CBD and KLS-13019 in pre-clinical testing for the treatment of CIPN. The mechanism
of action for CBD-and KLS-13019-mediated protection now has been explored with dissociated dorsal root ganglion (“DRG”)
cultures using small interfering RNA (siRNA) to the mitochondrial Na+ Ca2+ exchanger-1 (“mNCX-1”). Treatment with
this siRNA produced a 50–55% decrease in the immunoreactive (“IR”) area for mNCX-1 in neuronal cell bodies and
a 72–80% decrease in neuritic IR area as determined with high-content image analysis. After treatment with 100 nM KLS-13019
and siRNA, DRG cultures exhibited a 75 ±5% decrease in protection from paclitaxel-induced toxicity, whereas siRNA studies
with 10 μM CBD produced a 74± 3% decrease in protection. Treatment with mNCX-1 siRNA alone did not produce toxicity.
The protective action of cannabidiol and KLS-13019 against paclitaxel-induced toxicity during a 5-h test period was significantly
attenuated after a 4-day knockdown of mNCX-1 that was not attributable to toxicity. This data indicates that decreases in neuritic
mNCX-1 corresponded closely with decreased protection after siRNA treatment. Pharmacological blockade of mNCX-1 with CGP-37157
produced complete inhibition of cannabinoid-mediated protection from paclitaxel in DRG cultures, supporting the observed siRNA
effects on mechanism.
Sodium-Calcium
Exchanger (“NCX”) (often denoted Na+/Ca2+ exchanger, NCX, or exchange protein) is
an antiporter membrane protein that removes calcium from cells. The exchanger exists in many different cell types and animal species.
The NCX is considered to be one of the most important cellular mechanisms for removing Ca2+ (calcium ions) from
cells. The exchanger is usually found in the plasma membranes and the mitochondria and endoplasmic reticulum of excitable cells.
Mitochondria is
a double-membrane-bound organelle found in most eukaryotic organisms. Mitochondria generate most of the cell’s
supply of adenosine triphosphate (“ATP”), used as a source of chemical energy. ATP is a complex organic
chemical that provides energy to drive many processes in living cells, including muscle contractions, nerve impulse propagation
and chemical synthesis.
According
to Fallon, et al. in the March/April 2006 edition of Clinical Medicine, pain is uncontrolled with opioid treatments in approximately
20% of patients with advanced cancer, or 420,000 people in the United States. There are currently no FDA approved non-opioid treatments
for patients who do not respond to, or experience negative side effects with, opioid medications. We believe that KLS-13019 has
the potential to address a significant unmet need in this large market by treating patients with a product that employs a differentiated
non-opioid mechanism of action, and offers the prospect of pain relief without increasing opioid-related adverse side effects.
Neuropathix
Studies on CBD
In
March 2013, we began our pre-clinical research and discovery efforts at the Pennsylvania Biotechnology Center/Baruch Blumberg
Institute in Doylestown, PA. We began the research and development, and pre-clinical work focused on the identification, synthesis
and/or extraction of novel Cannabis-derived molecules for the treatment of impairments associated with oxidative stress in OHE.
Prior research (published on April 16, 2011, in the British Journal of Pharmacology under the title “Cannabidiol Improves
Brain and Liver Function in a Fulminant Hepatic Failure Induced Model of Hepatic Encephalopathy in Mice”) produced substantial
behavioral and histochemical evidence demonstrating the effectiveness of certain Cannabis-derived molecules, such as CBD, in the
improvement of brain and liver function in fulminant hepatic failure. Findings from the above referenced study include reversal
of locomotors and cognitive pathologies, reversal of structural changes, such as Alzheimer’s Type II astrogliosis, and reversal
of increases in ammonia levels.
In
2014, we published an abstract on our completed studies regarding CBD at the 24th Annual International Cannabinoid Research Society
symposium, titled “Cannabidiol Provides Protection from Ethanol and Ammonium Toxicity in a Hippocampal Model of Hepatic
Encephalopathy.” In the present study, an in vitro model of HE has been utilized to evaluate the protective properties of
CBD, a substance with demonstrated protective properties against oxidative stress in pre-clinical studies targeting the OHE range
of neuronal toxicity.
HE
is a known oxidative stress related disorder. Although ammonia is considered the main factor involved in the pathogenesis
of HE, it correlates well with the severity of HE in acute liver failure, but not in chronic liver disease. Oxidative stress is
another factor believed to play a role in the pathogenesis of this syndrome; it represents an imbalance between the production
and neutralization of reactive oxygen species, which leads to cellular dysfunction (“Oxidative Stress: A Systemic Factor
Implicated in the Pathogenisis of Hepatic Encephalopathy”, Metabolic Brain Disease, 28 June 2013, 175-178).
On
January 22, 2015, we signed an agreement with Catalent Pharma Solutions LLC (“Catalent”), a $3.9 billion pharmaceutical
manufacturer, for the performance of a feasibility study named “Solution for Cannabidiol Softgel Feasibility” (the
“CBD OTC Feasibility Study”). Catalent has over eight years of experience in capsule and softgel manufacturing capabilities
and experience.
The
purpose of the CBD OTC Feasibility Study with Catalent is to advance our plans to submit one or more products for FDA clinical
trials to treat certain oxidative stress related and neurodegenerative related diseases such as Traumatic Brain Injury (“TBI”).
TBI, also
known as intracranial injury, occurs when an external force injures the brain. TBI can be classified based on severity, mechanism
(closed or penetrating head injury), or other features (e.g., occurring in a specific location or over a widespread area). Head
injury is a broader category that may involve damage to other structures, such as the scalp and skull. TBI can result in physical,
cognitive, social, emotional, and behavioral symptoms, and outcomes can range from complete recovery to permanent disability or
death.
The
Centers for Disease Control and Prevention (the “CDC”) has compiled statistics on TBI, which occurs more with children
and older adults. According to the CDC, total combined rates for TBI-related emergency department (“ED”) visits, hospitalizations
and deaths have increased over the past decade. In 2014, there were approximately 2.5 million TBI-related ED visits in the U.S.,
including over 812,000 among children. Unintentional falls, being unintentionally struck by or against an object, and motor vehicle
crashes were the most common mechanisms of injury contributing to a TBI diagnosis in the ED. These three principal mechanisms
of injury accounted for 47.9%, 17.1%, and 13.2%, respectively, of all TBI-related ED visits. Rates of TBI-related ED visits per
100,000 population were highest among older adults aged ≥ 75 years (1,682.0), young children aged 0-4 years (1,618.6), and
individuals 15-24 years (1,010.1).
On
March 4, 2015, the Company and Catalent commenced the feasibility study named “Solution for Cannabidiol Softgel Feasibility.”
On
March 16, 2015, we received notice from Catalent that the DEA advised them that the CBD drug code 7360 had been added to Catalent’s
Schedule 1 registration and that a quota for a certain quantum of CBD was successfully submitted for the importation of 150 grams
of 99.7% pure synthetic cannabidiol from Purisys.
Additionally,
on July 13, 2018, we received notice from the DEA that were approved for our own Schedule 1 Controlled Substance license for the
purpose of research activity. The addition of this license will further assist the Company in the bailment and delivery of CBD
to and from research collaborators like Catalent and Temple University, as well as others.
Our
relationship with Catalent was founded on our efforts to produce a formulated version of a CBD based gel capsule, herein referred
to as KLS-13023, for further advancements in the treatment of oxidative stress related disorders, such as OHE. Catalent does not
share in any royalties or ownership of intellectual property that we provide to Catalent or that is developed under the feasibility
study with Catalent described herein. The current feasibility study being performed is for our efforts to create a high quality
controlled and assured pharmaceutical grade product for use in an FDA clinical trial to treat patients suffering with OHE. Catalent’s
efforts in this instance is as a contract manufacturer involved in the advancement of our intellectual property and for Catalent
to be a third party contract manufacturer for the commercial production of KLS-13023.
A
satisfactory and successful completion of the feasibility study with Catalent, followed by the completion of our pre-clinical
evaluation of KLS-13023 in an animal toxicity model, and thereafter the application of KLS-13023 under an NDA with the FDA, would
likely lead to a bulk commercial drug manufacturing agreement between the Company and Catalent. We have only committed to completing
the feasibility study with Catalent, and are under no obligation to enter into a commercial drug manufacturing agreement with
Catalent. After the completion of our feasibility study with Catalent, we currently believe that the logical next step in our
commercial development plans for KLS-13023 is to engage with Catalent as our contract drug manufacturer for KLS-13023.
CBD
Reclassified by DEA for Epidiolex
On
September 27, 2018, in a significant decision relating to the classification of CBD, currently classified as a Schedule I
narcotic by the DEA under the Controlled Substances Act, the Department of Justice and the DEA announced that Epidiolex, the recently
approved medication by the FDA, was being placed in Schedule V of the Controlled Substances Act, the least restrictive schedule
of the CSA. On June 26, 2018, the FDA announced it approved Epidiolex for the treatment of seizures associated with
two rare and severe forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome, in patients two years of age and older. Epidiolex
contains CBD. The CBD in Epidiolex is extracted from the cannabis plant and is the first FDA-approved drug to contain a purified
extract from the plant. Schedule V drugs represent the least potential for abuse. Schedule V drugs, substances, or chemicals
are defined as drugs with lower potential for abuse than Schedule IV and consist of preparations containing limited quantities
of certain narcotics.
We
believe this was a significant reclassification that validates our efforts in the research and development of ethical pharmaceuticals
containing CBD as an active pharmaceutical ingredient and reduces the regulatory and market risks associated with the use of CBD,
still a Schedule I narcotic.
We
have maintained since inception that the only clear path to reclassification is to follow the regulatory path of proving medical
purpose through traditional Phase 1 through Phase 3 clinical trials. We believe that the approval of Epidiolex by the FDA on June
26, 2018 and reclassification of CBD as it relates to Epidiolex by the DEA on September 27, 2018, is clear evidence of the need
to follow the regulatory path in order to meet the requirements of reclassification of a Schedule I controlled substance.
Neuropathix
Strategic Third Party Business Relationships, Licenses and Joint Ventures
Natural
Products Discovery Institute – Pennsylvania Biotechnology Center
In
December 2013, we entered into a Materials Transfer and Testing Agreement (“MTTA”) with the Institute for Hepatitis
and Virus Research and their division, the Natural Products Discovery Institute (“NPDI”), located at Pennsylvania
Biotechnology Center in Doylestown, PA. The purpose of the MTTA, is, among other things, the research of original material made
up of plants, plant matter, and plant extracts (the “Plant Materials”) to identify bioactive molecules contained in
these Plant Materials which may lead to the commercial production of bioactive molecules. To date, we have screened one plant
source and have fractionated extracts to determine its neuroprotective activity. This plant source and extracted material has
shown a high degree of neuroprotectant factor in the face of ethanol and ammonium toxicity in neuronal cell cultures. We plan
on furthering the commercial development of this material and also filing for patent protection on the process, method and use
of this material in the treatment of neurodegenerative diseases.
On
April 2, 2020, we entered into an Intellectual Property Rights Purchase and Transfer Agreement with the BSBI to purchase all of
the rights, titles, and interests that would otherwise belong to the BASBI solely under the MTTA Agreement. The purchase price
for the acquisition of these rights was twenty five thousand shares of the Company’s restricted common stock.
Subsequent
to this transaction with the BSBI, we filed for patent protection on this discovery, which patent describes claims on the process,
method and use of this material in the treatment of neurodegenerative diseases. (see: Neuropathix Intellectual Properties)
Temple
University – Animal Behavioral/Pre-Clinical Model
On
May 1, 2014, we signed a Research Services Agreement with Temple University to test the effects of CBD and CBD-like molecules
in an HE model of cognitive impairment in support of the identification of molecules with in vivo efficacy. The
tests were performed by Temple University in the pre-clinical model for HE, and involved a mouse model of OHE and administration
of CBD and KLS-13019 conducted by Dr. Sara Jane Ward and Dr. Ronald Tuma, with the study titled – “Cognitive,
neurological, and motor function in a mouse model of hepatic encephalopathy: effects of CBD and CBD analogues (KLS-13019).”
The results of this study showed that KLS-13019 is superior to CBD in the intervention of cognitive impairment from associated
neurotoxicity in the OHE model.
On
January 4, 2017, we applied for a Phase 1 Small Business Technology Transfer (“STTR”) grant from the National Institutes
of Health – National Institute on Drug Abuse (“NIH-NIDA”). This grant application was made in collaboration
with Temple University and titled “Development of KLS-13019 for Chemotherapy Induced Peripheral Neuropathy and Drug Dependence”.
In December 2017, we were informed that the Phase 1 grant was awarded.
The
following is a summary outline of the aims proposed in the aforementioned grant.
Chemotherapy-induced
peripheral neuropathy (CIPN) can be a chronic, severely debilitating consequence of cancer therapy for which there are no effective
management strategies. Moreover, upwards of 80% of CIPN patients reported using prescription opioids for pain management, despite
the fact that there is only weak evidence that the long-term continuation of opioids provides clinically significant pain relief
in these patients.
Mitochondrial
dysfunction, oxidative stress, and inflammation have all been implicated in its etiology. We have shown that the non-psychoactive
cannabinoid CBD prevents the development of CIPN in a mouse model of paclitaxel-induced cold and mechanical allodynia. This target,
allodynia, refers to central pain sensitization (increased response of neurons) following normally non-painful, often repetitive
stimulation. It can lead to the triggering of pain response from stimuli that normally do not provoke pain.
In
vitro, we observe that paclitaxel increases microglial expression of several putative mediators of neuropathic pain, and that
this effect can be blocked by CBD in a mitochondrial Na+/Ca2+ exchanger (mNCX)- dependent manner. We have also shown that a more
potent, hydrophilic analogue of CBD, KLS-13019, protects against paclitaxel-induced oxidative stress in cultured dorsal root ganglia
neurons, and that the mechanism underlying this neuroprotection is also regulation of intracellular calcium via the mNCX. Preliminary
results demonstrate that KLS-13019 can attenuate mechanical sensitivity associated with CIPN while also reducing microglial activation
and T cell infiltration into the spinal cord.
Dorsal
root ganglia (“DRG”) is a cluster of neurons (a ganglion) in the dorsal root of a spinal nerve. The cell bodies of
sensory neurons known as the first-order neurons are located in the dorsal root ganglia. Even though dorsal root ganglia
are a part of the system of peripheral nerves, they lie very close to the spine, and therefore to the central nervous system.
That makes them an important connection between the two systems. These nerve clusters help transmit messages toward the brain
and play a key role in neuropathic pain development and maintenance. Peripheral nerve injury-induced neuropathic pain is one of
major clinical disorders characterized by spontaneous ongoing or intermittent burning pain, sensory abnormalities (dysesthesia),
an increased response to painful stimuli (hyperalgesia), and pain in response to normally innocuous stimuli (allodynia).
Our
central hypothesis is that administration of CBD or KLS-13019 helps preserve Ca2+ homeostasis by promoting activity of the mNCX,
which in turn protects from both mitochondrial dysfunction and microglial activation to prevent the neuronal and glial changes
associated with the development and maintenance of paclitaxel-induced neuropathic pain. We believe that results from experiments
in AIM 1 will demonstrate that the neuroprotective properties of CBD and KLS-13019 can be reduced by pharmacological or gene knockdown
of the mNCX in a statistically significant manner. We believe that results from experiments in AIM 2 will further confirm the
i.p. and p.o. efficacy of KLS-13019 vs CBD to prevent or reverse mechanical sensitivity and neuroinflammation in a mouse model
of paclitaxel-induced neuropathic pain and that repeated administration of these molecules does not lead to analgesic tolerance.
Remarkably, the non-psychoactive CBD has also been shown to inhibit cue-induced heroin-seeking and neurochemical correlates thereof
in a rat model of relapse and decrease heroin craving in a small human study. Experiments in AIM 3 are designed to test the hypothesis
that KLS-13019 and CBD will attenuate reinstatement of morphine seeking behavior in a rat model of opioid relapse. The overall
impact of the results from the proposed research will be significant advancements into (i) identification of specific mechanisms
that induce CIPN, (ii) application of this knowledge to facilitate design of novel treatment strategies for neuropathic pain,
and (iii) novel treatment strategies to reduce or replace prescription opioid use and decrease prescription opioid abuse.
Chemotherapy-induced
peripheral neuropathy (CIPN) can be a chronic, severely debilitating consequence of cancer therapy for which there are no effective
management strategies. Moreover, upwards of 80% of CIPN patients reported using prescription opioids for pain management, despite
the weak evidence of their efficacy and the risks of long term dependence (Hirayama, ESMO Open 2016). Mitochondrial dysfunction,
calcium dysregulation, oxidative stress, and inflammation have all been implicated in its etiology. In pre-clinical studies, CBD,
a non-psychoactive component of cannabis sativa, has shown evidence in a murine model to be a potentially effective treatment
for CIPN and relieving opiate dependence currently experienced by certain patients undergoing current therapeutic chemotherapy
and pain management regimens in cancer treatment. However, CBD has severe limitations in terms of potency, safety, oral bioavailability,
and regulatory restrictions. KLS-13019 is a novel new chemical entity that, as per pre-clinical testing, may be able to target
these problems. In the NIH-NIDA Phase 1 STTR Study Grant completed in December 2019, our research efforts with Temple University
demonstrated the efficacy of KLS- 13019 in models of CIPN and opiate dependence, and also further elucidated its mechanism of
action in regulation of calcium levels and inflammatory sequelae.
We
have completed all of our work related to the aforementioned grant and are currently in a peer review submission of our research
results to the Journal of Molecular Neuroscience. Temple University has completed two of the three aims outlined in the grant
proposal, and is currently in the process of completing the third and final aim, morphine reinstatement. We believe that the grant
study will be completed on or about June 2019 and the results will be published by Temple University.
On
December 31, 2019, we, together with Temple University, filed a completion report with NIH-NIDA regarding the Phase 1 STTR grant.
The results of this study were promising and have set forth our plans to file for a Phase 2 grant due for filing on or before
April 7, 2020.
In
April 2020, the Company and Temple University filed for a Phase 2 SBIR Grant with National Institutes of Health – National
Institute of Neurological Disorders and Stroke (“NIH-NINDS”). Our application provided strong support to further the
research and development of our treatment for CIPN. Phase 2 is focused on the development, demonstration and delivery
of the innovation.
In
June 2020, the Company was informed that its Phase 2 SBIR grant application received an impact/priority score of 47. Generally
speaking, impact/priority scores of 10 to 30 are most likely to be funded. Scores between 31 and 45 might be funded; scores greater
than 46 are rarely funded. The Company believed that there were elements of its initial Phase 2 SBIR grant application that were
misunderstood and believed it still had a very strong application. After making several critical changes to the original application,
in January 2021, the Company resubmitted its Phase 2 SBIR grant application with NIH-NINDS and currently awaits response from
NIH-NINDS.
Proposed
Study for Traumatic Brain Injury
To
investigate the mechanisms of action through which CBD and a cannabinoid analogue (KLS-13019) provide neuroprotection form neurotoxicity
factors (glutamate and CCL11) relevant to TBI. Neural damage associated with TBI has been associated with multiple processes including
excitotoxicity, oxidative stress and neuroinflammation. Because of the recognized protective effects of cannabinoids on all of
these toxic processes, we have chosen to explore the effects and mechanism of action of two molecules: (i) CBD, a substance found
in cannabis; and (ii) KLS-13019, a novel CBD-like analogue that has been shown to protect against various toxicity associated
with oxidative stress (Kinney et al., 2016). In this proposal, we intend to investigate the protective mechanisms related to the
attenuation of CCL11 for both molecules in disease-relevant in vitro test systems that utilized glutatmate as a relevant toxin
and then explore their effectiveness in animal models of TBI.
Catalent
Pharma Solutions
In
December 2014, we signed a feasibility study contract with Catalent Pharma Solutions (“Catalent”), to, among other
things, commence a feasibility study on a dose controlled soft-gel containing CBD as the main active pharmaceutical ingredient
(the “CBD Feasibility Study”). The purpose of the CBD Feasibility Study with Catalent is to enable us to develop a
proprietary drug product formulation using CBD that has suitable solubility and stability characteristics for IND, enabling pre-clinical
studies in animals and clinical studies in humans, as part of our ongoing research and development of a cannabinoid therapeutic
for the treatment of neurodegenerative diseases, including CTE and OHE. Catalent is the leading global provider of advanced delivery
technologies and development solutions for drugs, biologics, consumer health and animal health products. With over 80 years serving
the industry, Catalent has proven expertise in bringing more customer products to market faster, enhancing product performance
and ensuring reliable clinical and commercial product supply. Catalent employs approximately 13,900 people, including over 1,000
scientists, at 53 facilities across 4 continents, and in fiscal 2020 generated approximately $3.09 billion in annual revenue.
