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, including
our financial statements and the related notes and the section of this Annual Report titled “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, results of operations 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 may also impair our business operations.
Risks Related to Our Company, Early Stage of
Clinical Development and Financial Condition
We need to obtain
substantial additional funding to complete the development and any commercialization of AL001 and ALZN002. If we are unable to raise this
capital when needed, we may be forced to delay, reduce or eliminate our research and development programs and other operations.
We
expect our expenses to increase substantially during the next few years. The development of biotechnology product candidates is capital
intensive. As we conduct non-clinical research and clinical development of our product candidates,
we will need substantial additional funds to maintain and expand our capabilities in a variety of areas including discovery and non-clinical
research, clinical development, regulatory affairs, product development, product quality assurance, and pharmacovigilance. In addition,
if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses for marketing,
sales, manufacturing and distribution. Some of those commercialization investments may be made at-risk in advance of receiving an approval.
As
of April 30, 2025, we had $3.9 million in cash and cash equivalents. In February 2025, we entered into a transaction with an investor
that resulted in raising an additional $4.0 million subsequent to year end. Based on our current operating plan, we believe that this
funding will not be sufficient to fund our operations for the next twelve months. In particular, we need additional funds to allow us
to fund Phase II clinical trials for AL001 in Alzheimer’s, BD, MDD and PTSD and to complete the on-going Phase I/IIA clinical trial
for ALZN002 to treat mild to moderate dementia of the Alzheimer’s type. However, changing circumstances or inaccurate estimates
by us may cause us to use capital significantly faster than we currently anticipate, and we may need to spend more money than currently
expected because of circumstances beyond our control. For example, our ongoing clinical trial for ALZN002 or our planned clinical trials
for AL001 may encounter technical, enrollment or other issues that could cause our development costs to increase more than we expect.
We will not have sufficient funds to complete any of these planned or ongoing clinical trials or the clinical development of either AL001
or ALZN002 through regulatory approval. We will need to raise substantial additional capital to complete the development and commercialization
of each of those product candidates, which additional capital, if available on reasonable terms if at all, may be raised through the sale
of our common stock or other securities or through the entering into of alternative strategic transactions, or cause our stockholders
to incur substantial dilution.
Our
future capital requirements will depend on many factors, including:
• the costs and timing of manufacturing for our product candidates, if approved;
• the costs associated with being a public company;
Our commercial revenues, if
any, will be derived from sales of products that we do not expect to be commercially available for sale for at least the next several
years, if ever. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Adequate
additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable
market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If
we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development
programs or other operations.
Our independent registered public accounting
firm has expressed substantial doubt about our ability to continue as a going concern.
Our independent registered
public accounting firm has issued a going concern opinion on our financial statements for the year ended April 30, 2025, expressing substantial
doubt that we can continue as an ongoing business due to insufficient capital for us to fund our operations. Our financial statements
do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to successfully raise additional
capital, we will need to create and implement alternate operational plans to continue as a going concern, and investors or other financing
sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all.
We are at an early stage of clinical development
and currently have no source of near-term revenue and may never become profitable.
We are a clinical-stage biopharmaceutical
company. We have recently initiated clinical trials for our AL001 and ALZN002 programs. To date, we have not initiated or completed a
pivotal clinical trial, obtained marketing approval for any product candidates, manufactured a commercial scale product or arranged for
a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization.
Our ability to generate revenue depends heavily on, among other developments:
• market acceptance of AL001 and ALZN002.
We only have two product candidates,
AL001 and ALZN002, which will require extensive clinical evaluation, regulatory review and approval, significant marketing efforts and
substantial investment before either or both of them, and any respective successors, will provide us with any revenue. As a result, if
we do not successfully develop, achieve regulatory approval for and commercialize AL001 or ALZN002, we will be unable to generate any
revenue for many years, if at all. We do not anticipate that we will generate revenue for a least the next several years, if ever,
or that we will achieve profitability for at least several years thereafter, if at all. If we are unable to generate revenue, we
will not become profitable, and we may be unable to continue our operations.
We have a limited operating history on which
to judge our business prospects and management.
We were incorporated in February 2016
and commenced operations shortly thereafter. We have a limited operating history upon which to base an evaluation of our business and
prospects. Operating results for future periods are subject to numerous uncertainties and we cannot assure you that we will achieve or
sustain profitability. Our prospects must be considered in light of the risks encountered by companies in the early stage of development,
particularly companies in new and rapidly evolving markets with long periods of time before they can ever generate revenue, and then subsequently
achieve profitability, if ever. Future operating results will depend upon many factors, including our success in attracting and retaining
motivated and qualified personnel, our ability to establish short term credit lines or obtain financing from other sources, our ability
to develop and market new products or control costs, and general economic conditions. We cannot assure you that we will successfully address
any of these contingencies.