Catalent is headquartered in Somerset, N.J.
Purisys,
LLC (formerly Noramco, Inc.)
Noramco,
Inc. (“Noramco”) was formed in 1979 to provide a secure source of Codeine Phosphate. On October 1, 2019, Noramco spun
off its cannabinoid related business into a separate affiliated company, Purisys, LLC (“Purisys”). With Noramco’s
acquisition of Tasmanian Alkaloids and addition of their Athens, Georgia site in 1982, and continuous expansions over the past
three decades at both of its U.S. facilities, Noramco and Purisys, together, now contribute to billion dollar affiliate franchises,
as well as to significant third-party generic and branded pharmaceutical products worldwide.
Noramco
is a world leader in specialty active pharmaceutical ingredients, with a particular focus in controlled substances. Purisys is
the leader in manufacturing ultra-high purity cannabinoid ingredients. Purisys’ headquarters and primary production facility
is located in Athens, GA, with additional sites in Wilmington, DE and Schaffhausen Switzerland.
In
April 2015, we entered into discussions with Purisys (then, Noramco), for, among other things, the long term supply of high purity, pharmaceutical
grade, synthetic cannabidiol for the purpose of delivering CBD as an active pharmaceutical ingredient to Catalent in connection
with our CBD Feasibility Study.
In
addition to the procurement of CBD through Purisys, the Company and Purisys have discussed an additional feasibility study for
the scale-up and commercial production of KLS-13019.
SK
Capital Partners (“SK Capital”) acquired Noramco from Johnson & Johnson in July 2016. SK Capital is a private
investment firm with a disciplined focus on the specialty materials, chemicals and healthcare sectors.
PRIMARY
TARGETS FOR DRUG DISCOVER AND MARKET SIZE
Target
1:Hepatic Encephalopathy – $2+ Billion Market in the U.S.
HE
is one of the most important clinical manifestations in decompensated liver cirrhosis. Accepted concepts regarding the pathophysiology
of HE are that the endogenous neurotoxic substances, including ammonia: (i) escape from catabolism by the liver due both to the
impaired function of the cirrhotic liver and also to the presence of portal systemic shunting; (ii) circulate at elevated concentrations
in the systemic blood flow; (iii) reach the brain through the blood-brain barrier; and (iv) impair cerebral function leading to
disturbances of consciousness. See Discovery of KLS-13019, a Cannabidiol-Derived Neuroprotective Agent, with Improved
Potency, Safety, and Permeability. William A. Kinney, Mark E. McDonnell, Hua Marlon Zhong, Chaomin Liu, Lanyi Yang, Wei
Ling, Tao Qian, Yu Chen, Zhijie Cai, Dean Petkanas, and Douglas E. Brenneman – ACS Med. Chem. Lett., 2016, 7 (4), pp
424–428.
The
majority of these toxins are produced in the intestine by the bacterial flora, and are absorbed into the portal venous flow. In
spite of improved therapeutic options for encephalopathy, the long-term survival is still low. Thus, HE remains a serious complication
of liver cirrhosis. We believe that the establishment of truly effective prevention modalities and broader application of liver
transplantation will help rescue patients suffering from this complication of liver cirrhosis in the near future.
According
to an article published in the British Journal of Pharmacology Research, studies conducted over the past decade has produced substantial
behavioral and histochemical evidence demonstrating the effectiveness of certain Cannabis-derived molecules such as CBD in the
improvement of brain and liver function in fulminant hepatic failure. Findings include reversal of locomotors and cognitive pathologies,
reversal of structural changes such as Alzheimer’s Type II astrogliosis, and reversal of increases in ammonia levels. Beyond
the supportive preclinical evidence, multiple factors provide reasons for enthusiasm in the pursuit of the HE indication:
•
|
|
New
mechanism of action: Cannabinoids, if shown effective in clinical trials, would provide a new mechanism of action, and
thus be an incremental clinical tool to combine with existing treatments. This combination of mechanisms of action could lead
to additive or synergistic effects. Existing treatment methods, such as lactulose, Rifaximin and others under study (e.g.,
AST-120), manage symptoms by reducing ammonia uptake in the digestive system. However, once blood ammonia levels have increased,
they putatively provide limited benefits. Cannabinoids, instead, act in the central nervous system ameliorating the downstream
pathological effects of ammonia.
|
•
|
|
Multiple
preventive benefits: According to National Institute of Health, pre-clinical studies have shown that CBD, the major
constituent in our intended lead target drug molecule and candidate, may provide benefits in the secondary prevention of HE.
|
|
o
|
Steatosis: In
vitro studies have shown CBD to reverse the histopathology associated with steatosis
or fatty liver syndrome. This is particularly relevant because fatty liver is a major
cause of liver cirrhosis, and has no current drug-based treatment. In addition, multiple
currently marketed drugs are known to induce steatosis. These include steroids (e.g.,
triamcinolone, cortisone, prednisone), the anti-cancer drug Tamoxifen (a breast cancer
drug), HIV anti-retrovirals and anti-arrythmic drug Amiodarone.
|
|
o
|
Fibrogenesis:
Animal studies have shown that endocannabinoids are involved in the regulation of fibrogenesis
in the liver. CB2 -/- mice show increased fibrogenesis in response to CCl4 injection,
whereas CB1 -/- mice have decreased hepatic fibrogenesis. This suggests an opportunity
to modulate fibrogenesis, a critical intermediate step in liver cirrhosis, through a
proper selection of cannabinoid antagonists.
|
HE
is a neuropsychiatric disorder that includes learning deficits and impairment of long-term memory. HE can be caused by chronic
and excessive ethanol ingestion along with the accumulation of toxic substances that are normally removed by the liver. The pathogenesis
of HE in the central nervous system includes damage to the pre-limbic cortex, striatum and the hippocampus, and this pathology
is believed to be mediated by the accumulation of free radicals and oxidative stress. HE has primary epidemiological precursors
in cirrhosis, hepatitis B, hepatitis C, and portal hypertension. The incidence rate of HE among alcohol induced cirrhosis patients
is as high as 45%, making HE a leading opportunistic disease stemming from alcoholism. If left unchecked, HE can progress
to hepatic coma and ultimately death. The pathogenesis of HE includes damage to the prelimbic cortex, striatum, and the hippocampus.
HE is caused by accumulation of toxic substances in the bloodstream that are normally removed by the liver.
It
has been previously demonstrated that impairment of hepatocytes by ethanol is associated with the production of free radical and
oxidative stress. The accumulation of these free radicals and oxidative stress contribute to cognitive impairment, learning deficits,
memory impairment, as well as damage and death of neuronal tissue. An emerging concept is that blockade of free radical mediated
stress and oxidative stress will prevent the neural damage associated with hepatic encephalopathy and prevent cognitive impairment,
learning deficits, memory impairment, as well as damage and death of neuronal tissue associated with HE.
Currently
in the United States, there are over 1.5 million sufferers of HE across four stages, including approximately 121,000 patients
hospitalized each year from the OHE stage of the disease.
Cannabidiol
(CBD) vs. KLS-13019 in Overt Hepatic Encephalopathy
In
a publication in American Chemical Society Medicinal Chemistry Letters on February 10, 2016, our abstract read as follows:
“Cannabidiol
is the nonpsychoactive natural component of C. sativa (cannabis sativa) that has been shown to be neuroprotective in multiple
animal models. Our interest is to advance a therapeutic candidate for the orphan indication overt hepatic encephalopathy (OHE).
OHE is a serious neurological disorder that occurs in patients with cirrhosis or liver failure. Although cannabidiol has
shown evidence in a murine model to be a potentially effective treatment for OHE, it has limitations in terms of safety and oral
bioavailability. Herein, we describe a series of side chain modified resorcinols that were designed for greater hydrophilicity
and “drug likeness”, while varying hydrogen bond donors, acceptors, architecture, basicity, neutrality, acidity, and
polar surface area within the pendent group. Our primary screen evaluated the ability of the test agents to prevent damage to
hippocampal neurons induced by ammonium acetate and ethanol at clinically relevant concentrations. Notably, KLS-13019 was 50-fold
more potent and >400-fold safer than cannabidiol and exhibited an in vitro profile consistent with improved oral bioavailability.”
CBD
has been shown to be neuroprotective by blocking the damage caused by free radicals and oxidative stress. This effect was independent
of cannabinoid receptors because it could not be blocked by a cannabinoid antagonist. CBD has shown evidence in two murine
models to be a potentially effective treatment for HE, thioacetamide induced and bile duct ligation induced liver damage,
at a dose of 5 mg/kg IP (intraperitoneal injection). Importantly, CBD treated animals in the first study exhibited improvements
in both liver and brain function as compared to untreated control animals.
Free
radical mediated stress and oxidative stress are also known to contribute to additional pathological conditions including epilepsy,
neuropathic pain, traumatic head injury, stroke, CTE, and neurodegenerative diseases such as Parkinson’s disease, Alzheimer’s
disease, Huntington’s disease, and ALS.
Other
examples of neuroprotection by CBD include use in hypoxia-ischemia and stroke models. A wide range of possible mechanisms have
been attributed to CBD’s neuroprotective effects including antioxidant, anti-inflammatory, adenosine signaling, cannabinoid
receptor GPR55 (G Protein-coupled receptor 55), and serotonin mediated pathways; however, mitochondrial calcium modulation is
fundamental. The GPR55 receptor is a G protein receptor in humans that is encoded by the GPR55 gene. The GPR55 receptor has been
identified as a novel cannabinoid receptor. Receptors are sensing molecules which communicate signals between cells to illicit
physiological changes in the body. To hedge our bets, we chose to interrogate the hippocampal neuron, as a phenotypic screen that
will measure neuroprotection independent of a mechanism.
Target
2:Chronic Traumatic Encephalopathy (CTE) – $2+ Billion Market in the U.S.
Not
unlike OHE, CTE is a neuro-degenerative disease of the brain and is associated with repeated head traumas like concussions.
CTE
is a form of encephalopathy that is a progressive neuro-degenerative disease, which can only be definitively diagnosed postmortem,
in individuals with a history of multiple concussions and other forms of head injury. The disease was previously called dementia
pugilistica (“DP”), as it was initially found in those with a history of boxing. CTE has been most commonly found
in professional athletes participating in American football, ice hockey, professional wrestling and other contact sports who have
experienced repetitive brain trauma.
It
has also been found in soldiers exposed to a blast or a concussive injury, in both cases resulting in characteristic degeneration
of brain tissue and the accumulation of tau protein. Individuals with CTE may show symptoms of dementia, such as memory loss,
aggression, confusion and depression, which generally appear years or many decades after the trauma. Repeated concussions and
injuries less serious than concussions (“sub-concussions”) incurred during the play of contact sports over a long
period can result in CTE. In the case of blast injury, a single exposure to a blast and the subsequent violent movement of the
head in the blast wind can cause the condition.
The
primary physical manifestations of CTE include a reduction in brain weight, associated with atrophy of the frontal and temporal
cortices and medial temporal lobe. The lateral ventricles and the third ventricle are often enlarged, with rare instances of dilation
of the fourth ventricle.
Other
physical manifestations of CTE include pallor of the substantia nigra and locus ceruleus, and atrophy of the olfactory bulbs,
thalamus, mammillary bodies, brainstem and cerebellum. As CTE progresses, there may be marked atrophy of the hippocampus, entorhinal
cortex, and amygdala.
On
a microscopic scale, the pathology includes neuronal loss, tau deposition, TAR DNA- binding Protein 43 (TDP 43) beta-amyloid deposition,
white matter changes, and other abnormalities. The tau deposition occurs as dense neurofibrillary tangles (“NFT”),
neurites, and glial tangles, which are made up of astrocytes and other glial cells Beta-amyloid deposition is relatively uncommon
feature of CTE.
A
small group of individuals with CTE have chronic traumatic encephalo-myopathy (“CTEM”), characterized by motor neuron
disease symptoms, which mimics ALS, also known as Lou Gehrig’s disease. Progressive muscle weakness and balance and gait
problems seem to be early signs of CTEM.
Target
3:Chemotherapy Induced Peripheral Neuropathy (CIPN) – $3+ Billion Market in U.S.
In
December 2016, as part of a Small Business Technology Transfer (“STTR”) program, we, together with Temple University,
filed an STTR grant proposal with the National Cancer Institute (“NCI”) to demonstrate improved in vivo efficacy of
an orally administered KLS-13019, our lead target drug candidate, in a head-to-head comparison to intraperitoneal injection (“IP
Injection”) of CBD in a model of chemotherapy-induced peripheral neuropathy.
At
the conclusion of Phase I STTR application, we hope to demonstrate that KLS-13019 (Per os – taken through the mouth)
can control mechanical sensitivity and inflammation associated with CIPN in the absence of tolerance development, and also reduce
opioid craving behavior with comparable efficacy to CBD (intraperitoneal injection). In Phase II STTR, we will investigate a back-up
series and will execute the CMC, pharmacokinetic, safety pharmacology, and toxicology assessments required for IND filing on KLS-13019.
A
visual image of the chemical structure of cannabidiol and KLS-13019 can be seen as follows, along with selected data describing
EC50 (the concentration of a drug that give half-maximum response), Safety Margin (pre-clinical toxicity), and
Bioavailability (seen as “F”):
KLS-13019
does not contain CBD and is a new chemical entity that would not fall under the CSA be deemed a Schedule 1 controlled substance.
KLS-13023
is a formulation that does contain CBD. At present, CBD is deemed a Schedule 1 controlled substance by the DEA under the Controlled
Substances Act. Like the drug molecule EpidiolexÒ, which was recently approved by the FDA for marketing and sale for use
in treating Dravet’s Syndrome and Lennox-Gasteau Syndrome (forms of child epilepsy), KLS-13023 would need to follow the
guidance set forth by the CSA, complete a successful human clinical trial and apply for rescheduling, as was the case with EpidiolexÒ,
now a Schedule 5 drug.
We
currently plan on using KLS-13019 as our lead target drug candidate for the treatment of CIPN.
The
treatment of CIPN is a priority therapeutic opportunity because, to date, no one drug or drug class is considered to be safe and
effective in this disabling disease. Tricyclic antidepressants are often the first choice in most patients, but are associated
with significant side effects including sedation and cardiovascular complications as well as marginal efficacy (Wolf et al 2008).
Anticonvulsants, despite their efficacy in animal models of CIPN, are only partially effective in the majority of patients (Bosnjak
et al 2002).
Even
more problematic, upwards of 80% of CIPN patients report using prescription opioids for pain management despite lacking strong
evidence for efficacy and increasing safety concerns in the face of the current devastating opioid epidemic. The exact mechanism
of CIPN has not been fully elucidated and can differ across classes of chemotherapeutic agents. It is therefore necessary to identify
novel therapies to prevent or treat CIPN that target one or more of these putative mechanisms. Recently, there has been a resurgence
in interest in the potential medical utility of the cannabis plant and its constituents, and mechanism-based basic research is
warranted to develop safe and effective cannabinoid-based pain treatments. CBD is a non-psychoactive component of Cannabis sativa
that is neuroprotective, independent of cannabinoid receptors (Hampson 1998).
Prior
studies at Temple University revealed that CBD prevents the development of paclitaxel-induced mechanical sensitivity in mice in
vivo (Ward et al 2011, 2014). Additionally, CBD attenuates morphine reward and heroin seeking behavior in animal models (Ren,
Whittard et al. 2009; Katsidoni, Anagnostou et al. 2013) and a small trial in humans suggests attenuation of heroin craving in
humans (Hurd, Yoon et al. 2015). However, CBD has limitations in terms of potency, safety, and oral bioavailability. We believe
that we may be able to address these problems in our fully owned series of side chain modified derivatives, which have been protected
in a non-provisional patent application WO2015/106108A2.
One
of the molecules covered by the patent is KLS-13019, which in pre-clinical studies, including PK studies, has shown evidence of
improved in vitro efficacy, improved safety, and improved oral bioavailability over CBD in side by side preclinical evaluation,
and is not a controlled substance. (Pharmacological Comparisons Between Cannabidiol and KLS-13019, Journal of Molecular Neuroscience,
14 August 2018)
Preliminary
Effects of KLS-13019 in CIPN model: In a preliminary study, we treated eight mice with saline and sixteen mice with paclitaxel
(Days 1, 3, 5, and 7, 8.0 mg/kg IP). Half of the paclitaxel-treated mice were pretreated with KLS-13019 (2.5 mg/kg IP) and half
were pretreated with its vehicle alone. On days 9, 14, and 21 post initiation of injections, mechanical sensitivity was tested
using von Frey filaments and compared with baseline sensitivities prior to treatment (Fig. 3). One-way ANOVA revealed a significant
effect of KLS-13019 on Day 14 to prevent the development of paclitaxel-induced mechanical sensitivity [F(2, 21) =
4.67, p<0.05]. Dunnett’s multiple comparison’s test revealed a significant difference between the saline and paclitaxel
treated groups, but not between the saline and KLS-13019+paclitaxel treated groups. Preliminary flow cytometry results with pooled
cords from three mice in each group revealed that paclitaxel-treated mice had increased numbers of CD4+ T cells and microglia
in the whole spinal cord, and that this increase is prevented by KLS-13019 treatment.
E1.
Aim 1. Research Plan. Determine target for the neuroprotective actions of CBD and KLS-13019. As mentioned above, DRG
neurons are a primary cytotoxic target of chemotherapeutic agents. In addition, spinal microglia have been heavily implicated
in the development and maintenance of neuropathic pain and have shown to become activated in animal models of CIPN. At
the conclusion of Aim 1, we intend to demonstrate that the neuroprotective properties can be reduced by pharmacological or gene
knock-down of a relevant target in a statically significant manner.
E2.
Aim 2. Assess KLS-13019, CBD, and morphine against paclitaxel-induced peripheral neuropathy. At the conclusion of
Aim 2, we intend to have demonstrated that KLS-13019 performs as well as CBD (ip and po) against CIPN and CNS inflammation and
shows no antinociceptive tolerance as compared to morphine.
CIPN
procedure: Experiments are designed to test the efficacy of novel CBD analogues in attenuating established mechanical
sensitivity and inflammation associated with CIPN. Dr. Ward’s laboratory has been using the CIPN procedure for ten years
and has demonstrated that CBD treatment can both prevent the development of (Ward et al 2011, 2014) and reverse established (King
et al in revision, British Journal of Pharmacology) CIPN in mouse models. CBD and KLS-13019 and their vehicle controls
will be tested in groups of mice treated with paclitaxel (8.0 mg/kg IP, days 1, 3, 5 and 7). Testing of each dose for each molecule
will require a final sample size of eight. Molecules will be administered daily for three weeks, starting on Day 11 when peak
mechanical allodynia has already been achieved. In the initial study, CBD (0.05 - 5 mg/kg ip) will be compared with three doses
of KLS-13019 (e.g., 0.05, 0.5 and 5 mg/kg ip) and three doses of morphine (1.0 – 10 mg/kg ip; Neelakantan et al 2016).
This will be followed by a study in which KLS-13019 will be assessed at three oral doses. In preliminary studies, we have dosed
the mice with KLS-13019 (2.5 - 5 mg/kg ip) with no adverse effects. In addition, KLS-13019 was shown to produce no impairment
in the mouse rotorod test at 100 mg/kg po in studies conducted at the Anticonvulsant Screening Program (NIH).
Neuroinflammation
assessment: Immunohistochemistry and flow cytometry will run in the PIs laboratory to evaluate markers of pain and inflammation
associated with neuropathic pain, including astrocytic and microglial activation, CGRP, and T cell infiltration. Given the fact
that we are observing CNS infiltration of T cells that is reversed by treatment with KLS-13019, cranial windows will be surgically
implanted (as described in Ni, Tuma et al 2004) in additional groups of vehicle or KLS-13019 + paclitaxel treated mice prior to
treatment to longitudinally assess the effect of paclitaxel with or without cannabinoid treatment on leukocyte rolling and adhesion
across the development of CIPN.
E2.
Aim 3.Assess KLS-13019 and CBD against reinstatement of morphine seeking. At the conclusion of Aim 3, we intend to
have demonstrated that KLS-13019 attenuates opioid-seeking behavior as well as CBD.