Risks Related to Our Product Candidates
We have both operational and financial milestones
that must be met to maintain the licensing rights to our current technology and intellectual property from the Licensor.
There are certain license
fees and milestone payments required to be paid by us to the Licensor, pursuant to the terms of license agreements we have entered into
with the Licensor. The license agreements for ALZN002 require us to pay royalty payments of 4% on net sales of products developed from
the licensed technology for ALZN002 while the license agreements for AL001 require that we pay combined royalty payments of 4.5% on net
sales of products developed from the licensed technology for AL001. We have already paid an initial license fee of $200,000 for ALZN002
and an initial license fee of $200,000 for AL001. As an additional licensing fee for the license of ALZN002, the Licensor received 24,012
shares of our common stock. As an additional licensing fee for the license of the AL001 technologies, the Licensor received 14,853 shares
of our common stock. Minimum royalties for AL001 License Agreements are $40,000 on the first anniversary of the first commercial sale,
$80,000 on the second anniversary first commercial sale and $100,000 on the third anniversary of the first commercial sale and every year
thereafter, for the life of the AL001 License Agreements. Minimum royalties for ALZN002 are $20,000 on the first anniversary of the first
commercial sale, $40,000 on the second anniversary first commercial sale and $50,000 on the third anniversary of the first commercial
sale and every year thereafter, for the life of the ALZN002 License Agreement. Minimum royalties for November AL001 License Agreements
are $40,000 on the first anniversary of the first commercial sale, $80,000 on the second anniversary first commercial sale and $100,000
on the third anniversary of the first commercial sale and every year thereafter, for the life of the November AL001 License Agreements
.Additionally, we are required to pay milestone payments on the due dates to the Licensor for the license of the AL001 technologies and
for the ALZN002 technology, as follows:
Original AL001 Licenses:
Payment Due Date
$ 50,000* Pre-IND Meeting - Completed September 2019
$ 65,000* IND application filing - Completed June 2021
$ 500,000* Upon completion of first clinical trial - Completed March 2022
$ 1,250,000 Upon first patient treated in a Phase III clinical trial
* Milestone met and completed
ALZN002 License:
Payment Due Date
$ 50,000* Upon IND application - Completed January 2022
$ 50,000 Upon first dosing of patient in first Phase I clinical trial
$ 500,000 Upon completion of first Phase IIB clinical trial
$ 1,000,000 Upon first patient treated in a Phase III clinical trial
* Milestone met and completed
Additional AL001 Licenses:
Payment Due Date
$ 2,000,000 Upon first patient treated in a Phase III clinical trial
These AL001 License Agreements
have an indefinite term that continue until the later of the date no licensed patent under the applicable agreement remains a pending
application or enforceable patent, the end date of any period of market exclusivity granted by a governmental regulatory body, or the
date on which the licensee’s obligations to pay royalties expire under the applicable license agreement.
If we fail to comply with our obligations
in the agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions
to our business relationships with the Licensor, we could lose license rights that are important to our business.
We are a party to these license
agreements with the Licensor and expect to enter into additional license agreements in the future. The existing license agreements impose,
and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If
we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, we may be required to make certain payments
to the Licensor, we may lose the exclusivity of our license, or the Licensor may have the right to terminate the license, in which event
we would not be able to develop or market products covered by the license and would be forced to wind down our operations. The Licensor
or any future licensor may take any of these actions, including terminating a license agreement. Additionally, the milestone and other
payments associated with these licenses will make it less profitable for us to develop our product candidates. If the Licensor were to
terminate a license agreement for whatever reason, it would materially and adversely affect our business, financial position and future
prospects and you would likely lose the entirety of your investment in us.
In some cases, patent prosecution
of our licensed technology is controlled solely by the Licensor. If the Licensor fails to obtain and maintain patent or other protection
for the proprietary intellectual property we license, we could lose our rights to the intellectual property or our exclusivity with respect
to those rights, and our competitors could market competing products using the intellectual property. Licensing of intellectual property
is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise regarding intellectual
property subject to a licensing agreement, including but not limited to:
• the sublicensing of patent and other rights;
• the priority of invention of patented technology.
If disputes over intellectual
property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable
terms, we may be unable to successfully develop and commercialize the affected product candidates.