Morphine
Reinstatement: The Principal Investigator has 20 years of experience with behavioral assays with specific expertise in
rodent models of substance abuse, including opioid self-administration. A standard rat model of morphine seeking will be used
(Vassoler et al 2017) wherein rats make lever presses to receive infusions of morphine. Rats will be surgically implanted with
chronically indwelling jugular catheters and trained to self-administer morphine (0.75 mg/kg/inf) in the presence of auditory
and visual cues daily for 20 days, followed by 10 days of extinction wherein the morphine is replaced with saline and the conditioned
cues are eliminated. During the last three days of extinction, rats will be treated with vehicle, CBD (5.0 mg/kg IP), or KLS-13019
(0.5 – 5.0 mg/kg IP). The following day rats will be exposed to a single reinstatement session wherein lever presses
are again paired with auditory and visual cues but saline is delivered instead of morphine. This experimental design is based
on Ren et al 2009 results with CBD on cue-induced reinstatement of heroin seeking in rats.
Status
of Phase 1 STTR Grant Research
On
January 4, 2017, we applied for a Phase 1 Small Business Technology Transfer (“STTR”) grant from the NIH-NIDA. This
grant application was made in collaboration with Temple University and titled “Development of KLS-13019 for Chemotherapy
Induced Peripheral Neuropathy and Drug Dependence”. In December 2017, we were informed that the Phase 1 grant was awarded.
We
have completed all of our work related to the aforementioned grant and are currently in a peer review submission of our research
results to the Journal of Molecular Neuroscience. Temple University has completed all three aims outlined in the grant proposal.
On
December 31, 2019, we, together with Temple University, filed a completion report with NIH-NIDA regarding the Phase 1 STTR grant.
The results of this study were promising and have set forth our plans to file for a Phase 2 grant due for filing on or before
April 7, 2020.
In
April 2020, the Company and Temple University filed for a Phase 2 SBIR Grant with National Institutes of Health – National
Institute of Neurological Disorders and Stroke (“NIH-NINDS”). Our application provided strong support to further the
research and development of our treatment for CIPN. Phase 2 is focused on the development, demonstration and delivery
of the innovation.
In
June 2020, the Company was informed that its Phase 2 SBIR grant application received an impact/priority score of 47. Generally
speaking, impact/priority scores of 10 to 30 are most likely to be funded. Scores between 31 and 45 might be funded; scores greater
than 46 are rarely funded. The Company believed that there were elements of its initial Phase 2 SBIR grant application that were
misunderstood and believed it still had a very strong application. After making several critical changes to the original application,
in January 2021, the Company resubmitted its Phase 2 SBIR grant application with NIH-NINDS and currently awaits response from
NIH-NINDS.
Reduction
in Addiction Based Opiate Dependency – HEAL
According to statistics compiled by the National
Institutes of Health for the HEAL Initiative (Helping End Addiction Long-term), the public health crisis of opioid misuse and
addiction in America is rapidly evolving. More than 47,000 Americans died of opioid overdose in 2017, and more than 2 million
Americans live with addiction to opioids. Moreover, more than 50 million Americans suffer from chronic pain, and of those,
25 million live with daily chronic pain and lack effective and safe non-opioid options for pain management. The widespread
use of opioids to treat acute and chronic pain contributed to the approximately 10.3 million people aged 12 years and older in
the United States in 2018 who misused opioids, including heroin. These staggering numbers are likely underestimates.
They fail to capture the full extent of the damage of the opioid crisis, which reaches across every domain of family and community
life – from lost productivity and economic opportunity, to intergenerational and childhood trauma, to extreme
strain on community resources, including first responders, emergency rooms, hospitals, and treatment centers. With the full support
of the administration, NIH launched the Helping to End Addiction Long-term Initiative, or NIH HEAL Initiative,
to provide scientific solutions to the opioid crisis and offer new hope for individuals, families, and communities affected
by this devastating crisis.
NIH-NINDS
HEAL Initiative
Launched
in April 2018, the NIH Helping to End Addiction Long-term (HEAL) Initiative is an aggressive, trans-agency effort to
speed scientific solutions to stem the national opioid public health crisis. The Initiative will advance research to reduce
the risks of opioid use and misuse and improve pain management, thereby reducing reliance on opioids. NINDS is the lead Institute
for pain research at NIH and leads the Executive Committee of the NIH Pain Consortium, which includes 23 Institutes
and Centers. The NIH Pain Consortium’s mission includes improving the treatment of a variety of pain conditions. NINDS will
focus efforts in the NIH HEAL Initiative in developing non-addictive pain treatments that may displace the need for
opioids, and importantly, serve as effective treatments for acute and chronic pain conditions for which opioids are not effective.
This work will be informed by partners from the government, industry, academia, and patients suffering from pain.
Research
on Pain and Next Generation Analgesics
Although
opioid medications effectively treat acute pain and help relieve chronic pain for some patients, their addiction risk presents
a dilemma for healthcare providers who seek to relieve suffering while preventing drug abuse and addiction. Little is yet known
about the risk for addiction among those being treated for chronic pain or about how basic pain mechanisms interact with prescription
opioids to influence addiction potential. To better understand this, NIDA launched a research initiative on “Prescription
Opioid Use and Abuse in the Treatment of Pain.” This initiative encourages a multidisciplinary approach using both human
and animal studies to examine factors (including pain itself) that predispose or protect against opioid abuse and addiction. Funded
grants cover clinical neurobiology, genetics, molecular biology, prevention, treatment, and services research. This type of information
will help develop screening and diagnostic tools that physicians can use to assess the potential for prescription drug abuse in
their patients. Because opioid medications are prescribed for all ages and populations, NIDA is also encouraging research that
assesses the effects of prescription opioid abuse by pregnant women, children, and adolescents, and how such abuse in these vulnerable
populations might increase the lifetime risk of substance abuse and addiction.
PRIMARY
TARGETS FOR TOPICAL MEDICAMENTS AND MARKET SIZE
The
Company has completed formulation of a topical relief cream for use as an OTC cosmetic skin care product to be marketed under
the trade name of Atopidine®.
Since
mid 2019, the Company has been screening and conducting preliminary research and development of some of its patented, proprietary
cannabidiol-derived new chemical entities (“NCEs”), for use as topical solutions, ointments, and creams for disorders
such as diabetic neuropathies, diabetic ulcers, and for use as an anti-pruritic. (see: Business – Neuropathix Intellectual
Properties)
In
preclinical testing, certain molecules under Patent 9,611,213 were screened for neuroprotection and may have the potential mechanism
of action for reducing inflammation and neuropathic pain. These molecules indicate that they are more soluble than cannabidiol,
also deemed a neuroprotectant with potential anti-inflammatory properties. A molecule that is potentially more water soluble than
cannabidiol in this regard may be good candidate(s) for use in topical applications.
The
Company has completed the following relating to KLS-13022:
|
•
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Preclinical
screening for consumer OTC cosmetic use under CFR 21.
|
|
•
|
Application
to International Nomenclature of Cosmetic Ingredients (INCI) completed to receive a compound
nomenclature for KLS-13022 - Limonenyldihydroxybenzyl Ethoxycarbonyl Azetidine (LEA).
|
|
•
|
Received
a registered trademark from the U.S. Patent and Trademark Office (“USPTO”)
for Atopidine®, to be used as a branded product as a relief cream, containing
LEA, to treat inflammatory disorders like eczema, psoriasis, radiation dermatitis and
excessive UVB radiation (post sun burn).
|
Based
on preclinical testing of LEA versus CBD (cannabidiol) in cultured human epidermal keratinocytes:
|
•
|
LEA
provided better anti-inflammatory activity compared to CBD for TNFa, IL-6 and significantly
more potent that CBD for IL-1b inhibition in UVB irradiation induced inflammation.
|
|
•
|
LEA
decreased CXCL5 levels by 100% after UVB irradiation with IC50 of 0.05 mM. (CXCL5 is
a small cytokine belonging to the chemokine family known as epithelial-derived neutrophil-activating
peptide 78 (ENA-78). It is produced following the stimulation of cells with the inflammatory
cytokines TNFa and IL-1b.)
|
|
•
|
LEA
decreases levels of four (4) inflammatory mediators at concentrations > 65 times less
than toxic levels.
|
|
•
|
LEA
is an antioxidant that does not exhibit cellular irritation and is locally restricted
in its action (antioxidant activity of EC50 at 25 mM).
|
Neuropathic
Pain, Anti-Inflammation, Anti-Pruritic & Skin Ulcers
Target
1: Anti-Puritics (Anti-Itch) – $3.85 Billion Global Market in 2019
In
2019 it is estimated that the top ten product segments for use in U.S. pruritus therapeutics market accounted for USD$448.7 million
in sales of products such as corticosteroids and antihistamines. The global compounded annual growth rate (“CAGR”)
is expected to be 12.5% annually, which predicts a global market size of USD$10.97 billion by 2030, with U.S. sales estimated
at USD$1.295 billion..
Growing
worldwide prevalence of atopic dermatitis, allergic contact dermatitis, and urticaria is expected to drive market growth during
the forecast period. The introduction of new products based on scientific mechanistic understanding such as the identification
of new T-cell subsets, particularly Th17, and Th22 and the patent expiration of PROTOPIC (tacrolimus) is expected to open up new
avenues for manufacturers to capitalize on over the forecast period.
Corticosteroids
remain the leading product segment. Topical applications of corticosteroids have been found to be extremely effective in the treatment
and maintenance therapies pertaining to pruritus. However, according to a 2007 article in American Family Physician, long-term
topical corticosteroid use is associated with local and systemic adverse effects that may lead to the underutilization of these
effective agents. Common local adverse effects include striae, petechiae, telangiectasia, skin thinning, atrophy, and worsening
acne. These effects are reported infrequently in clinical trials, although trials are primarily designed to assess effectiveness
rather than safety and tolerability. Most clinical trials of topical steroids are of short duration and, therefore, are unable
to evaluate long-term toxicity.
Itching
is a sensation that, if sufficiently strong, will provoke scratching or the desire to scratch. It is a frequent and distressing
symptom of various dermatological and systemic diseases. It can also occur in some patients without any skin symptoms. Knowledge
has been accumulated about the initiation of itch by external stimuli, but the neuronal substrate in the skin has not been completely
identified. This has, fortunately, changed to some degree since a group of histamine-sensitive C-fibers were recently identified,
which likely represent the afferent units that mediate itch sensations. Histamine, derived from mast cells, is the best known
pruritogen. It induces different degrees of itching when applied in different concentrations into the skin. In most dermatological
and systemic diseases, except urticaria, histamine is not the main mediator. There are other proinflammatory mediators to consider,
such as substance P, proteases, interleukin-2, acetylcholine, vasoactive intestinal peptide (VIP) and opioid peptides.
Several
key characteristics of the anti-puritics market are set forth below:
•
|
|
Calcineurin
inhibitor is identified as the most lucrative segment of the market on account of high usage rate of these drugs in combination
therapy for the treatment of pruritus in patients suffering from chronic pruritus and growing market penetration rates. Moreover,
the introduction of new products such as Pimecrolimus cream and Tacrolimus ointment is expected to further drive this market.
|
•
|
|
Anti-histamines
owing to its growing use as a first line treatment and presence of drugs in pipeline with expected commercialization is also
expected to grow at a healthy rate during the forecast period.
|
Target 2: Anti Inflammatory – $74
Billion Global Market in 2019
In
a research study published in April 2018 – Global Anti-Inflammatory Therapeutics Market Size, Market Share, Application
Analysis, Regional Outlook, Growth Trends, Key Players, Competitive Strategies and Forecasts, 2018 to 2026 –the Anti-inflammatory
therapeutics market projected to US$ 130.6 Bn by 2026 with CAGR of 8.5% throughout the forecast period from 2018 to 2026. Biologics
and immune selective anti-inflammatory derivatives (ImSAIDs) are the promising drugs classes that will play the main role in the
market. Global anti-inflammatory therapeutics market from 2018-2026 study is based on exhaustive analysis with insights from industry
stakeholders. The detailed study incorporates the market landscape and its growth scenarios for the forecasting period from 2018-2026.
According
to World Health Organization (WHO), around 235 million individuals experience the ill effects of asthma around the globe. Symptomatic
help amid the inflammation gives alleviation to the patients suffering from inflammatory diseases. In spite of the fact that there
are numerous anti-inflammatory drugs present in the market, still, there is an essential requirement for better and novel anti-inflammatory
therapeutics drugs with slighter side effects and improved efficacy.
Based
on the drug types, the global anti-inflammatory therapeutics market is segmented into biologics, corticosteroids, immune selective
anti-inflammatory derivatives (ImSAIDs), and non-steroidal anti-inflammatory drugs (NSAIDs); additionally, the indication studied
in this report are categorized into COPD, multiple sclerosis, IBD, psoriatic arthritis, gout, and Others (Osteoarthritis, Systemic
Lupus, Psoriasis). Rising prevalence of inflammatory diseases and the strong drug pipeline would additionally boost the anti-inflammatory
therapeutics market.
In
addition, they are also difficult to imitate due to their complex molecular structure and origin. The global anti-inflammatory
market has been driven by factors such as increasing autoimmune and respiratory conditions, new drugs in pipeline and increasing
adoption of anti-inflammatory drugs.
In
2014, AstraZeneca had five anti-inflammatory drugs in the final stages of drug development. These drugs are lesinurad, sifalimumab,
anifrolumab, mavrilimumab and brodalumab. The companies have filed new patents to overcome the issues of patent expiries of their
existing drugs, and to gain a prominent market share. The key companies profiled in this report include Pfizer, Inc., Abbvie,
Inc., Johnson & Johnson, GlaxoSmithKline, Merck & CO., Inc., Novartis, F. Hoffman, La Roche AG, Eli Lily and Company,
AstraZeneca PLC, and Amgen.
Target
3: Atopic Dermatitis / Eczema – $3+ Billion Market in North America in 2020
In
a research study published in February 2020 – North America Atopic Dermatitis Treat Market Research Study – the size
of the atopic dermatitis treatment market in North America is valued at USD$2.95 billion in 2020 and is expected to grow at a
CAGR of 13.4% to reach USD$5.52 billion by 2025. Atopic dermatitis is an inflammatory skin disease. The degree of its severity
varies from patient to patient. It usually begins in childhood and is mostly confined to flexural surfaces of the body. It is
highly prevalent. It is more commonly known as eczema. Itching, redness of skin, cracking, and weeping are symptoms of it. It
is a long term disease. Low humidity, cold weather, seasonal allergies are the common causes of it. Pattern of the disease and
its severity determine the kind of treatment a patient with eczema is to receive.
The
Eczema Therapeutics Market is Dominated by Topical Corticosteroids (TCSs)
Current
competition in the eczema therapeutics market contains conventional forms of therapy such as topical corticosteroids, topical
immunomodulators and emollients as the most prominent therapies. Among all the available treatment options, topical corticosteroids
hold a large share and dominate the market. Topical corticosteroids are available in various strengths (mild, moderate, potent
and very potent) and formulations (ointment, cream, lotion and many more), so that they can be used according to the severity
of eczema. Calceurin inhibitors (Protopic (tacrolimus) and Elidel (pimecrolimus)) showed higher efficacy in comparison to corticosteroids
and these products were widely used after their respective launches. However, in 2005 the FDA issued black box warnings for the
calceurin inhibitors (Protopic and Elidel), which has resulted in declining sales of these products. Emollients have good efficacy
as well as good safety. They hydrate, moisturize and repair the skin. These products do not offer first line treatment, but they
are useful as maintenance therapy in eczema patients.
Significant
Unmet Need in Eczema Therapeutics Market Could Drive Market
Eczema
is a chronic condition characterized by frequent relapses known as flare-ups. The market has various products that are effective,
but their safety profile is not always satisfactory, leaving a significant unmet need in the market. The unmet need is also a
result of the lack of effective treatment options for severe conditions; the need for a controlled and targeted drug delivery
system; low patience compliance and the black box warnings issued to Elidel and Protopic. The unmet need in eczema therapeutics
could be filled by a new entrant with a better safety profile, enhanced patient compliance, and competitive pricing with respect
to the available products.
Target
4: Psoriasis – $5+ Billion Market in North America in 2019
Psoriasis
is a common chronic skin disorder. It is also associated with several comorbidities, such as obesity, hypertension, psoriatic
arthritis, depression, and diabetes. Psoriasis is characterized by skin flares and inflammation that vary in severity, from minor
localized patches to substantial body surface involvement. Around 20% of diagnosed patients have moderate to severe psoriasis.
Currently, in the United States, psoriasis is a $8.48 billion market in 2019, of which 90% are from drugs targeting moderate to
severe psoriasis patients where the skin manifestation affects more than 3% of the body. See Treatment of Psoriasis in
Adults – Steven R. Feldman, MD, PhD, August 24, 2018. For such patients, psoriasis is often a debilitating
condition impacting their quality of life and psychological well-being. Over the past decade, biologics have altered the landscape
in the management of moderate to severe psoriasis by achieving improved skin clearance, control of symptoms and quality of life
for hundreds of thousands of individuals affected.
Psoriasis
is linked to pathogenesis caused by dysregulation of T-cell-dependent immune response, as well as hyperproliferation of keratinocytes,
the predominant cell type on the outer layer of skin. Biologics target the cytokines usually upregulated as a result of the abnormal
immune response.
Target
5: Diabetic Foot Ulcers – $3+ Billion Market in U.S.
The
market for Diabetic Foot Ulcers in the U.S. is $3+ billion and growing. There are 29 million people living with diabetes and 86
million pre-diabetics in the U.S. Approximately 25% of diabetics will acquire a non-healing ulcer in their lifetime, which equates
to approximately 3 million diabetic ulcers annually. Diabetic foot ulcers lead to over 73,000 amputations annually at a cost that
is estimated to exceed $5 billion annually. Hospitalization costs are approximately $20,000 per patient with diabetic foot ulcers
and $70,000 for an amputation. The global numbers are more startling. 400 million people are currently living with diabetes worldwide
and that number is expected to increase to approximately 600 million by 2035.
The
current approach to treating diabetic foot ulcers requires offloading the wound by using appropriate therapeutic footwear, daily
saline or similar dressings to provide a moist wound environment, debridement when necessary, antibiotic therapy
if osteomyelitis or cellulitis is present, optimal control of blood glucose, and evaluation and correction of
peripheral arterial insufficiency. Wound coverage by cultured human cells or heterogeneic dressings/grafts, application
of recombinant growth factors, and hyperbaric oxygen treatments also may be beneficial at times, but only if arterial
insufficiency is not present. Among people with diabetes, most severe foot infections that ultimately require some part of the
toe, foot or lower leg to be amputated start as a foot ulcer. See Diabetic Ulcers Treatment & Management, V.L.
Rowe, MD, R. Khardori MD, PhD, FACP, Medscape, March 12, 2018.
Foot
ulcers are especially common in people who have one or more of the following health problems:
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Peripheral
neuropathy. This is nerve damage in the feet or lower legs. Diabetes is the most common cause of peripheral neuropathy.
When nerves in the feet are damaged, they can no longer warn about pain or discomfort. When this happens, tight-fitting shoes
can trigger a foot ulcer by rubbing on a part of the foot that has become numb. People with peripheral neuropathy may not
be able to feel when they've stepped on something sharp or when they have an irritating pebble in their shoes. They can injure
their feet significantly and never know it, unless they examine their feet routinely for injury.
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Many
elderly people and diabetics with vision problems also can't see their feet well enough to examine them for problems.
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Circulatory
problems. Any illness that decreases circulation to the feet can cause foot ulcers. Less blood reaches the feet,
which deprives cells of oxygen. This makes the skin more vulnerable to injury, and it slows the foot’s ability to heal.
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Poor
circulation in the leg arteries is called peripheral artery disease. It also causes pain in the leg or buttock during walking.
It is caused by atherosclerosis. This is a disease in which fatty deposits of cholesterol build up inside arteries.
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Abnormalities
in the bones or muscles of the feet. Any condition that distorts the normal anatomy of the foot can lead to foot
ulcers. This is particularly true if the foot is forced into shoes that don’t fit the foot’s altered shape. Examples
are claw feet, feet with fractures, and cases of severe arthritis.
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More
than any other group, people with diabetes have a particularly high risk of developing foot ulcers. This is because the long-term
complications of diabetes often include neuropathy and circulatory problems. Without prompt and proper treatment, a foot ulcer
may require hospital treatment. Or, it may lead to deep infection or gangrene and amputation.