We are substantially dependent on the success
of our product candidates, which may not receive regulatory approval or be successfully commercialized.
In the future, we plan to
submit AL001 and ALZN002 and, potentially, other product candidates for regulatory approval. Currently, however, neither AL001 nor ALZN002
has been submitted for regulatory approval, which would be required before we seek to initiate commercial distribution. To date, we have
invested nearly all of our resources in establishing our company, acquiring the intellectual property of our product candidates, AL001
and ALZN002 and conducting certain preclinical studies and clinical trials. Our near-term prospects, including our ability to finance
our company and to enter into strategic collaborations and, ultimately, to generate revenue, are directly dependent upon the successful
development, FDA approval and commercialization of AL001 or ALZN002.
The development and commercial
success of our product will depend on a number of factors, including, without limitation, the following:
• competition with other treatments;
Many of these factors are
beyond our control, and we cannot assure you that we will ever be able to generate sufficient revenue, or any revenue at all, from the
sale of AL001 or ALZN002. Our failure in any of the above factors, or in successfully commercializing AL001 or ALZN002 on a timely basis,
could have a material adverse effect on our business, results of operations and financial condition, and the value of your investment
could substantially decline.
AL001 and ALZN002 may not achieve market acceptance, which would
significantly limit our ability to generate revenue.
Even if we develop AL001 or
ALZN002 and gain regulatory approvals for either or both candidates, unless physicians and patients accept our product candidates, we
may not be able to sell them, whether directly or indirectly, and generate significant revenues. We cannot assure you that AL001, ALZN002
or any other potential product candidates we may eventually develop will achieve market acceptance and revenue if and when they obtain
the requisite regulatory approvals. Market acceptance of any product candidate depends on a number of factors, including but not limited
to:
• continued demonstration to the FDA of safety and efficacy in commercial use;
• physicians’ willingness to prescribe the product;
• the price of the product;
• competition; and
• the effectiveness of marketing and distribution support.
Any failure by AL001 or ALZN002
to achieve market acceptance or commercial success could have a material adverse effect on our business, results of operations and financial
condition.
Problems in the manufacturing process, failure
to comply with manufacturing regulations or unexpected increases in manufacturing costs could harm our business, results of operations
and financial condition.
We are responsible for the
manufacture and supply of AL001 and ALZN002 independently of each other. The manufacturing of AL001 and ALZN002 necessitates compliance
with applicable regulatory requirements of the FDA and the European Union, as well as with international cGMP and other international
regulatory requirements. As of the date of this Annual Report, we do not have our own manufacturing facilities. We have contracted with
a third-party manufacturer for the clinical supply of AL001 using GMP manufacturing for our planned AL001 clinical trials and plan to
contract with established third parties for the long-term commercial production of AL001 and ALZN002. The responsibility to obtain market
authorization for AL001 and ALZN002 remains with us. As such, even if we could potentially have a claim against one or more third parties,
we are legally liable for any noncompliance related to AL001 and ALZN002 and we expect to retain legal responsibility for any future product
candidates as well.
Additionally, we may have
limited control over the associated manufacturing costs and potential unexpected increases in those costs over time. If costs increase,
we may choose to pass on such costs to our customers, which could reduce our ability to compete by increasing the prices of our products
(which we expect to be priced at a significant premium over competing generic products). See “Risks Related to Our Business and
Industry — We expect to face substantial competition, with other entities possibly discovering, developing or commercializing
products before, or more successfully than, we do.” If we cannot pass on all such costs to our customers, then our profitability
would be adversely affected.
If we are unable to manufacture,
or contract to manufacture, AL001 and ALZN002 in accordance with regulatory specifications, or if there are disruptions in the manufacturing
process due to damage, loss or failure to meet regulatory requirements (including passing inspections) of manufacturing facilities, we
may not be able to meet the demand for our products or supply sufficient product for use in clinical trials, and this may harm our ability
to commercialize AL001 and ALZN002 on a timely or cost-competitive basis, or preclude us from doing so at all, which could harm our business,
results of operations and financial condition.