Governmental
Regulations
Manufacturing
Although
we would be reliant upon the manufacturing of our target drug candidates and API from well-established manufacturers, manufacturers
of therapeutic products and their facilities are subject to continual review and periodic inspections by the FDA, the EMA and
other comparable foreign regulatory authorities for compliance with current good manufacturing practices (“cGMP”)
regulations.
Further,
manufacturers of controlled substances must obtain and maintain necessary DEA and state registrations and registrations with applicable
foreign regulatory authorities and must establish and maintain processes to ensure compliance with DEA and state requirements
and requirements of applicable foreign regulatory authorities governing, among other things, the storage, handling, security,
recordkeeping and reporting for controlled substances.
If
we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity
or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on
that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension
of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with
applicable regulatory requirements, a regulatory agency may, among other things:
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issue
untitled letters or warning letters;
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mandate
modifications to promotional materials or require us to provide corrective information
to healthcare practitioners;
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require
us to enter into a consent decree, which can include imposition of various fines, reimbursements
for inspection costs, required due dates for specific actions and penalties for noncompliance;
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seek
an injunction or impose civil or criminal penalties or monetary fines;
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suspend
or withdraw regulatory approval;
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suspend
any ongoing clinical trials;
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refuse
to approve pending applications or supplements to applications filed by us; or
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require
us to initiate a product recall.
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The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and may otherwise
have a material adverse effect on our business, financial condition and results of operations.
Regulation
of CBD
KLS-13023
contains controlled substances as defined in the CSA. Controlled substances that are pharmaceutical products are subject to a
high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security,
recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances
into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances, by definition, have a high potential for
abuse, have no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision,
and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States
may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse
or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject
to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for
importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without
a new prescription.
While
cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain cannabis or
cannabis extracts must be placed in Schedules II - V, since approval by the FDA satisfies the “accepted medical use”
requirement. If and when KLS-13023 receives FDA approval, the DEA will make a scheduling determination and place it in a schedule
other than Schedule I in order for it to be prescribed to patients in the United States. If approved by the FDA, we expect the
finished dosage forms of KLS-13023 to be listed by the DEA as a Schedule II or III controlled substance. Consequently, their manufacture,
importation, exportation, domestic distribution, storage, sale and legitimate use will be subject to a significant degree of regulation
by the DEA. The scheduling process may take one or more years beyond FDA approval, thereby significantly delaying the launch of
KLS-13023. Furthermore, if the FDA, DEA or any foreign regulatory authority determines that KLS-13023 may have potential for abuse,
it may require us to generate more clinical data than that which is currently anticipated, which could increase the cost and/or
delay the launch of KLS-13023.
Because
KLS-13023 contains active ingredients of cannabis, which are Schedule I substances, to conduct pre-clinical studies and clinical
trials with KLS-13023 in the United States prior to approval, each of our research sites must submit a research protocol to the
DEA and obtain and maintain a DEA researcher registration that will allow those sites to handle and dispense with KLS-13023 and
to obtain the product from our manufacturer. If the DEA delays or denies the grant of a research registration to one or more research
sites, the pre-clinical studies or clinical trials could be significantly delayed, and we could lose and be required to replace
clinical trial sites, resulting in additional costs.
We
expect that KLS-13023 will be scheduled as Schedule II or III, as a result of which we will also need to identify wholesale distributors
with the appropriate DEA registrations and authority to distribute the products to pharmacies and other healthcare providers,
and these distributors would need to obtain Schedule II or III distribution registrations. The failure to obtain, or delay in
obtaining, or the loss of any of those registrations could result in increased costs to us. If KLS-13023 is a Schedule II drug,
pharmacies would have to maintain enhanced security with alarms and monitoring systems and they must adhere to recordkeeping and
inventory requirements. This may discourage some pharmacies from carrying the product. Furthermore, state and federal enforcement
actions, regulatory requirements, and legislation intended to reduce prescription drug abuse, such as the requirement that physicians
consult a state prescription drug monitoring program, may make physicians less willing to prescribe, and pharmacies to dispense,
Schedule II products.
We
may manufacture the commercial supply of KLS-13023 outside of the United States. If KLS-13023 is approved by the FDA and classified
as a Schedule II or III substance, an importer can import for commercial purposes if it obtains from the DEA an importer registration
and files an application with the DEA for an import permit for each import. The DEA provides annual assessments/estimates to the
International Narcotics Control Board, which guides the DEA in the amounts of controlled substances that the DEA authorizes to
be imported. The failure to identify an importer or obtain the necessary import authority, including specific quantities, could
affect the availability of KLS-13023 and have a material adverse effect on our business, results of operations and financial condition.
In addition, an application for a Schedule II importer registration must be published in the Federal Register, and there is a
waiting period for third party comments to be submitted.
Individual
states have also established controlled substance laws and regulations. Though state-controlled substance laws often mirror federal
law, because the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states
automatically schedule a drug based on federal action, other states schedule drugs through rulemaking or a legislative action.
State scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling
could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate
state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical
trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions by the
states in addition to those from the DEA or otherwise arising under federal law.
We
currently obtain the API for KLS-13023 from a bulk manufacturer of pharmaceutical grade API in Switzerland. For KLS-13023, we
plan to conduct Phase 1 clinical trials in Australia, subject to applicable regulatory approval. In addition, we may decide to
develop, manufacture or commercialize our product candidates in additional countries. As a result, KLS-13023 will also be subject
to controlled substance laws and regulations from the Therapeutic Goods Administration in Australia, Health Canada’s Office
of Controlled Substances in Canada, and from other regulatory agencies in other countries where we may develop, manufacture or
commercialize KLS-13023 in the future. We plan to submit NDA for KLS-13023 to the FDA upon completion of all requisite clinical
trials and will require additional DEA approvals at such time as well.
On
September 27, 2018, the DOJ and DEA announced that Epidiolex, the newly approved medication by the Food & Drug Administration,
was being placed in Schedule V of the Controlled Substances Act, the least restrictive schedule of the CSA. On June 26, 2018,
the FDA announced it approved Epidiolex for the treatment of seizures associated with two rare and severe forms of epilepsy, Lennox-Gastaut
syndrome and Dravet syndrome, in patients two years of age and older. Epidiolex contains CBD.
The
CBD in Epidiolex is extracted from the cannabis plant and is the first FDA-approved drug to contain a purified extract from the
plant. Schedule V drugs represents the least potential for abuse. Schedule V drugs, substances, or chemicals are defined
as drugs with lower potential for abuse than Schedule IV and consist of preparations containing limited quantities of certain
narcotics. Schedule V drugs are generally used for antidiarrheal, antitussive, and analgesic purposes. Some examples of Schedule
V drugs are: cough preparations with less than 200 milligrams of codeine or per 100 milliliters (Robitussin AC), Lomotil, Motofen,
Lyrica, Parepectolin.
Despite
the approvals by the FDA and DEA for Epidiolex, any of these foregoing factors, many of which are beyond our control, could jeopardize
our ability to obtain regulatory approval for and successfully market KLS-13019 or KLS-13023. Moreover, because our business is
almost entirely dependent upon these two product candidates, any such setback in our pursuit of regulatory approval would have
a material adverse effect on our business and prospects.
KLS-13019
does not contain CBD and is a new chemical entity that would not fall under the CSA or be deemed a Schedule 1 controlled substance.
KLS-13023
is a formulation that does contain CBD. At present, CBD is deemed a Schedule 1 controlled substance by the DEA under the CSA.
Like the drug molecule EpidiolexÒ, which was recently approved by the FDA for marketing and sale for use in treating Dravet’s
Syndrome and Lennox-Gasteau Syndrome (forms of child epilepsy), KLS-13023 would need to follow the guidance set forth by the CSA,
complete a successful human clinical trial and apply for rescheduling, as was the case with EpidiolexÒ, now a Schedule
5 drug.
On
January 14, 2019, we received written notice from the DEA Drug and Chemical Evaluation Section, as follows: “Please be advised
that your material meets the definition of ‘Hemp’ and is not regulated under the CSA, as long as it consists of high
purity Cannabidiol (CBD) that contains approximately 0.1% delta-9- THC. (However, if it contains more than 0.3% delta-9 THC, it
is considered ‘Marihuana’ and would be in Schedule 1 of the CSA).” While this notice is an official notice from
the DEA regarding the scheduling of high purity CBD, we will continue to abide by the CSA in all respects with regards to our
treatment and handling of CBD.
The
active pharmaceutical ingredient (“API”) found in KLS-13023 is highly purified synthetic CBD produced by Purisys.
Purisys has been manufacturing cannabidiol since 2016 (DMF33223). Today, through our partnership with Purisys, we have the ability
to produce on the largest commercial scale. Purisys’ ultra-high purity CBD (“Purisys CBD”) is attractive for
drug development projects and falls significantly below the 0.3% THC limits set in the 2018 Farm Bill for use in consumer products. Purisys’
patent-protected manufacturing process produces a consistently odorless, tasteless white powder highest-purity form of CBD that
exhibits:
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No
heavy metals (e.g. lead) from soil;
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No
environmental influences on quality such as rain, sunlight & soil nutrients;
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No
plant impurities to remove;
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No
microbial or mold proliferation; and
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No
structural (or stereo chemical) differences exist between an active cannabinoid ingredient
manufactured by Purisys and those that are chemically extracted and isolated from plants.
They are, in effect, nature-identical.;
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Purisys
currently has a drug master file (“DMF”) for its ultra-high purity CBD with the FDA. In November 2019, Purisys received
advise notice from the DEA that the Purisys CBD has been removed from Schedule 1 of the CSA.
On
March 11, 2021, the chairman of the House Judiciary Committee, announced that the Marijuana Opportunity, Reinvestment and Expungement
(MORE) Act, introduced in 2019, which passed in the U.S. House of Representatives in December 2020, will be re-filed in 2021,
seeking ratification by the Senate.
If
passed by the U.S. Senate, the MORE Act would deschedule cannabis from the Controlled Substances Act and enact various criminal
and social justice reforms to cannabis, including the expungement of prior convictions. The MORE Act also seeks to tax cannabis
products at 5% to fund criminal and social reform projects, including an Office of Cannabis Justice within the Department of Justice
Office of Justice Programs responsible for administering grants to aid communities negatively affected by the war on drugs. (See:
Controlled Substances Laws and Regulations).
Foreign
Regulatory Agencies
EMA
In
order to market and sell our products in jurisdictions other than the United States and the European Union, we must obtain separate
marketing approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the
United States and the European Union generally includes all of the risks associated with obtaining FDA and EMA approval, but can
involve additional testing. We may need to partner with third parties in order to obtain approvals outside the United States and
the European Union. In addition, in many countries worldwide, it is required that the product be approved for reimbursement before
the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United
States and the European Union on a timely basis, if at all. Even if we were to receive approval in the United States or the European
Union, approval by the FDA or the EMA does not ensure approval by regulatory authorities in other countries or jurisdictions.
Similarly, approval by one regulatory authority outside the United States and the European Union would not ensure approval by
regulatory authorities in other countries or jurisdictions or by the FDA or the EMA. We may not be able to file for marketing
approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval
of our product candidates by regulatory authorities in other foreign jurisdictions, the commercial prospects of those product
candidates may be significantly diminished and our business prospects could decline.
Therapeutic
Goods Administration (TGA)
Clinical
trials conducted in Australia are subject to various regulatory controls to ensure the safety of participants. The TGA regulates
the use of therapeutic goods supplied in clinical trials in Australia under the therapeutic goods legislation.
Clinical
trial sponsors must be aware of the requirements to import, export, manufacture and supply therapeutic goods in Australia. The
following avenues provide for the importation into and/or supply in Australia of ‘unapproved’ therapeutic goods for
use in a clinical trial:
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Clinical
Trial Notification (“CTN”) scheme; and
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Clinical
Trial Exemption (“CTX”) scheme.
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The
CTN Scheme is a notification process involving the following:
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The
Australian clinical trial sponsor must notify us of the intent to sponsor a clinical trial involving an ‘unapproved’
therapeutic good. This must take place before starting to use the goods. The notification form must be submitted online and
accompanied by the relevant fee.
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We
may give the sponsor of the trial written notice to provide specified information relating to goods notified in the CTN form.
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We
do not evaluate any data relating to the clinical trial at the time of submission. The Human Research Ethics Committee (“HREC”)
reviews the scientific validity of the trial design, the balance of risk versus harm of the therapeutic good, the ethical
acceptability of the trial process, and approves the trial protocol. The HREC is also responsible for monitoring the conduct
of the trial.
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The
institution or organization at which the trial will be conducted, referred to as the ‘Approving Authority,’ gives
the final approval for the conduct of the trial at the site, having due regard to advice from the HREC
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It
is the responsibility of the sponsor to ensure that all relevant approvals are in place before supplying the ‘unapproved’
therapeutic goods in the clinical trial.
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The
CTX Scheme is an approval process involving the following:
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A
sponsor submits an application to us seeking approval to supply ‘unapproved’ therapeutic goods in a clinical trial.
The application must be accompanied by the relevant fee.
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We
evaluate summary information about the product including relevant, but limited, scientific data (which may be preclinical
and early clinical data) prior to the start of a trial.
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The
HREC is responsible for considering the scientific and ethical issues of the proposed trial protocol.
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The
sponsor must notify us of each trial conducted using the unapproved therapeutic good(s) approved in the CTX application.
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Clinical
trials that do not involve ‘unapproved’ therapeutic goods are not subject to requirements of the CTN or CTX schemes.
It is the responsibility of the Australian clinical trial sponsor to determine whether a product is considered an ‘unapproved’
therapeutic good.
Clinical
trials that do not involve ‘unapproved’ therapeutic goods are not subject to requirements of the CTN or CTX schemes.
It is the responsibility of the Australian clinical trial sponsor to determine whether a product is considered an ‘unapproved’
therapeutic good.
On
September 27, 2013, the TGA approved Nabiximols (Sativex ®), a pharmaceutical manufactured by GW Pharmaceuticals
for its collaborator Novartis Pharmaceuticals Australia Pty Limited, in the treatment for symptom improvement in patients with
moderate to severe spasticity due to multiple sclerosis (“MS”) who have not responded adequately to other anti-spasticity
medication and who demonstrated clinically significant improvement in spasticity related symptoms during the initial trial of
therapy.
In
Australia, in 2014, the Advisory Council on Medicines Scheduling recommended rescheduling CBD from a prohibited substance to being
a prescription medicine because, according to the Advisory Council on Medicines Scheduling, “there is a low risk of misuse
or abuse as cannabidiol does not possess psychoactive properties.” The TGA accepted this recommendation, and the decision
took effect in July 2015.
CBD
is one of the cannabinoids which may be extracted as a therapeutic good from cannabis. From June 1, 2015, cannabidiol has been
included under Schedule 4 (S4) Prescription Only Medicine of the Poisons Standard (/publication/poisonsstandard-susmp) when preparations
for therapeutic use contain 2% or less of other cannabinoids found in cannabis.
In
February 2016, the Australian Federal Government passed legislation that amended the Narcotic Drugs Act, allowing the supply of
suitable medicinal cannabis products for the management of painful and chronic conditions. This legislation does not relate to
the decriminalization of cannabis for general cultivation or recreational use and it does not include the provision of medicinal
grade herbal cannabis, only processed, non-smokable medicinal grade products.
Much
of the detail remains unclear. For example, the legislation does not specify which products will be covered under the amendment,
and it does not specify which particular conditions or symptoms will be eligible for treatment with cannabis-based products. Before
products can be prescribed, they must be registered with the Therapeutic Goods Administration (TGA) or, in rare circumstances,
receive special approval from the TGA. The registration process requires evidence of testing and efficacy and it is therefore
unlikely Australia will see a TGA registered medicinal cannabis product that GPs can prescribe any time soon. Whilst there are
currently no cannabis-based products that are lawfully produced in Australia, the medicinal use of pharmaceutical products containing
cannabinoids is not prohibited, as long as authorization for prescribing is granted from the Commonwealth Therapeutic Goods Administration
and at this point in time, NSW Health.
Raw
Materials and Product Manufacturing
The
Company does not currently manufacture any API and relies solely upon third party manufacturers to produce research quantities
of its compounds, KLS-13019; KLS-13022; and KLS-13023, in the 5 gram to 100 gram scale for its preclinical research.
For
the KLS-13023 compound, the Company relies upon Purisys to produce a highly purified synthetic CBD. Purisys has been manufacturing
cannabidiol since 2016 (DMF33223). Today, through our partnership with Purisys, we have the ability to produce on the largest
commercial scale. Purisys’ ultra-high purity CBD (“Purisys CBD”) is attractive for drug development projects
and falls significantly below the 0.3% THC limits set in the 2018 Farm Bill for use in consumer products. Purisys’
patent-protected manufacturing process produces a consistently odorless, tasteless white powder highest-purity form of CBD that
exhibits:
•
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No
heavy metals (e.g. lead) from soil;
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•
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No
environmental influences on quality such as rain, sunlight & soil nutrients;
|
•
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No
plant impurities to remove;
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•
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No
microbial or mold proliferation; and
|
•
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No
structural (or stereo chemical) differences exist between an active cannabinoid ingredient
manufactured by Purisys and those that are chemically extracted and isolated from plants.
They are, in effect, nature-identical.
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Purisys
currently has a drug master file (“DMF”) for its ultra-high purity CBD with the FDA. In November 2019, Purisys received
advise notice from the DEA that the Purisys CBD has been removed from Schedule 1 of the CSA.
In
the event the Company pursues a strategy to move KLS-13023 into FDA clinical trials, it has set up a manufacturing process utilizing
Purisys as the bulk API producer of ultra-high purity CBD and Catalent Pharma Solutions (“Catalent”), a manufacturer
of formulated and packaged pharmaceuticals, will enable us to meet our objectives in the production of target drug candidates
that can be used in clinical trials and, beyond successful clinical trials, meet patient demand in commercial sales for each of
our target disease indications. (See: Neuropathix Studies on CBD)
Environmental
Matters
No
significant pollution or other types of hazardous emission result from our current operations, and we do not anticipate that our
operations will be materially affected by federal, state or local provisions concerning environmental controls. Our costs of complying
with environmental, health and safety requirements have not been material. Furthermore, compliance with federal, state and local
requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment,
have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position
of the Company. However, we will continue to monitor emerging developments in this area.
Competition
There
are several companies developing cannabinoid therapeutics for a range of medical indications. The cannabinoid therapeutic area
currently includes formulated extracts of the Cannabis plant and synthetic formulations. These formulations include
CBD or THC, or a combination of CBD and THC as the active pharmaceutical ingredient. Certain companies such as GW Pharmaceuticals
plc have focused on plant-based CBD formulations, while other companies such as Zynerba Pharmaceuticals, Inc. and Insys Therapeutics,
Inc. have focused on synthetic CBD formulations.
Employees
We
currently have seven full time employees. We plan to increase the number of employees in the areas of regulatory affairs, clinical
research and testing, and marketing in 2021. There are no collective-bargaining agreements with our employees, and we have not
experienced work interruptions or strikes. We believe our relationship with employees is good and we provide health and life insurance
for all employees.
Company
Website
We
maintain a corporate Internet website at: www.neuropathix.com.
The
contents of our website are not incorporated in or otherwise to be regarded as part of this Annual Report on Form 10-K.
We
file reports with the Securities and Exchange Commission (“SEC”), which are available on our website free of charge.
These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, “Section
16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as
reasonably practical after we electronically file such materials with or furnish them to the SEC. In addition, the SEC maintains
a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC, including the Company.
ITEM
1A. RISK FACTORS.
Investing
in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other
information in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common
stock. The occurrence of any of the events or developments described below could harm our business, financial condition, operating
results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part
of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may
impair our business operations.
Summary
of Risk Factors
Our
business is subject to a number of risks that could cause actual results to differ materially from those indicated by forward-looking
statements made in this Annual Report on Form 10-K or presented elsewhere from time to time. The following is a summary of the
principal risk factors associated with an investment in our securities. Further details regarding each risk included in the summary
can be found further below.
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We
have never generated any product revenues, and do not expect to become profitable in
the near future, if ever;
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We
have incurred significant losses since our inception and anticipate that we will continue
to incur losses in the foreseeable future;
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There
is substantial doubt about our ability to continue as a going concern, and we will require
additional capital to fund our operations, including clinical trials for our product
candidates, which may not be available on favorable terms, if at all;
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The
COVID-19 pandemic and actions taken by governmental authorities to mitigate its spread
has significantly impacted economic conditions, and a future outbreak of COVID-19 or
another highly contagious disease, could adversely affect our business activities, results
of operations and financial condition;
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We
are largely dependent on the success of our product candidates, KLS-13019 and KLS-13023,
which are still in preclinical development and will require significant capital resources
and years of clinical development effort;
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We
may not be able to commence clinical trials in 2021, and even if our product candidates
do advance into clinical trials, we may experience difficulties in managing our growth
and expanding our operations;
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We
are subject to significant regulatory requirements, both within the United States and
in certain foreign jurisdictions, which may result in, amongst other things, significant
delays in our ability to commence clinical trials, if we are ever approved to do so;
failure to obtain regulatory approval for our product candidates; difficulties marketing
our products, if we obtain approval to do so; and significant costs;
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Cannabis,
including derivatives thereof, currently remain illegal under federal law, and it is
unclear when, if ever, that may change;
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Our
product candidates, if approved, may be unable to achieve broad market acceptance and,
consequently, limit our ability to generate revenue from new products;
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Any
inability to attract and retain qualified key management and technical personnel would
impair our ability to implement our business plan;
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We
face significant competition, which may result in other discovering, developing or commercializing
products before us or more successfully than we do;
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We
rely on third parties to conduct, supervise and monitor our preclinical and clinical
trials, and if those third parties perform in an unsatisfactory manner, we may not be
able to obtain regulatory approval for or commercialize our product candidates;
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We
rely on third-party manufacturers and suppliers and we intend to rely on third parties
to produce preclinical, clinical and commercial supplies of active pharmaceutical ingredients,
or APIs, for KLS-13019 and KLS-13023;
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If
we are unable to protect our intellectual property rights or if our intellectual property
rights are inadequate to protect our technology and product candidates, our competitive
position could be harmed;
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We
may become involved in lawsuits to protect or enforce our intellectual property, which
could be expensive, time consuming and unsuccessful and have a material adverse effect
on the success of our business;
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We
may not be able to protect our intellectual property rights throughout the world, and
in developing countries in particular;
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We
do not know whether an active, liquid and orderly trading market will develop for our
common stock or what the market price of our common stock will be and, as a result, it
may be difficult for you to sell your shares of our common stock;
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The
market price of our stock may be volatile, and you could lose all or part of your investment;
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Our
common stock is classified as a “penny stock” under SEC Rules and Regulations,
which means there may be very limited trading market for our shares;
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Insiders
have substantial influence over us and could delay or prevent a change in corporate control;
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Because
we do not anticipate paying any cash dividends on our capital stock in the foreseeable
future, capital appreciation, if any, will be your sole source of gain; and
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We
have issued preferred stock with designations, rights and preferences that are superior
to that of our common stock, and we may issue additional shares of preferred stock in
the future.
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Risks
Related to Our Financial Position and Capital Needs
We
have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.
We
are a preclinical stage specialty pharmaceutical company, engaged in developing next-generation synthetic cannabinoid therapeutics.
Since our inception in August 2010, we have devoted substantially all of our resources to the development of our product candidates,
KLS-13019 and KLS-13023. We have generated significant operating losses since our inception. Our net (losses) income for the years
ended December 31, 2020 and 2019 were approximately $(4.5 million) and $(3.5 million), respectively. As of December 31, 2020,
we had an accumulated deficit of $13,033,363. Substantially all of our losses have resulted from expenses incurred in connection
with our research and development programs and from general and administrative costs associated with our operations.
We
expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses will
increase as we continue the research and development of, and clinical trials for, our product candidates. In addition to budgeted
expenses, we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely
affect our business. If either of our product candidates fails in clinical trials or does not gain regulatory approval, or even
if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future,
we may not be able to sustain profitability in subsequent periods.
Due
to our limited operating history and history of losses, any predictions about our future success, performance or viability may
not be accurate.
We
currently have no commercial revenue and may never become profitable.
To
date, the only revenue we have generated has been from the receipt of research grants and payments for research services. Our
ability to generate revenue and become profitable depends upon our ability to obtain regulatory approval for, and successfully
commercialize, KLS-13019, KLS-13023 or other product candidates that we may develop, in-license or acquire in the future.
Even
if we are able to successfully achieve regulatory approval for these product candidates, we do not know what the reimbursement
status of our product candidates will be or when any of these products will generate revenue for us, if at all. We have not generated,
and do not expect to generate, any product revenue for the foreseeable future, and we expect to continue to incur significant
operating losses for the foreseeable future due to the cost of research and development, preclinical studies and clinical trials,
and the regulatory approval process for our product candidates. The amount of future losses is uncertain and will depend, in part,
on the rate of growth of our expenses. Our ability to generate revenue from our product candidates also depends on a number of
additional factors, including, without limitation, our ability to:
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successfully
complete development activities, including the remaining preclinical studies and planned
clinical trials for our product candidates;
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complete
and submit New Drug Applications (“NDAs”) to the FDA, and Marketing Authorization
Applications (“MAAs”) to the European Medicines Agency (the “EMA”),
and obtain regulatory approval for indications for which there is a commercial market;
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complete
and submit applications to, and obtain regulatory approval from, other foreign regulatory
authorities;
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manufacture
any approved products in commercial quantities and on commercially reasonable terms;
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develop
a commercial organization, or find suitable partners, to market, sell and distribute
approved products in the markets in which we have retained commercialization rights;
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achieve
acceptance among patients, clinicians and advocacy groups for any products we develop;
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obtain
coverage and adequate reimbursement from third parties, including government payors;
and
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set
a commercially viable price for any products for which we may receive approval.
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We
are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability.
Even if we are able to complete the processes described above, we anticipate incurring significant costs associated with commercializing
our product candidates.
There
is substantial doubt about our ability to continue as a going concern.
On
March 30, 2021, the report of our independent registered public accounting firm on our December 31, 2020 audited financial statements
includes an explanatory paragraph referring to our ability to continue as a going concern. As of December 31, 2020 and 2019, we
had cash balances of $21,874 and $121,455, respectively. Management plans to raise additional capital through the issuance of
common stock shares through the sale of registered securities and private investment in public equity. We expect that between
our existing cash, cash equivalents and cash raised through our debt offering we will be able to sufficiently fund our operations
and capital requirements for the next 12 months. Additional funding will be required to continue our R&D and other operating
activities, as we have not reached successful commercialization of our products. These circumstances cast significant doubt as
to our ability to continue as a going concern.
We
will require additional capital to fund our operations, and if we fail to obtain necessary financing, we will not be able to complete
the development and commercialization of KLS-13019 or KLS-13023.
Our
operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial and increasing
amounts to conduct further research and development, preclinical testing and clinical trials of our product candidates, to seek
regulatory approvals and reimbursement for our product candidates, and to launch and commercialize any product candidates for
which we receive regulatory approval.
As
of December 31, 2020, we had $21,874 in cash and cash equivalents. We expect that between our existing cash, cash equivalents
and continuing cash raises through our debt offering we will be able to sufficiently fund our operations and capital requirements
through April 2022. We believe that these available funds will be sufficient to complete a Phase 1 clinical trials for KLS-13019
for patients with chemotherapy induced peripheral neuropathy. We anticipate, based on current estimates, that costs associated
Phase 1 clinical trials for KLS-13019 will be approximately $2.75 million.
Our
management believes that we will need to seek additional sources of capital to facilitate and carry out our business plan of proceeding
with commencing a Phase 2 clinical trial for KLS-13019 for patients with chemotherapy induced peripheral neuropathy; commencing
a Phase 1 clinical trial for KLS-13019 for patients suffering from the effects of mild traumatic brain injury; and commencing
a Phase 1 clinical trial for KLS-13023 for patients suffering with OHE. The cost of commencing and conducting these trials will
likely be in the tens of millions of dollars.
The
progress of KLS-13019 and KLS-13023 for the target indication is uncertain due to numerous factors, including, without limitation,
the rate of progress of clinical trials, the results of preclinical studies and clinical trials for such indication, the costs
and timing of seeking and obtaining FDA and other regulatory approvals for clinical trials, and FDA guidance regarding clinical
trials for such indication. In addition, it is difficult to predict our spending for our product candidates prior to obtaining
FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate,
and we may need to spend more cash than currently expected because of circumstances beyond our control. For these reasons, we
are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities.
Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
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the
initiation, progress, timing, costs and results of preclinical studies and clinical trials
for our product candidates;
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the
clinical development plans we establish for our product candidates;
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the
number and characteristics of product candidates that we develop or may in-license;
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the
terms of any collaboration agreements we may choose to execute;
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the
outcome, timing and cost of meeting regulatory requirements established by the DEA, the
FDA, the EMA or other comparable foreign regulatory authorities;
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the
cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual
property rights;
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the
cost of defending intellectual property disputes, including patent infringement actions
brought by third parties against us;
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the
effect of competing product and market developments;
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costs
and timing of the implementation of commercial scale manufacturing activities; and
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the
cost of establishing, or outsourcing, sales, marketing and distribution capabilities
for any product candidates for which we may receive regulatory approval in regions where
we choose to commercialize our products on our own.
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We
cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional
capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the
development or commercialization of one or more of our product candidates or one or more of our other research and development
initiatives.
Our
federal and state government grants could subject us to audits and could require us to repay substantial amounts of funds previously
awarded to us.
To
date, most of our revenue has been from the receipt of state and federal research grants. In connection with these grants, we
may be subject to routine audits by government agencies. As part of an audit, these agencies may review our performance, cost
structures and compliance with applicable laws, regulations, policies and standards and the terms and conditions of the grant.
If any of our expenditures are found to be unallowable or allocated improperly, or if we have otherwise violated terms of the
grant, the expenditures may not be reimbursed and/or we may be required to repay funds already disbursed. Accordingly, an audit
could result in a material adjustment to our results of operations and financial condition.
Raising
additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights
to our technologies or product candidates.
We
may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships
and alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, existing ownership interests will be diluted and the terms of such financings may include liquidation or other
preferences that adversely affect the rights of existing stockholders. Debt financings may be coupled with an equity component,
such as warrants to purchase shares, which could also result in dilution of our existing stockholders’ ownership. The incurrence
of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such
as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens
being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and
intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with
third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable
to us.
Risks
Related to our Business and Industry
Our
business may be subject to risks arising from pandemic, epidemic, or an outbreak of diseases, such as the outbreak of COVID-19.
If
a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or elsewhere, our business may be adversely
affected.
COVID-19
has spread worldwide and has resulted in government authorities implementing numerous measures to try to contain it, such as travel
bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These measures have impacted, and may further impact,
our workforce and operations, the operations of our partners, and those of our respective vendors and suppliers. Our critical
business operations, including our headquarters, are located in regions which have been impacted by COVID-19. Our suppliers and
partners worldwide have also been affected and may continue to be affected by COVID-19 related restrictions and closures.
The
spread of COVID-19 has caused us to modify our business practices as we comply with state mandated requirements for safety in
the workplace to ensure the health, safety and well-being of our employees. These measures include personal protective equipment,
social distancing, cleanliness of the facilities and daily monitoring of the health of employees in our facilities, as well as
modifying our policies on employee travel and the cancellation of physical participation in meetings, events and conferences.
We may take further actions as required by government authorities or that we determine are in the best interests of our employees,
partners and suppliers. However, we have not developed a specific and comprehensive contingency plan designed to address the challenges
and risks presented by the COVID-19 pandemic and, even if and when we do develop such a plan, there can be no assurance that such
plan will be effective in mitigating the potential adverse effects on our business, financial condition and results of operations.
In
addition, while the extent and duration of the COVID-19 pandemic on the global economy and our business in particular is difficult
to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial
markets, which may reduce our ability to access capital, which could negatively affect our liquidity. A recession or financial
market correction resulting from the lack of containment and spread of COVID-19 could impact overall technology spending, adversely
affecting demand for our products, our business and the value of our common stock.
The
ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. The extent of
the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business
strategies and initiatives in the expected time frame, will depend on future developments, including, but not limited to, the
duration and continued spread of the pandemic, its severity, the actions to contain the disease or treat its impact, further related
restrictions on travel, all of which are uncertain and cannot be predicted. An extended period of economic disruption as a result
of the COVID-19 pandemic could have a material negative impact on our business, results of operations, access to sources of liquidity
and financial condition, though the full extent and duration is uncertain.
We
are largely dependent on the success of our product candidates, KLS-13019 and KLS-13023, which are still in preclinical development
and will require significant capital resources and years of clinical development effort.
We
currently have no products on the market, and our product candidates, KLS-13019 and KLS-13023, are still in preclinical development.
Our business depends almost entirely on the successful clinical development, regulatory approval and commercialization of KLS-13019
and KLS-13023, and additional preclinical testing and substantial clinical development and regulatory approval efforts will be
required before we are permitted to commence commercialization, if ever. It will be several years before we can commence and complete
a pivotal study for KLS-13019 or KLS-13023, if ever. For KLS-13019 and KLS-13023, we plan to conduct Phase 1, and possibly Phase
2, clinical trials in Australia, subject to applicable regulatory approval.
We
plan to submit NDAs for KLS-13019 and KLS-13023 to the FDA upon completion of all requisite clinical trials. The clinical trials
and manufacturing and marketing of KLS-13019 and KLS-13023 will be subject to extensive and rigorous review and regulation by
numerous government authorities in the United States, Australia, the European Union, Canada, and other jurisdictions where we
intend to test and, if approved, market our product candidates. Before obtaining regulatory approvals for the commercial sale
of any product candidate, we must demonstrate through preclinical testing and clinical trials that the product candidate is safe
and effective for use in each target indication, and potentially in specific patient populations. This process can take many years
and may include post-marketing studies and surveillance, which would require the expenditure of substantial resources. Of the
large number of drugs in development for approval in the United States and the European Union, only a small percentage successfully
complete the FDA or EMA regulatory approval processes, as applicable, and are commercialized. Accordingly, even if we are able
to obtain the requisite financing to continue to fund our research, development and clinical programs, we cannot assure you that
any of our product candidates will be successfully developed or commercialized.
Because
the results of preclinical testing are not necessarily predictive of future results, KLS-13019 and KLS-13023 may not have favorable
results in our planned clinical trials.
Any
positive results from our preclinical testing of KLS-13019 and KLS-13023 may not necessarily be predictive of the results from
our planned clinical trials in humans. Many companies in the pharmaceutical and biotechnology industries have suffered significant
setbacks in clinical trials after achieving positive results in preclinical development, and we cannot be certain that we will
not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials
were underway or safety or efficacy observations made in clinical trials, including adverse events. Moreover, preclinical and
clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates
performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. If we fail
to produce positive results in our clinical trials of KLS-13019 and KLS-13023, the development timeline and regulatory approval
and commercialization prospects for KLS-13019 and KLS-13023, and, correspondingly, our business and financial prospects, would
be materially adversely affected.
We
may not be able to commence clinical trials in 2021; even if KLS-13019 and KLS-13023 advance into clinical trials, we may experience
difficulties in managing our growth and expanding our operations.
We
have not begun clinical trials for any of our product candidates. While we expect to commence clinical trials in the U.S. or Australia
in 2022 and/or 2023 for KLS-13019 and KLS-13023, we have limited resources to carry out these objectives. Our company has no history
of conducting clinical trials, which is a time-consuming, expensive and uncertain process. In addition, while we have experienced
management and expect to contract out many of the activities related to conducting clinical trials, we are a small company with
only seven employees and therefore have limited internal resources both to conduct clinical trials and to monitor third-party
providers. As our product candidates enter into and advance through preclinical studies and any clinical trials, we will need
to expand our development, regulatory and manufacturing operations, either by expanding our internal capabilities or contracting
with other organizations to provide these capabilities for us. In the future, we expect to have to manage additional relationships
with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and future growth will
require us to continue to improve our operational, financial and management controls, reporting systems and procedures.
Failures
or delays in the completion of our preclinical studies or the commencement and completion of our planned clinical trials of KLS-13019
or KLS-13023 could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue
our business.
To
date, we have not commenced any clinical trials for KLS-13019 or KLS-13023. Successful completion of such clinical trials is a
prerequisite to submitting an NDA to the FDA or an MAA to the EMA. Clinical trials are expensive, difficult to design and implement,
can take many years to complete, and are uncertain as to outcome. A product candidate can unexpectedly fail at any stage of clinical
development. The historic failure rate for product candidates is high due to scientific feasibility, safety, efficacy, changing
standards of medical care and other variables. We expect to initiate clinical trials for KLS-13019 and KLS-13023 in 2022 and/or
2023. However, we do not know whether our clinical trials will begin or be completed on schedule, if at all, as the commencement
and completion of clinical trials can be delayed or prevented for a number of reasons, including, among others:
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delays
in reaching or failing to reach agreement on acceptable terms with prospective clinical
trial sites, the terms of which can be subject to extensive negotiation and may vary
significantly among different clinical trial sites;
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delays
or inability in manufacturing or obtaining sufficient quantity or quality of a product
candidate or other materials necessary to conduct clinical trials due to regulatory and
manufacturing constraints;
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difficulties
obtaining institutional review board, or IRB, DEA or comparable foreign regulatory authority,
or ethics committee approval to conduct a clinical trial at a prospective site or sites;
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challenges
in recruiting and enrolling patients to participate in clinical trials, including the
size and nature of the patient population, the proximity of patients to clinical trial
sites, eligibility criteria for the clinical trial, the nature of the clinical trial
protocol, the availability of approved effective treatments for the relevant indication
and competition from other clinical trial programs for similar indications;
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severe
or unexpected toxicities or drug-related side effects experienced by patients in our
clinical trials or by individuals using drugs similar to our product candidates;
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DEA
or comparable foreign regulatory authority-related recordkeeping, reporting or security
violations at a clinical trial site, leading the DEA, state authorities or comparable
foreign regulatory authorities to suspend or revoke the site’s controlled substance
license and causing a delay or termination of planned or ongoing clinical trials;
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regulatory
concerns with cannabinoid products generally and the potential for abuse of those products;
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difficulties
retaining patients who have enrolled in a clinical trial who may withdraw due to lack
of efficacy, side effects, personal issues or loss of interest;
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ambiguous
or negative interim results; or
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lack
of adequate funding to continue the clinical trial.
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In
addition, a clinical trial may be suspended or terminated by us, the FDA, IRBs, ethics committees, data safety monitoring board
or other foreign regulatory authorities overseeing the clinical trial at issue or other regulatory authorities due to a number
of factors, including, among others:
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failure
to conduct the clinical trial in accordance with regulatory requirements or our clinical
trial protocols;
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inspection
of the clinical trial operations or clinical trial sites by the FDA, the DEA, the EMA
or other foreign regulatory authorities that reveals deficiencies or violations that
require us to undertake corrective action, including the imposition of a clinical hold;
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unforeseen
safety issues, including any safety issues that could be identified in our ongoing toxicology
studies;
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adverse
side effects or lack of effectiveness; and
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changes
in government regulations or administrative actions.
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We
intend to expend our limited resources to pursue KLS-13019 and KLS-13023 for certain indications, and may fail to capitalize on
other product candidates or other indications for KLS-13019 or KLS-13023 that may be more profitable or for which there is a greater
likelihood of success.
Because
we have limited financial and managerial resources, we are focusing on research programs relating to KLS-13019 and KLS-13023 for
certain indications, which concentrates the risk of product failure in the event KLS-13019 or KLS-13023 proves to be unsafe or
ineffective or inadequate for clinical development or commercialization. In particular, we intend to study KLS-13019 in patients
with chemotherapy induced peripheral neuropathy, and we intend to study KLS-13023 in patients with mild traumatic brain injury.
As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications for KLS-13019
or KLS-13023 that could later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail
to capitalize on viable commercial products or profitable market opportunities. Our spending on proprietary research and development
programs relating to KLS-13019 and KLS-13023 may not yield any commercially viable products. If we do not accurately evaluate
the commercial potential or target market for KLS-13019 and KLS-13023, we may relinquish valuable rights to KLS-13019 or KLS-13023
through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to
retain sole development and commercialization rights to KLS-13019 or KLS-13023.
The
regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory authorities are lengthy, time-consuming
and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business
will be substantially harmed.
We
are not permitted to market our product candidates in the United States or the European Union until we receive approval of an
NDA from the FDA or an MAA from the EMA, respectively, or in any foreign countries until we receive the requisite approval from
such countries. Prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our product candidates, we will need
to complete our ongoing preclinical studies, as well as Phase 1, Phase 2 and Phase 3 clinical trials. We are still conducting
preclinical studies and have not yet commenced our clinical program or tested KLS-13019 or KLS-13023 in humans. For KLS-13019,
we plan to conduct Phase 1, and possibly Phase 2, clinical in the U.S. or Australia, subject to applicable regulatory approval.
We plan to conduct our Phase 1 clinical trials for KLS-13023 in U.S. or Australia, subject to applicable regulatory approval.
We plan to submit NDAs for KLS-13019 and KLS-13023 to the FDA upon completion of all requisite clinical trials. Successfully initiating
and completing our clinical program and obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain process,
and the FDA or EMA may delay, limit or deny approval of our product candidates for many reasons, including, among others, because:
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we
may not be able to demonstrate that our product candidates are safe and effective in
treating patients to the satisfaction of the FDA or EMA;
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the
results of our clinical trials may not meet the level of statistical or clinical significance
required by the FDA or EMA for marketing approval;
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the
FDA or EMA may disagree with the number, design, size, conduct or implementation of our
clinical trials;
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the
FDA or EMA may require that we conduct additional clinical trials;
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the
FDA or EMA or other applicable foreign regulatory authorities may not approve the formulation,
labeling or specifications of our product candidates;
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the
contract research organizations, or CROs, and other contractors that we may retain to
conduct our clinical trials may take actions outside of our control that materially adversely
impact our clinical trials;
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the
FDA or EMA may find the data from preclinical studies and clinical trials insufficient
to demonstrate that KLS-13019’s or KLS-13023’s clinical and other benefits
outweigh its safety risks;
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the
FDA or EMA may disagree with our interpretation of data from our preclinical studies
and clinical trials;
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the
FDA or EMA may not accept data generated at our clinical trial sites or may disagree
with us over whether to accept efficacy results from clinical trial sites outside the
United States where the standard of care is potentially different from that in the United
States;
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if
and when our NDAs or MAAs are submitted to the FDA or EMA, as applicable, the regulatory
agency may have difficulties scheduling the necessary review meetings in a timely manner,
may recommend against approval of our application or may recommend or require, as a condition
of approval, additional preclinical studies or clinical trials, limitations on approved
labeling or distribution and use restrictions;
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the
FDA may require development of a Risk Evaluation and Mitigation Strategy, or REMS, which
would use risk minimization strategies beyond the professional labeling to ensure that
the benefits of certain prescription drugs outweigh their risks, as a condition of approval
or post-approval, and the EMA may grant only conditional approval or impose specific
obligations as a condition for marketing authorization, or may require us to conduct
post-authorization safety studies;
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the
FDA, EMA, DEA or other applicable foreign regulatory agencies may not approve the manufacturing
processes or facilities of third-party manufacturers with which we contract or DEA or
other applicable foreign regulatory agency quotas may limit the quantities of controlled
substances available to our manufacturers; or
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the
FDA or EMA may change their approval policies or adopt new regulations.
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On
September 27, 2018, the DOJ and DEA announced that Epidiolex, the newly approved medication by the Food & Drug Administration,
was being placed in Schedule V of the Controlled Substances Act, the least restrictive schedule of the federal CSA. On June 26,
2018, the FDA announced it approved Epidiolex for the treatment of seizures associated with two rare and severe forms of epilepsy,
Lennox-Gastaut syndrome and Dravet syndrome, in patients two years of age and older. Epidiolex contains CBD. The CBD in Epidiolex
is extracted from the cannabis plant and is the first FDA-approved drug to contain a purified extract from the plant. Schedule
V drugs represent the least potential for abuse. Schedule V drugs, substances, or chemicals are defined as drugs with lower potential
for abuse than Schedule IV and consist of preparations containing limited quantities of certain narcotics. Schedule V drugs are
generally used for antidiarrheal, antitussive, and analgesic purposes. Some examples of Schedule V drugs are: cough preparations
with less than 200 milligrams of codeine or per 100 milliliters (Robitussin AC), Lomotil, Motofen, Lyrica, Parepectolin.
Despite
the approvals by the FDA and DEA for Epidiolex, any of these foregoing factors, many of which are beyond our control, could jeopardize
our ability to obtain regulatory approval for and successfully market KLS-13019 or KLS-13023. Moreover, because our business is
almost entirely dependent upon these two product candidates, any such setback in our pursuit of regulatory approval would have
a material adverse effect on our business and prospects.
Therapeutic
Goods Administration (TGA)
Clinical
trials conducted in Australia are subject to various regulatory controls to ensure the safety of clinical trial participants.
The TGA regulates the use of therapeutic goods supplied in clinical trials in Australia under the therapeutic goods legislation.
Clinical trial sponsors must comply with various import, export, manufacture and supply requirements promulgated by the TGA, the
compliance with which are not always clear and require a significant amount of subjective interpretation on the part of the Australian
clinical trial sponsor.
In
2014, the Australian Advisory Council on Medicines Scheduling recommended rescheduling CBD from a prohibited substance to being
a prescription medicine because, according to the Advisory Council on Medicines Scheduling, “there is a low risk of misuse
or abuse as cannabidiol does not possess psychoactive properties.” The TGA accepted this recommendation and the decision
took effect in July 2015. From 1 July 2015, CBD has been included under Schedule 4 (S4) Prescription Only Medicine of the
Poisons Standard when preparations for therapeutic use contain 2% or less of other cannabinoids found in cannabis.
In
February 2016, the Australian Federal Government passed legislation that amended the Narcotic Drugs Act, allowing the supply of
suitable medicinal cannabis products for the management of painful and chronic conditions. This legislation does not relate to
the decriminalization of cannabis for general cultivation or recreational use and it does not include the provision of medicinal
grade herbal cannabis, only processed, non-smokable medicinal grade products. Much of the detail remains unclear.
For example, the legislation does not specify which products will be covered under the amendment, and it does not specify which
particular conditions or symptoms will be eligible for treatment with cannabis-based products. Before products can be prescribed,
they must be registered with the TGA or, in rare circumstances, receive special approval from the TGA. The registration process
requires evidence of testing and efficacy, and it is therefore unlikely Australia will see a TGA registered medicinal cannabis
product that GPs can prescribe any time soon.
Whilst
there are currently no cannabis-based products that are lawfully produced in Australia, the medicinal use of pharmaceutical products
containing cannabinoids is not prohibited, as long as authorization for prescribing is granted from the TGA and at this point
in time, NSW Health.
Despite
the 2016 legislation discussed above, there are many factors, a significant number of which are beyond our control, that could
jeopardize our ability to obtain regulatory approval to commence our KLS-13019 and KLS-13023 clinical trials in Australia. If
we are unable to obtain the necessary regulatory approvals in Australia, we will have to consider alternative locations for our
clinical trials, including the United States, which may be more costly or have stringent regulatory requirements of their own,
and which would likely delay aspects of our development plan.
We
plan to conduct clinical trials for KLS-13019 and KLS-13023 outside the United States and the FDA may not accept data from such
trials.
We
plan to conduct clinical trials outside the United States. For KLS-13019, we plan to conduct Phase 1, and possibly Phase 2, clinical
trials in Australia, subject to applicable regulatory approval. We plan to conduct our Phase 1 clinical trials for KLS-13023 in
U.S. or Australia, subject to applicable regulatory approval. We plan to submit NDAs for KLS-13019 or KLS-13023 to the FDA upon
completion of all requisite clinical trials. Although the FDA may accept data from clinical trials conducted outside the United
States, acceptance of such study data by the FDA is subject to certain conditions. For example, the clinical trial must be conducted
in accordance with Good Clinical Practices (“GCP”) requirements, and the FDA must be able to validate the data from
the clinical trial through an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials
are intended to serve as the sole basis for marketing approval in the United States, the FDA will not approve the application
on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice, the clinical
trials were performed by clinical investigators of recognized competence, and the data is considered valid without the need for
an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the
data through an on-site inspection or other appropriate means. In addition, such clinical trials would be subject to the applicable
local laws of the foreign jurisdictions where the clinical trials are conducted. There can be no assurance the FDA will accept
data from clinical trials conducted outside of the United States. If the FDA does not accept any such data, it would likely result
in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our development plan.
In addition, the conduct of clinical trials outside the United States could have a significant impact on us. Risks inherent in
conducting international clinical trials include:
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foreign
regulatory requirements that could burden or limit our ability to conduct our clinical
trials;
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administrative
burdens of conducting clinical trials under multiple foreign regulatory schema;
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foreign
exchange fluctuations;
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manufacturing,
customs, shipment and storage requirements;
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cultural
differences in medical practice and clinical research; and
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diminished
protection of intellectual property in some countries.
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Even
if KLS-13019 or KLS-13023 receive regulatory approval, they may still face future development and regulatory difficulties.
If
we obtain regulatory approval for KLS-13019 or KLS-13023, such approval would be subject to extensive ongoing requirements by
the DEA, FDA, EMA and other foreign regulatory authorities related to the manufacture, quality control, further development, labeling,
packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of
safety and other post-market information. The safety profile of any product will continue to be closely monitored by the FDA,
EMA and other comparable foreign regulatory authorities. If the FDA, EMA or any other comparable foreign regulatory authority
becomes aware of new safety information after approval of any of our product candidates, these regulatory authorities may require
labeling changes or establishment of a REMS, impose significant restrictions on a product’s indicated uses or marketing,
impose ongoing requirements for potentially costly post-approval studies or post-market surveillance or impose a recall.
In
addition, manufacturers of therapeutic products and their facilities are subject to continual review and periodic inspections
by the FDA, the EMA and other comparable foreign regulatory authorities for compliance with current good manufacturing practices
(“cGMP”) regulations. Further, manufacturers of controlled substances must obtain and maintain necessary DEA and state
registrations and registrations with applicable foreign regulatory authorities, and must establish and maintain processes to ensure
compliance with DEA and state requirements and requirements of applicable foreign regulatory authorities governing, among other
things, the storage, handling, security, recordkeeping and reporting for controlled substances. If we or a regulatory agency discover
previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the
facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility
or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product
candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
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issue
untitled letters or winning letters;
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mandate
modifications to promotional materials or require us to provide corrective information
to healthcare practitioners;
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require
us to enter into a consent decree, which can include imposition of various fines, reimbursements
for inspection costs, required due dates for specific actions and penalties for noncompliance;
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seek
an injunction or impose civil or criminal penalties or monetary fines;
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suspend
or withdraw regulatory approval;
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suspend
any ongoing clinical trials;
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refuse
to approve pending applications or supplements to applications filed by us; or
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require
us to initiate a product recall.
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The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and may otherwise
have a material adverse effect on our business, financial condition and results of operations.
KLS-13023
will be subject to controlled substance laws and regulations; failure to receive necessary approvals may delay the launch of our
products and failure to comply with these laws and regulations may adversely affect the results of our business operations.
KLS-13023
contains controlled substances as defined in the CSA. Controlled substances that are pharmaceutical products are subject to a
high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security,
recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances
into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse,
have no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision,
and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States
may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse
or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject
to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for
importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without
a new prescription.
While
cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain cannabis or
cannabis extracts must be placed in Schedules II - V, since approval by the FDA satisfies the “accepted medical use”
requirement. If and when KLS-13023 receives FDA approval, the DEA will make a scheduling determination and place it in a schedule
other than Schedule I in order for it to be prescribed to patients in the United States. If approved by the FDA, we expect the
finished dosage forms of KLS-13023 to be listed by the DEA as a Schedule II or III controlled substance. Consequently, their manufacture,
importation, exportation, domestic distribution, storage, sale and legitimate use will be subject to a significant degree of regulation
by the DEA. The scheduling process may take one or more years beyond FDA approval, thereby significantly delaying the launch of
KLS-13023. Furthermore, if the FDA, DEA or any foreign regulatory authority determines that KLS-13023 may have potential for abuse,
it may require us to generate more clinical data than that which is currently anticipated, which could increase the cost and/or
delay the launch of KLS-13023.
Because
KLS-13023 contains active ingredients of cannabis, which are Schedule I substances, to conduct preclinical studies and clinical
trials with KLS-13023 in the United States prior to approval, each of our research sites must submit a research protocol to the
DEA and obtain and maintain a DEA researcher registration that will allow those sites to handle and dispense KLS-13023 and to
obtain the product from our manufacturer. If the DEA delays or denies the grant of a research registration to one or more research
sites, the preclinical studies or clinical trials could be significantly delayed, and we could lose and be required to replace
clinical trial sites, resulting in additional costs.
We
expect that KLS-13023 will be scheduled as Schedule II or III, as a result of which we will also need to identify wholesale distributors
with the appropriate DEA registrations and authority to distribute the products to pharmacies and other healthcare providers,
and these distributors would need to obtain Schedule II or III distribution registrations. The failure to obtain, or delay in
obtaining, or the loss of any of those registrations could result in increased costs to us. If KLS-13023 is scheduled as a Schedule
II drug, pharmacies would have to maintain enhanced security with alarms and monitoring systems and adhere to recordkeeping and
inventory requirements. This may discourage some pharmacies from carrying the product. Furthermore, state and federal enforcement
actions, regulatory requirements, and legislation intended to reduce prescription drug abuse, such as the requirement that physicians
consult a state prescription drug monitoring program, may make physicians less willing to prescribe, and pharmacies to dispense,
Schedule II products.
We
may manufacture the commercial supply of KLS-13023 outside of the United States. If KLS-13023 is approved by the FDA and classified
as a Schedule II or III substance, an importer can import for commercial purposes if it obtains from the DEA an importer registration
and files an application with the DEA for an import permit for each import. The DEA provides annual assessments/estimates to the
International Narcotics Control Board, which guides the DEA in the amount of controlled substances that the DEA authorizes to
be imported. The failure to identify an importer or obtain the necessary import authority, including specific quantities, could
affect the availability of KLS-13023 and have a material adverse effect on our business, results of operations and financial condition.
In addition, an application for a Schedule II importer registration must be published in the Federal Register, and there is a
waiting period for third party comments to be submitted.
Individual
states have also established controlled substance laws and regulations. Though state-controlled substance laws often mirror federal
law, because the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states
automatically schedule a drug based on federal action, other states schedule drugs through rulemaking or a legislative action.
State scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling
could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate
state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical
trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions by the
states in addition to those from the DEA or otherwise arising under federal law.
We
currently obtain the API for KLS-13023 from a bulk manufacturer of pharmaceutical grade API in Switzerland. For KLS-13023, we
plan to conduct Phase 1 clinical trials in the U.S. or Australia, subject to applicable regulatory approval. In addition, we may
decide to develop, manufacture or commercialize our product candidates in additional countries. As a result, KLS-13023 will also
be subject to controlled substance laws and regulations from the TGA in Australia, Health Canada’s Office of Controlled
Substances in Canada, and from other regulatory agencies in other countries where we may develop, manufacture or commercialize
KLS-13023 in the future. We plan to submit NDA for KLS-13023 to the FDA upon completion of all requisite clinical trials and will
require additional DEA approvals at such time as well.
KLS-13023
is a formulation that does contain CBD. At present, CBD is deemed a Schedule 1 controlled substance by the U.S. Drug Enforcement
Agency under the CSA. And like the drug molecule EpidiolexÒ, which was recently approved by the FDA for marketing and sale
for use in treating Dravet’s Syndrome and Lennox-Gasteau Syndrome (forms of child epilepsy), KLS-13023 would need to follow
the guidance set forth by the CSA, complete a successful human clinical trial and apply for rescheduling, as was the case with
EpidiolexÒ, now a Schedule 5 drug.
Despite
the approvals by the FDA and DEA for Epidiolex, any of these foregoing factors, many of which are beyond our control, could jeopardize
our ability to obtain regulatory approval for and successfully market KLS-13019 or KLS-13023. Moreover, because our business is
almost entirely dependent upon these two product candidates, any such setback in our pursuit of regulatory approval would have
a material adverse effect on our business and prospects.
On
January 14, 2019, the Company received written notice from the Drug Enforcement Administration (“DEA”) Drug and Chemical
Evaluation Section, as follows: “Please be advised that your material meets the definition of ‘Hemp’ and is
not regulated under the CSA, as long as it consists of high purity Cannabidiol (CBD) that contains approximately 0.1% delta-9-
THC. (However, if it contains more than 0.3% delta-9 THC, it is considered ‘Marihuana’ and would be in Schedule 1
of the CSA).” While this notice is an official notice from the DEA regarding the scheduling of high purity CBD, the Company
will continue to abide by the CSA in all respects with regards to its treatment and handling of CBD.
Cannabis
remains illegal under Federal law.
Despite
the development of a regulated cannabis industry under the laws of certain states, these state laws regulating medical and adult
cannabis use are in conflict with the CSA, which classifies cannabis as a Schedule I controlled substance and makes cannabis use
and possession illegal on a national level. The United States Supreme Court has ruled that the Federal government has the right
to regulate and criminalize cannabis, even for medical purposes, and thus federal law criminalizing the use of cannabis preempts
state laws that regulate its use.
On
August 29, 2013, United States Deputy Attorney General James Cole issued the Cole Memo to United States attorneys guiding them
to prioritize enforcement of Federal law away from the cannabis industry operating as permitted under certain state laws, so long
as:
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cannabis
is not being distributed to minors and dispensaries are not located around schools and public buildings;
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the
proceeds from sales are not going to gangs, cartels or criminal enterprises;
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cannabis
grown in states where it is legal is not being diverted to other states;
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cannabis-related
businesses are not being used as a cover for sales of other illegal drugs or illegal activity;
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there
is not any violence or use of firearms in the cultivation and sale of marijuana;
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there
is strict enforcement of drugged-driving laws and adequate prevention of adverse health consequences; and
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cannabis
is not grown, used, or possessed on Federal properties.
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The
Cole Memo was a guide for United States attorneys and did not alter in any way the DOJ’s authority to enforce federal law,
including federal laws relating to cannabis, regardless of state law. As described below, as a result of the issuance of the Sessions
Memo by the Department of Justice on January 4, 2018, the Cole memo was rescinded. We cannot provide assurance that our actions
are or will be in compliance with the Cole Memo, the Sessions Memo or any other laws or regulations that currently exist or may
be amended or adopted in the future.
On
January 4, 2018, former Attorney General Jefferson B. Sessions, III issued a memo on federal marijuana enforcement policy announcing
a return to the rule of law and the rescission of previous nationwide guidance by the DOJ (including, but not limited to, the
Cole Memo). In the memorandum, Attorney General Jefferson Sessions directs all U.S. attorneys to enforce the laws enacted by Congress
and to follow well established principles when pursuing prosecutions related to marijuana activities. These principles include
weighing all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness
of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community. The
effect of this memo was to shift federal policy from a hands-off approach adopted by the Obama administration to permitting federal
prosecutors across the country to determine how to prioritize resources to regulate marijuana possession, distribution and cultivation
in states where marijuana use is legal.
Although
the Obama administration determined that it was not an efficient use of resources to direct Federal law enforcement agencies to
prosecute those lawfully abiding by state laws allowing the use and distribution of medical and recreational cannabis, the last
administration issued the Sessions Memo announcing a return to the rule of law and the rescission of previous guidance documents.
The Sessions Memo rescinds the Cole Memo, which was adopted by the Obama administration as a policy of non-interference with marijuana-friendly
state laws. The Sessions Memo shifts federal policy from a hands-off approach adopted by the Obama administration to permitting
federal prosecutors across the country to decide how to prioritize resources to regulate marijuana possession, distribution and
cultivation in states where marijuana use is regulated. The current administration has not yet weighed in on the issue of enforcement
of federal laws related to the use and distribution of medical and recreational cannabis, and it is currently unknow what their
stance is likely to be if and when they do.
There
can be no assurance that federal prosecutors will not prosecute and dedicate resources to regulate marijuana possession, distribution
and cultivation in states where marijuana use is regulated which may cause states to reconsider their regulation of marijuana
which would have a detrimental effect on the marijuana industry. Any such change in state laws based upon the Sessions Memo and
the Federal government’s enforcement of Federal laws could cause significant financial damage to us and our stockholders.
On
March 11, 2021, the chairman of the House Judiciary Committee, announced that the Marijuana Opportunity, Reinvestment and Expungement
(MORE) Act, introduced in 2019, which passed in the U.S. House of Representatives in December 2020, will be re-filed in 2021,
seeking ratification by the Senate.
If
passed by the U.S. Senate, the MORE Act would de-schedule cannabis from the Controlled Substances Act and enact various criminal
and social justice reforms to cannabis, including the expungement of prior convictions. The MORE Act also seeks to tax cannabis
products at 5% to fund criminal and social reform projects, including an Office of Cannabis Justice within the Department of Justice
Office of Justice Programs responsible for administering grants to aid communities negatively affected by the war on drugs. (See:
Controlled Substances Laws and Regulations)
Product
shipment delays could have a material adverse effect on our business, results of operations and financial condition.
The
shipment, import and export of KLS-13023 and the API used to manufacture KLS-13023 will require import and export licenses. In
the United States, the FDA, U.S. Customs and Border Protection, and the DEA, and in Canada, where our API is manufactured, the
Canada Border Services Agency and Health Canada, and in Australia, where we intend to commence clinical trials, the Australian
Customs and Board Protection Service and the Therapeutic Goods Administration, and in other countries, similar regulatory authorities,
regulate the import and export of pharmaceutical products that contain controlled substances. Specifically, the import and export
process requires the issuance of import and export licenses by the relevant controlled substance authority in both the importing
and exporting country. We may not be granted, or if granted, maintain, such licenses from the authorities in certain countries.
Even if we obtain the relevant licenses, shipments of API and our product candidates may be held up in transit, which could cause
significant delays and may lead to product batches being stored outside required temperature ranges. Inappropriate storage may
damage the product shipment, resulting in delays in clinical trials or, upon commercialization, a partial or total loss of revenue
from one or more shipments of API or KLS-13023. A delay in a clinical trial or, upon commercialization, a partial or total loss
of revenue from one or more shipments of API or KLS-13023 could have a material adverse effect on our business, results of operations
and financial condition.
Failure
to obtain regulatory approval in jurisdictions outside the United States and the European Union would prevent our product candidates
from being marketed in those jurisdictions.
In
order to market and sell our products in jurisdictions other than the United States and the European Union, we must obtain separate
marketing approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the
United States and the European Union generally includes all of the risks associated with obtaining FDA and EMA approval, but can
involve additional testing. We may need to partner with third parties in order to obtain approvals outside the United States and
the European Union. In addition, in many countries worldwide, it is required that the product be approved for reimbursement before
the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United
States and the European Union on a timely basis, if at all. Even if we were to receive approval in the United States or the European
Union, approval by the FDA or the EMA does not ensure approval by regulatory authorities in other countries or jurisdictions.
Similarly, approval by one regulatory authority outside the United States and the European Union would not ensure approval by
regulatory authorities in other countries or jurisdictions or by the FDA or the EMA. We may not be able to file for marketing
approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval
of our product candidates by regulatory authorities in other foreign jurisdictions, the commercial prospects of those product
candidates may be significantly diminished and our business prospects could decline.
Healthcare
legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty
and cost for us to obtain marketing approval of and commercialize our product candidates.
In
the United States there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare
system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities,
or affect our ability to profitably sell any product candidates for which we obtain marketing approval.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or Affordable Care
Act, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products.
It also contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for the healthcare and health
insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health
policy reforms, any of which could negatively impact our business. Certain of provisions have only recently become effective,
but the Affordable Care Act is likely to continue the downward pressure on pharmaceutical and medical device pricing, especially
under the Medicare program, and may also increase our regulatory burdens and operating costs.
In
addition, other legislative changes have been proposed and adopted since passage of the Affordable Care Act. The Budget Control
Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in
spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion
for the fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs.
This included aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which went into
effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among
other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations
period for the government to recover overpayments to providers from three to five years. If we ever obtain regulatory approval
and successfully commercialize KLS-13019, KLS-13023 or other product candidates that we may develop, these new laws may result
in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers
and accordingly, our financial operations.
We
expect that the Affordable Care Act, as well as other healthcare reform measures that have been and may be adopted in the future,
may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved
product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs
may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare
reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.
On
December 2, 2017, the U.S. Senate passed the Tax Cut and Jobs Act of 2017. The Senate bill repealed the individual mandate that
requires all Americans under 65 to have health insurance or pay a penalty, effective starting in 2019. The CBO initially estimated
that 13 million fewer persons would have health insurance by 2025, including 8 million fewer on the Affordable Care Act exchanges
and 5 million fewer on Medicaid. Fewer persons with healthcare means lower costs for the government, so CBO estimated over $300
billion in savings. This allowed Republicans to increase the size of the tax cuts in the bill. Health insurance premiums on the
exchanges could rise as much as 10 percentage points more than they would otherwise. CBO later revised this estimate in 2018 to
7 million fewer insured by 2026.
In
addition to these changes, the corporate tax rate was reduced from 35% to 21%, while some related business deductions and credits
were either reduced or eliminated. The Act also changes the U.S. from a global to a territorial tax system with respect to corporate
income tax. Instead of a corporation paying the U.S. tax rate (35%) for income earned in any country (less a credit for taxes
paid to that country), each subsidiary would pay the tax rate of the country in which it is legally established.
Even
if we are able to commercialize KLS-13019 or KLS-13023, the products may not receive coverage and adequate reimbursement from
third-party payors, which could harm our business.
The
availability of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive
treatments. Sales of our product candidates, if approved, will depend substantially on the extent to which the costs of these
product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations,
or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors.
If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize KLS-13019
or KLS-13023. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish
or maintain pricing sufficient to realize a sufficient return on our investment.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act,
established the Medicare Part D program and provided authority for limiting the number of drugs that will be covered in any therapeutic
class thereunder. The Medicare Modernization Act, including its cost reduction initiatives, could decrease the coverage and reimbursement
rate that we receive for any of our approved products. Furthermore, private payors often follow Medicare coverage policies and
payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the
Medicare Modernization Act may result in a similar reduction in payments from private payors.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States,
the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services,
or CMS, an agency within the U.S. Department of Health and Human Services, or HHS, as CMS decides whether and to what extent a
new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.
The
intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination
administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable
under Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement
for a particular product may be uncertain.
Outside
the United States, particularly in member states of the European Union, the pricing of prescription drugs is subject to governmental
control. In these countries, pricing negotiations or the successful completion of health technology assessment procedures with
governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can
be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment
measures. Certain countries allow companies to fix their own prices for medicines, but monitor and control company profits. Political,
economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after
reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or
arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we or our collaborators
may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to
other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party
payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and
other countries. If reimbursement of any product candidate approved for marketing is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations or prospects could be
adversely affected.
Our
relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse, and other healthcare
laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and
diminished profits and future earnings.
Healthcare
providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates
for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements
and relationships through which we market, sell and distribute our products for which we obtain marketing approval. As a pharmaceutical
company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or
other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations
that may affect our ability to operate include the following:
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the
U.S. federal healthcare Anti-Kickback Statute impacts our marketing practices, educational
programs, pricing policies and relationships with healthcare providers or other entities,
by prohibiting, among other things, persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in
kind, to induce or reward, or in return for, either the referral of an individual for,
or the purchase, order or recommendation of, any good or service, for which payment may
be made under a federal healthcare program such as Medicare and Medicaid;
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federal
civil and criminal false claims laws and civil monetary penalty laws impose criminal
and civil penalties, including through civil whistleblower or qui tam actions, against
individuals or entities for knowingly presenting, or causing to be presented, to the
federal government, including the Medicare and Medicaid programs, claims for payment
that are false or fraudulent (including through impermissible promotion of our products
for off-label uses) or making a false statement or record to avoid, decrease or conceal
an obligation to pay money to the federal government;
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the
U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes
criminal and civil liability for executing a scheme to defraud any healthcare benefit
program and also created federal criminal laws that prohibit knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false
statements in connection with the delivery of or payment for healthcare benefits, items
or services;
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HIPAA,
and the rules and regulations promulgated thereunder, establish federal standards for
maintaining the privacy and security of certain patient health information known as Protected
Health Information, or PHI. As amended by the Health Information Technology for Economic
and Clinical Health Act, or HITECH, HIPAA establishes federal standards for administrative,
technical and physical safeguards relevant to the electronic transmission of PHI and
imposes notification obligations in the event of a breach of the privacy or security
of PHI. In addition to adhering to the requirements of HIPAA, entities considered “covered
entities” under HIPAA (such as health plans, healthcare clearinghouses, and certain
healthcare providers) are required to obtain assurances in the form of a written contract
from certain business associates to which they transmit PHI (or who create, receive,
transmit or maintain PHI on the covered entity’s behalf) to ensure that the privacy
and security of such information is maintained in accordance with HIPAA requirements.
HITECH made changes to HIPAA including extending the reach of HIPAA beyond HIPAA covered
entities to business associates, increased the maximum civil monetary penalties for violations
of HIPAA, and granted enforcement authority to state attorneys general. Failure to comply
with HIPAA/HITECH can result in civil and criminal liability, including civil monetary
penalties, fines and imprisonment;
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the
U.S. federal physician payment transparency requirements under the Affordable Care Act
require applicable manufacturers of covered drugs, devices, biologics and medical supplies
to report annually to HHS information related to payments and other transfers of value
to physicians, certain other healthcare providers, and teaching hospitals, and ownership
and investment interests held by physicians and certain other healthcare providers and
their immediate family members and applicable group purchasing organizations; and
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analogous
state laws and regulations, such as state anti-kickback and false claims laws, may apply
to sales or marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including private insurers. Some state
laws require pharmaceutical companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines and the relevant compliance guidance promulgated by the
federal government and may require drug manufacturers to report information related to
payments and other transfers of value to physicians and certain other healthcare providers
or marketing expenditures. Additionally, state and foreign laws govern the privacy and
security of health information in certain circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA/HITECH, thus complicating
compliance efforts.
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Comparable
laws and regulations exist in the countries within the European Economic Area (“EEA”). Although such laws are partially
based upon European Union law, they may vary from country to country. Healthcare specific, as well as general European Union and
national laws, regulations and industry codes constrain, for example, our interactions with government officials and healthcare
practitioners, and the handling of healthcare data. Non-compliance with any of these laws or regulations could lead to criminal
or civil liability.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse, or other healthcare laws and regulations.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us,
we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians
or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable
laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs.
In
addition, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their
intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal
control policies and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors,
licensees or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution
and have a negative impact on our business, results of operations and reputation.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements,
which could subject us to significant liability and harm our reputation.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with DEA, FDA or EMA regulations or similar regulations of other foreign regulatory authorities, or to provide accurate information
to the DEA, FDA, EMA or other foreign regulatory authorities. In addition, misconduct by employees could include intentional failures
to comply with certain manufacturing standards, to comply with U.S. federal and state healthcare fraud and abuse laws and regulations
and similar laws and regulations established and enforced by comparable foreign regulatory authorities, to report financial information
or data accurately, or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in
the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other
abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion,
sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper
use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our
reputation. We plan to adopt, and will implement and enforce, a Code of Business Conduct and Ethics, but it is not always possible
to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity, such as employee training
on enforcement of the Code of Business Conduct and Ethics, may not be effective in controlling unknown or unmanaged risks or losses
or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business and results of operations, including the
imposition of significant fines or other sanctions.
If
we are unable to develop sales, marketing and distribution capabilities or enter into agreements with third parties to perform
these functions on acceptable terms, we may be unable to generate revenue.
We
do not currently have any sales, marketing or distribution capabilities. If KLS-13019 or KLS-13023 is approved, we will need to
develop internal sales, marketing and distribution capabilities to commercialize such products, which would be expensive and time-consuming,
or enter into collaborations with third parties to perform these services. If we decide to market our products directly, we will
need to commit significant financial and managerial resources to develop a marketing and sales force with technical expertise
and supporting distribution, administration and compliance capabilities. If we rely on third parties with such capabilities to
market our products or decide to co-promote products with collaborators, we will need to establish and maintain marketing and
distribution arrangements with third parties, and there can be no assurance that we will be able to enter into such arrangements
on acceptable terms, or at all. In entering into third-party marketing or distribution arrangements, any revenue we receive will
depend upon the efforts of the third parties, and there can be no assurance that such third parties will establish adequate sales
and distribution capabilities or be successful in gaining market acceptance of any approved product. If we are not successful
in commercializing any product approved in the future, either on our own or through third parties, our business, financial condition
and results of operations could be materially adversely affected.
Our
product candidates, if approved, may be unable to achieve broad market acceptance and, consequently, limit our ability to generate
revenue from new products.
Even
when product development is successful and regulatory approval has been obtained, our ability to generate significant revenue
depends on the acceptance of our products by physicians and patients. The market acceptance of any product depends 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 payors 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, and marketing and distribution support.
Any factors preventing or limiting the market acceptance of our product candidates could have a material adverse effect on our
business, results of operations and financial condition.
If
we receive regulatory approvals, we intend to market KLS-13019 and KLS-13023 in multiple jurisdictions where we have limited or
no operating experience and may be subject to increased business and economic risks that could affect our financial results.
If
we receive regulatory approvals, we plan to market KLS-13019 and KLS-13023 in jurisdictions where we have limited or no experience
in marketing, developing and distributing our products. Certain markets have substantial legal and regulatory complexities that
we may not have experience navigating. We are subject to a variety of risks inherent in doing business internationally, including
risks related to the legal and regulatory environment in non-U.S. jurisdictions, including with respect to privacy and data security,
trade control laws and unexpected changes in laws, regulatory requirements and enforcement, as well as risks related to fluctuations
in currency exchange rates and political, social and economic instability in foreign countries. If we are unable to manage our
international operations successfully, our financial results could be adversely affected.
In
addition, controlled substance legislation may differ in other jurisdictions and could restrict our ability to market our products
internationally. Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade
and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and implement their treaty obligations
in a way that creates a legal obstacle to us obtaining marketing approval for KLS-13019 or KLS-13023 in those countries. These
countries may not be willing or able to amend or otherwise modify their laws and regulations to permit KLS-13019 or KLS-13023
to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. We would be unable
to market KLS-13019 or KLS-13023 in countries with such obstacles in the near future or perhaps at all without modification to
laws and regulations.
KLS-13023
contains a controlled substance, the use of which may generate public controversy.
Since
our product candidates contain controlled substances, their regulatory approval may generate public controversy. Political and
social pressures and adverse publicity could lead to delays in approval of, and increased expenses for, our product candidates.
These pressures could also limit or restrict the introduction and marketing of our product candidates. Adverse publicity from
cannabis misuse or adverse side effects from cannabis or other cannabinoid products may adversely affect the commercial success
or market penetration achievable by our product candidates. The nature of our business attracts a high level of public and media
interest, and in the event of any resultant adverse publicity, our reputation may be harmed.
KLS-13023
is a formulation that contains CBD. At present, CBD is deemed a Schedule 1 controlled substance by the DEA under the CSA. Like
the drug molecule EpidiolexÒ, which was recently approved by the FDA for marketing and sale for use in treating Dravet’s
Syndrome and Lennox-Gasteau Syndrome (forms of child epilepsy), KLS-13023 would need to follow the guidance set forth by the CSA,
complete a successful human clinical trial and apply for rescheduling, as was the case with EpidiolexÒ, now a Schedule
5 drug.
On
January 14, 2019, we received written notice from the DEA Drug and Chemical Evaluation Section, as follows: “Please be advised
that your material meets the definition of ‘Hemp’ and is not regulated under the CSA, as long as it consists of high
purity Cannabidiol (CBD) that contains approximately 0.1% delta-9- THC. (However, if it contains more than 0.3% delta-9 THC, it
is considered ‘Marihuana’ and would be in Schedule 1 of the CSA).” While this notice is an official notice from
the DEA regarding the scheduling of high purity CBD, we will continue to abide by the CSA in all respects with regards to its
treatment and handling of CBD.
Any
inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business
plan.
Our
success largely depends on the continued service of key management and other specialized personnel, including Dean Petkanas, our
chairman and chief executive officer, William A. Kinney, our chief scientific officer, Mark Corrao, our chief financial officer,
and Thomas Kikis, our chief communications officer. The loss of one or more members of our management team or other key employees
could delay our research and development programs and materially harm our business, financial condition, results of operations
and prospects. The relationships that our team has cultivated within the life sciences industry makes us particularly dependent
upon their continued employment with us. Because our management team is not obligated to provide us with continued service, they
could terminate their employment or services with us at any time without penalty, subject to providing any required advance notice.
We do not maintain key person life insurance policies for any members of our management team.
Our
future success and growth will depend in large part on our continued ability to attract and retain other highly qualified scientific,
technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation
and commercialization. We face competition for personnel from other companies, universities, public and private research institutions,
government entities and other organizations.
We
face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully
than we do.
The
development and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies
and specialized biotechnology companies, as well as products and processes being developed at universities and other research
institutions. Our competitors have developed, are developing or will develop product candidates and processes competitive with
our product candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical
community and any new treatments that enter the market. We believe that a significant number of products are currently available,
under development, and may become commercially available in the future, for the treatment of indications for which we may try
to develop product candidates. If either of our product candidates, KLS-13019 or KLS-13023, is approved for the indications we
are currently pursuing, it will compete with a range of therapeutic treatments that are either in development or currently marketed.
We
are aware of multiple companies that are working in the cannabis therapeutic area, including pharmaceutical companies such as
GW Pharmaceuticals PLC (“GW”), which markets Sativex, a botanical cannabinoid oral mucosal for the treatment of spasticity
due to multiple sclerosis and which is also in development in neuropathic pain in several foreign countries and is seeking FDA
approval in the United States, and is developing Epidiolex, a liquid formulation of highly purified CBD extract, as a treatment
for Dravet’s Syndrome, Lennox Gastaut Syndrome, and various childhood epilepsy syndromes; Insys Therapeutics, Inc., which
is seeking FDA approval for an orally-administered liquid formulation of its synthetic CBD molecule as a treatment for Dravet’s
Syndrome, Lennox Gastaut Syndrome, and other childhood epilepsy syndromes; and Nemus Bioscience, Inc., which is focused on the
discovery, development and commercialization of cannabis therapeutics.
On
September 27, 2018, the DOJ and DEA announced that Epidiolex, the recently approved medication by the FDA, is being placed in
Schedule V of the CSA, the least restrictive schedule of the CSA. On June 26, 2018, the FDA announced it approved Epidiolex for
the treatment of seizures associated with two rare and severe forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome,
in patients two years of age and older. Epidiolex contains CBD. The CBD in Epidiolex is extracted from the cannabis plant, and
is the first FDA-approved drug to contain a purified extract from the plant. Schedule V drugs represents the least potential for
abuse.
We
are also aware of Zynerba Pharmaceuticals, Inc. and its patent-protected synthetic transdermal cannabinoid product candidates,
ZYN002 and ZYN001. These cannabinoid product candidates represent cannabinoid therapeutics for several indications, including
refractory epilepsy, FXS, OA, fibromyalgia and peripheral neuropathic pain. According to Zynerba Pharmaceuticals, Inc., ZYN002
is the first and only synthetic CBD formulated as a permeation-enhanced gel for transdermal delivery, and is patent-protected
through 2030.
More
established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience.
Compared to us, many of our competitors may have significantly greater financial, technical and human resources. As a result of
these factors, our competitors may have an advantage in marketing their approved products and may obtain regulatory approval of
their product candidates before we are able to, which may limit our ability to develop or commercialize our product candidates.
Our competitors may also develop drugs that are safer, more effective, more widely used and less expensive than ours, and may
also be more successful than us in manufacturing and marketing their products. These advantages could materially impact our ability
to develop and commercialize KLS-13019 or KLS-13023 successfully
Our
product candidates, most notably KLS-13023, may compete with non-synthetic cannabinoid drugs, including therapies such as GW’s
Sativex. Our product candidates may also compete with medical and recreational marijuana, in markets where the recreational and/or
medical use of marijuana is legal. There is support in the United States for further legalization of marijuana. In markets where
recreational and/or medical marijuana is not legal, our product candidates may compete with marijuana purchased in the illegal
drug market. We cannot assess the extent to which patients may utilize marijuana obtained illegally for the treatment of the indications
for which we are developing KLS-13019 and KLS-13023.
Mergers
and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among
a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and
retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration
for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
The
market opportunity for chemotherapy induced peripheral neuropathy will be limited to those patients who are not currently receiving
adequate relief from current treatment regimens, which may reduce our targeted market.
Pre-existing
treatments may be adequate to treat certain patients with chemotherapy induced peripheral neuropathy. Whenever the first-line
therapy fails or is unsuccessful, then second-line therapy may be administered. For chemotherapy induced peripheral neuropathy,
KLS-13019 is particularly targeted to provide an additional treatment option for patients not currently receiving adequate relief
from current treatment regimens. If a more successful first-line therapy is developed, it may significantly reduce the patient
population to which we can supply, which may affect our ability to successfully commercialize KLS-13019 for chemotherapy induced
peripheral neuropathy.
Product
liability lawsuits against us could cause us to incur substantial liabilities.
Our
planned use of KLS-13019 and KLS-13023 in clinical trials and the sale of KLS-13019 and KLS-13023, if approved, exposes us to
the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or
others selling or otherwise coming into contact with KLS-13019 or KLS-13023. For example, we may be sued if any product we develop
allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such
product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers
inherent in the product, including as a result of interactions with alcohol or other drugs, negligence, strict liability, and
a breach of warranties. Claims could also be asserted under state consumer protection acts. If we become subject to product liability
claims and cannot successfully defend ourselves against them, we could incur substantial liabilities. In addition, regardless
of merit or eventual outcome, product liability claims may result in, among other things:
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withdrawal
of patients from our clinical trials;
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substantial
monetary awards to patients or other claimants;
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decreased
demand for KLS-13019 or KLS-13023 following marketing approval, if obtained;
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damage
to our reputation and exposure to adverse publicity;
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increased
FDA or EMA warnings on product labels;
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significant
litigation costs;
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distraction
of management’s attention from our primary business;
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the
inability to successfully commercialize KLS-13019 or KLS-13023, if approved.
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We
will need to obtain product liability insurance coverage for our clinical trials. We may not be able to obtain such coverage at
a reasonable cost or in sufficient amounts to protect us against losses, including if insurance coverage becomes increasingly
expensive. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The
cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly
in light of the size of our business and financial resources. A product liability claim or series of claims brought against us
could cause our share price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments
exceed our insurance coverage, our financial condition, results of operations, business and prospects could be materially adversely
affected.
Our
business and operations would suffer in the event of computer system failures.
Despite
the implementation of security measures, our information technology and other internal infrastructure systems and those of our
CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and electrical failures. A significant disruption in the availability of our information
technology and other internal infrastructure systems could cause delays in our research and development work. For instance, the
loss of preclinical data or data from any future clinical trial involving our product candidates could result in delays in our
development and regulatory filing efforts and significantly increase our costs. To the extent that any disruption or security
breach were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential or proprietary information,
we could incur liability and the development of our product candidates could be delayed.
Risks
Related to Our Dependence on Third Parties
We
rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry
out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize
our product candidates.
We
rely on CROs, clinical data management organizations and consultants to design, conduct, supervise and monitor preclinical studies
of our product candidates and may do the same for our planned clinical trials. We and our prospective CROs are required to comply
with various regulations, including GCP, which are enforced by the FDA, and guidelines of the Competent Authorities of Member
States of the EEA and comparable foreign regulatory authorities to ensure that the health, safety and rights of patients are protected
in clinical development and clinical trials, and that trial data integrity is assured. Regulatory authorities ensure compliance
with these requirements through periodic inspections of trial sponsors, principal investigators and trial sites. Our reliance
on third parties that we do not control does not relieve us of these responsibilities and requirements. If we or any of our prospective
CROs fail to comply with applicable requirements, the clinical data generated in our clinical trials may be deemed unreliable
and the FDA, EMA or other comparable foreign regulatory authorities may require us to perform additional clinical trials before
approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory
authority will determine that any of our clinical trials comply with such requirements. In addition, our clinical trials must
be conducted with products produced under cGMP requirements, which mandate the methods, facilities and controls used in manufacturing,
processing and packaging of a drug product to ensure its safety and identity. Failure to comply with these regulations may require
us to repeat preclinical and clinical trials, which would delay the regulatory approval process.
Our
prospective CROs are not our employees, and except for remedies available to us under future agreements with such prospective
CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and preclinical programs.
If the prospective CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if
the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able
to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our operations and the commercial
prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Because
we have relied on third parties, our internal capacity to perform these functions is limited. Outsourcing these functions involves
risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at
all. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties,
which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which
limits the internal resources we have available to identify and monitor our third-party providers. To the extent we are unable
to identify and successfully manage the performance of third-party service providers in the future, our business may be adversely
affected. Though we carefully manage our relationships with our prospective CROs, there can be no assurance that we will not encounter
similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business,
financial condition and prospects.
We
rely on third-party manufacturers and suppliers, and we intend to rely on third parties to produce preclinical, clinical and commercial
supplies of active pharmaceutical ingredients, or APIs, for KLS-13019 and KLS-13023.
We
rely on third parties to supply the materials for, and manufacture, our research and development, preclinical and clinical trial
APIs. We do not own manufacturing facilities or supply sources for such components and materials. There can be no assurance that
our supply of research and development, preclinical and clinical development drugs and other materials will not be limited, interrupted,
restricted in certain geographic regions or of satisfactory quality or continue to be available at acceptable prices. In particular,
any replacement of our API manufacturer could require significant effort and expertise because there may be a limited number of
qualified manufacturers.
The
manufacturing process for our product candidates is subject to FDA, EMA, DEA and other foreign regulatory authority review. Suppliers
and manufacturers must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required
by regulatory authorities in order to comply with regulatory standards such as cGMP. In addition, our manufacturers must ensure
therapeutic consistency among batches, including preclinical, clinical and, if approved, marketing batches. Demonstrating such
consistency may require typical manufacturing controls as well as clinical data. Our manufacturers must also ensure that our batches
conform to complex release specifications. Further, manufacturers of controlled substances must obtain and maintain necessary
DEA and state registrations and registrations with applicable foreign regulatory authorities, and must establish and maintain
processes to ensure compliance with DEA and state requirements and requirements of applicable foreign regulatory authorities governing,
among other things, the storage, handling, security, recordkeeping and reporting for controlled substances. In the event that
any of our suppliers or manufacturers fails to comply with such requirements or to perform its obligations to us in relation to
quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons,
we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or
enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases,
the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original
manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills
or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such
manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product
candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer
maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The
delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates
in a timely manner or within budget.
We
expect to continue to rely on third-party manufacturers if we receive regulatory approval for any product candidate. To the extent
that we have existing, or enter into future, manufacturing arrangements with third parties, we will depend on these third parties
to perform their obligations in a timely manner consistent with contractual and regulatory requirements, including those related
to quality control and assurance. If we are unable to obtain or maintain third-party manufacturing for product candidates, or
to do so on commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully.
Our or a third party’s failure to execute on our manufacturing requirements could adversely affect our business in a number
of ways, including:
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an
inability to initiate or continue preclinical studies or clinical trials of product candidates
under development;
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delay
in submitting regulatory applications, or receiving regulatory approvals, for product
candidates;
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loss
of the cooperation of a collaborator;
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subjecting
our product candidates to additional inspections by regulatory authorities; and
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in
the event of approval to market and commercialize a product candidate, an inability to
meet commercial demands for our products.
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If
a collaborative partner terminates or fails to perform its obligations under an agreement with us, the commercialization of KLS-13019
or KLS-13023, if approved, could be delayed or terminated.
We
are not currently party to any collaborative arrangements for the commercialization of KLS-13019 or KLS-13023, if approved, or
similar arrangements, although we may pursue such arrangements before any commercialization of KLS-13019 or KLS-13023, if approved.
If we enter into future collaborative arrangements for the commercialization of any product candidate or similar arrangements
and any of our collaborative partners does not devote sufficient time and resources to a collaboration arrangement with us, we
may not realize the potential commercial benefits of the arrangement, and our results of operations may be materially adversely
affected. In addition, if any such future collaboration partner were to breach or terminate its arrangements with us, the commercialization
of any product candidate could be delayed, curtailed or terminated.
Much
of the potential revenue from future collaborations may consist of contingent payments, such as payments for achieving regulatory
milestones or royalties payable on sales of drugs. The milestone and royalty revenue that we may receive under these collaborations
will depend upon our collaborators’ ability to successfully develop, introduce, market and sell new products. In addition,
collaborators may decide to enter into arrangements with third parties to commercialize products developed under collaborations
using our technologies, which could reduce the milestone and royalty revenue that we may receive, if any. Future collaboration
partners may fail to develop or effectively commercialize products using our products or technologies, which could have a material
adverse effect on our operating results and financial condition.
Business
disruptions affecting our third-party suppliers, manufacturers and CROs could harm our future revenues and financial condition
and increase our costs and expenses.
We
rely on third parties to supply the materials for, and manufacture our APIs for, our preclinical and clinical trials. There are
only a limited number of suppliers and manufacturers of our APIs and our ability to obtain these materials could be disrupted
if the operations of these manufacturers are affected by earthquakes, power shortages, telecommunications failures, water shortages,
floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or
business interruptions. We also rely on CROs, clinical data management organizations and consultants to design, conduct, supervise
and monitor preclinical studies of our product candidates and will do the same for our planned clinical trials. If their facilities
are unable to operate because of an accident or incident, even for a short period of time, some or all of our research and development
programs may be harmed or delayed and our operations and financial condition could suffer.
Our
third-party manufacturers may use hazardous materials, and any claims relating to improper handling, storage or disposal of these
materials could be time consuming or costly.
Our
third-party manufacturers may use hazardous materials, including chemicals and molecules that could be dangerous to human health
and safety or the environment. The operations of our third-party manufacturers may also produce hazardous waste products. Federal,
state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials
and wastes. In the event of contamination or injury, our third-party manufacturers could be held liable for damages or be penalized
with fines in an amount exceeding their resources, which could result in our clinical trials or regulatory approvals being delayed
or suspended.
Risks
Related to Our Intellectual Property
If
we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology
and product candidates, our competitive position could be harmed.
Our
commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection
in the U.S. and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright
and trademark laws, and confidentiality and other agreements with employees and third parties, all of which offer only limited
protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and
abroad related to our novel technologies and products that are important to our business.
The
patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual
questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability
and commercial value of our patents are highly uncertain. The steps we have taken to protect our proprietary rights may not be
adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both
inside and outside the United States. Our pending applications cannot be enforced against third parties practicing the technology
claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require
us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained
if these applications issue. We do not know whether any of the pending patent applications for any of our product candidates will
result in the issuance of patents that protect our technology or products, or if any of our issued patents will effectively prevent
others from commercializing competitive technologies and products. The rights already granted under any of our currently issued
patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive
advantages we are seeking. If we are unable to obtain and maintain patent protection for our technology and products, or if the
scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products
similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
It is also possible that we will fail to identify patentable aspects of inventions made in the course of our development and commercialization
activities before it is too late to obtain patent protection on them.
Because
the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our issued patents may be
challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection,
the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to
stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection
for our technology and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries,
and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing.
Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned patents or pending patent applications,
or that we were the first to file for patent protection of such inventions.
Protecting
against the unauthorized use of our patented technology, trademarks and other intellectual property rights is expensive, difficult
and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or
misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement
may be even more difficult.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance
with these requirements.
The
USPTO, and various foreign national or international patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. Periodic maintenance fees on any issued patent
are due to be paid to the USPTO and various foreign national or international patent agencies in several stages over the lifetime
of the patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance
with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent
application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could
result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional
stage patent applications based on our international patent application, failure to respond to official actions within prescribed
time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents
and patent applications covering our product candidates, our competitors might be able to enter the market, which would have a
material adverse effect on our business.
We
may become subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property,
or claiming ownership of what we regard as our own intellectual property.
Our
commercial success depends upon our ability to develop, manufacture, market and sell our product candidates, and to use our related
proprietary technologies without violating the intellectual property rights of others. We may become party to, or threatened with,
future adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates, including
interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against us based on existing
patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property
rights, we could be required to obtain a license from such third party to continue commercializing our product candidates. However,
we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we
could be forced, including by court order, to cease commercializing the applicable product candidate. In addition, in any such
proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing
our product candidates or force us to cease some of our business operations, which could materially harm our business. Any claims
by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact
on our business.
While
our preclinical studies and clinical trials are ongoing, we believe that the use of KLS-13019 and KLS-13023 in these preclinical
studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States,
which exempts from patent infringement liability activities reasonably related to the development and submission of information
to the FDA, or the Clinical Development Exemption. As KLS-13019 and KLS-13023 progress toward commercialization, the possibility
of a patent infringement claim against us increases. We attempt to ensure that our product candidates and the methods we employ
to manufacture them, as well as the methods for their uses we intend to promote, do not infringe other parties’ patents
and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that
we infringe their proprietary rights in any event.
We
may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and
unsuccessful and have a material adverse effect on the success of our business.
Competitors
may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized
use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Also, third
parties may initiate legal proceedings against us to challenge the validity or scope of intellectual property rights we own. These
proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially
greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able
to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial
costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement
proceeding, a court may decide that a patent owned by us is invalid or unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any
litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could
also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common
stock.
If
we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology
and products could be significantly diminished.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our current
and former employees, consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and
other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure
of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.
In addition, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our
trade secrets. Any party with whom we or they have executed such an agreement may breach that agreement and disclose our proprietary
information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing
a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the
outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect
trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have
no right to prevent them, or those to whom they disclose such trade secrets, from using that technology or information to compete
with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third-party,
our competitive position would be harmed.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Therefore,
we have filed applications and/or obtained patents only in key markets such as the United States, Canada, Japan and parts of Europe.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products
and, further, may be able to export otherwise infringing products to territories where we have patent protection but where enforcement
is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have
any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them
from so competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and
other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to
stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. For
example, an April 2014 report from the Office of the United States Trade Representative identified a number of countries, including
India and China, where challenges to the procurement and enforcement of patent rights have been reported. Several countries, including
India and China, have been listed in the report every year since 1989. As a result, proceedings to enforce our patent rights in
certain foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our
business and could be unsuccessful.
Patent
terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Given
the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such
candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms
in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price
Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration
of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension).
However, the applicable authorities, including the FDA and the USPTO, and any equivalent regulatory authorities in other countries,
may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents,
or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment
in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might
otherwise be the case.
Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples
are illustrative:
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others
may be able to make molecules that are the same as or similar to our product candidates
but that are not covered by the claims of the patents that we own;
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we
might not have been the first to make the inventions covered by the issued patents or
pending patent applications that we own;
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we
might not have been the first to file patent applications covering certain of our inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our
technologies without infringing our intellectual property rights;
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it
is possible that our pending patent applications will not lead to issued patents;
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issued
patents that we own may not provide us with any competitive advantages, or may be held
invalid or unenforceable as a result of legal challenges;
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our
competitors might conduct research and development activities in the United States and
other countries that provide a safe harbor from patent infringement claims for certain
research and development activities, as well as in countries where we do not have patent
rights and then use the information learned from such activities to develop competitive
products for sale in our major commercial markets;
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we
may not develop additional proprietary technologies that are patentable; and
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the
patents of others may have an adverse effect on our business.
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Risks
Related to Ownership of Our Common Stock
We
do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of
our common stock will be, and as a result, it may be difficult for you to sell your shares of our common stock.
Historically,
there has not been an active market for shares of our common stock. An active trading market for our shares may never develop
or be sustained in the future. The lack of an active market may impair the ability of our stockholders to sell their shares at
the time and at such price as they consider reasonable. The lack of an active market may also reduce the fair market value of
shares of our common stock. Further, an inactive market may also impair our ability to raise capital by selling shares of our
common stock and may impair our ability to enter into collaborations or acquire companies or products by using our shares of common
stock as consideration.
The
market price of our stock may be volatile, and stockholders could lose all or part of their investment.
The
trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors,
some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere
in this annual report, these factors include, without limitation:
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trading
volatility of low-priced stock;
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the
success of competitive products;
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regulatory
actions with respect to our product candidates or our competitors’ products and
product candidates;
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actual
or anticipated changes in our growth rate relative to our competitors;
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announcements
by us or our competitors of significant acquisitions, strategic partnerships, joint ventures,
collaborations or capital commitments;
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results
of clinical trials of KLS-13019, KLS-13023 or product candidates of our competitors;
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regulatory
or legal developments in the United States and other countries;
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developments
or disputes concerning patent applications, issued patents or other proprietary rights;
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the
recruitment or departure of key personnel;
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the
level of expenses related to our preclinical and clinical development programs;
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the
results of our efforts to in-license or acquire additional product candidates or products;
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actual
or anticipated changes in estimates as to financial results, development timelines or
recommendations by securities analysts;
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variations
in our financial results or those of companies that are perceived to be similar to us;
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fluctuations
in the valuation of companies perceived by investors to be comparable to us;
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share
price and volume fluctuations attributable to inconsistent trading volume levels of our
common stock;
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announcement
or expectation of additional financing efforts;
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sales
of our common stock by us, our insiders or our other stockholders;
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changes
in the structure of healthcare payment systems;
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market
conditions in the pharmaceutical sector; and
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general
economic, industry and market conditions.
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addition, the stock market in general, and pharmaceutical companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry
factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Moreover,
some institutional investors and mutual funds cannot invest in stocks priced below $5.00 per share. The realization of any of
these risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have
a dramatic and material adverse impact on the market price of our common stock.
We
may be subject to securities litigation, which is expensive and could divert our management’s attention.
The
market price of our common stock may be volatile, and in the past certain companies that have experienced volatility in the market
price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation
in the future. Securities litigation against us could result in substantial costs and divert our management’s attention
from other business concerns, which could seriously harm our business.
Our
common stock is classified as a “penny stock” under SEC Rules and Regulations, which means there may be very limited
trading market for our shares.
Our
common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 of the Securities Exchange Act of
1934, as amended (“the Exchange Act”). Penny stocks are stocks (i) with a price of less than five dollars per share;
(ii) that are not traded on a “recognized” national exchange; (iii) whose prices are not quoted on an automated quotation
system sponsored by a registered national securities association; or (iv) whose issuer has net tangible assets less than $2,000,000
(if the issuer has been in continuous operation for at least three years); or $5,000,000 (if in continuous operation for less
than three years); or with average revenues of less than $6,000,000 for the last three years.
Section
15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require broker dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor’s account. Potential investors in our common
stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.”
Moreover,
Rule 15g-9 of the Exchange Act requires broker dealers in penny stocks to approve the account of any investor for transactions
in such stocks before selling any penny stock to that investor. This procedure requires the broker dealer to (i) obtain from the
investor information concerning his, her or its financial situation, investment experience and investment objectives; (ii) reasonably
determine, based on that information, that transactions in penny stocks are suitable for the investor, and that the investor has
sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide
the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above;
and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s
financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult
for investors in our common stock to resell their shares to third parties or to otherwise dispose of such shares.
Insiders
have substantial influence over us and could delay or prevent a change in corporate control.
As
of March 30, 2021, our executive officers, directors, and holders of 5.0% or more of our capital stock collectively beneficially
owned approximately 71.10% of our voting stock. This concentration of ownership could harm the market price of our common stock
by:
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delaying,
deferring or preventing a change in control of our company;
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impeding
a merger, consolidation, takeover or other business combination involving our company;
or
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discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control
of our company.
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The
interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and
they may act in a manner that advances their best interests and not necessarily those of other stockholders, including by seeking
a premium value for their common stock, and might negatively affect the prevailing market price for our common stock.
If
we are unable to maintain effective internal control over our financial reporting, the reputational effects could materially adversely
affect our business.
Under
the provisions of Section 404(a) of the Sarbanes-Oxley Act of 2002, as amended by the Dodd Frank Wall Street Reform and Consumer
Protection Act of 2010, the SEC adopted rules requiring public companies to perform an evaluation of Internal Control over Financial
Reporting (Internal Controls) and to report on our evaluation in our Annual Report on Form 10-K. Our Internal Controls constitute
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with GAAP. In the event we discover material weakness in our internal controls and our remediation of
such reported material weakness is ineffective, or if in the future we are unable to maintain effective Internal Controls, additional
resulting material restatements could occur, regulatory actions could be taken, and a resulting loss of investor confidence in
the reliability of our financial statements could occur.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to
reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated
and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control
system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
Because
we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will
be your sole source of gain.
We
have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if
any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude
us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for
the foreseeable future.
We
have issued Preferred Stock.
Our
Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of Preferred Stock with designations, rights and
preferences determined from time to time by the Board of Directors. There are currently 75 shares of Series A Preferred Stock
and 75 shares of Series B Preferred Stock outstanding. The holders of our Preferred Stock have voting control of the Company.
Accordingly, our Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common
Stock. The issuance of Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company.