Before we or any future commercial
partners can begin commercial manufacture of AL001 and ALZN002 or any other product candidate that we may develop in the future, we must
obtain FDA regulatory approval for the product, which requires a successful FDA inspection of our manufacturing facilities (or those we
contract with) and the development of quality systems, among other requirements. Even if we successfully pass an FDA Pre-Approval Inspection
of any manufacturing facilities we may establish or contract with, our pharmaceutical facilities would be subject to unannounced inspection
by the FDA and foreign regulatory authorities to ensure ongoing manufacturing compliance, even after product approval. Due to the complexity
of the processes that we anticipate will eventually be used to manufacture AL001 and ALZN002, we may be unable to pass federal, state
or international regulatory inspections in a cost-effective manner, whether initially or at any time thereafter. If we are unable to comply
with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of any approved products,
or legal actions such as injunctions or criminal or civil prosecution. These possible sanctions could materially and adversely affect
our business, results of operations and financial condition. See also “Risks Related to Development and Regulatory Approval of Our
Product.” The regulatory approval process is uncertain, requires us to utilize significant financial, physical and human resources,
and may prevent us or our future commercial partners from obtaining approvals for the commercialization of some or all of our product
candidates.
Serious adverse events or other safety risks
could require us to abandon development and preclude, delay or limit approval of AL001 or ALZN002, or limit the scope of any approved
label or market acceptance.
If AL001, ALZN002 or any other
product candidate that we may develop in the future, prior to or after any approval for commercial sale, causes serious or unexpected
side effects, or become associated with other safety risks such as misuse, abuse or diversion, a number of potentially significant negative
consequences could result, including, without limitation, that:
• regulatory authorities may interrupt, delay or halt clinical trials;
• regulatory authorities may deny regulatory approval of AL001 or ALZN002;
• we could be sued and held liable for harm caused to patients; and
• our reputation may suffer.
We may voluntarily suspend
or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants or if preliminary data
demonstrate that either AL001 or ALZN002 is unlikely to receive regulatory approval or is unlikely to be successfully commercialized.
In addition, regulatory agencies, an Ethics Committee or an IRB, or data safety monitoring boards may at any time recommend the temporary
or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe
that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable
safety risk to participants. If we elect or are forced to suspend or terminate a clinical trial of AL001, ALZN002 or any other product
candidate that we may in the future develop, the commercial prospects for that product will be harmed and our ability to generate product
revenue from that product may be delayed or eliminated. Furthermore, any of these events could prevent us or our partners from achieving
or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing AL001 or ALZN002
and materially impair our ability to generate revenue from the commercialization of AL001 or ALZN002 either by us or by any future commercial
partners with which we may develop a relationship, which and could have a material adverse effect on our reputation, business, results
of operations and financial condition.
If we fail to obtain and sustain an adequate
level of reimbursement for our products by third-party payers, sales and profitability will be adversely affected.
The course of medical treatment
for human patients is, and will continue to be, expensive. We expect that most patients and their families will not be capable of paying
for our potential products themselves.
Accordingly, it is unlikely
that there will be a commercially viable market for AL001 or ALZN002, if approved, without reimbursement and coverage from third-party
payers. Obtaining reimbursement approval and coverage from third-party payers is a time consuming and expensive process, and we cannot
be certain that reimbursement will be approved and coverage obtained for our current product candidates or any other product candidate
we may develop. Additionally, even if there is some form of reimbursement and coverage from third-party payers, if the level of third-party
reimbursement is insufficient from the patient’s perspective or coverage is limited, our revenue and gross margins will be materially
and adversely affected.
A current trend in the U.S.
health care industry, as well as in other countries around the world, is toward cost containment. Large public and private payers, managed
care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding
the use of, and reimbursement levels for, particular treatments. Third-party payers, such as government programs, including Medicare in
the United States, and private health care insurers, carefully review and have increasingly been challenging the coverage of, and prices
charged for, medical products and services. Many third-party payers limit coverage of or reimbursement for newly-approved health care
products. Reimbursement rates and coverage from private health insurance companies vary depending on the company, the insurance plan and
other factors. Cost-control initiatives could decrease the price we or our partners establish for products, which could result in lower
product revenue and profitability.
Reimbursement systems in international
markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. Our eventual
partners may elect to reduce the price of our products in order to increase the likelihood of obtaining reimbursement approvals. In many
countries, products cannot be commercially launched until reimbursement is approved and the negotiation process in some countries can
exceed 12 months. In addition, pricing and reimbursement decisions in certain countries can be affected by decisions taken in other
countries, which can lead to mandatory price reductions and/or additional reimbursement restrictions across a number of other countries,
which may adversely affect our sales and profitability. If countries set prices that are not sufficient to allow us or our partners to
generate a profit, our partners may refuse to launch the product in such countries or withdraw the product from the market, which would
adversely affect our sales and profitability and could materially and adversely affect our business, results of operations and financial
condition.
Risks Related to Development and Regulatory
Approval of Our Drug Candidates
The regulatory approval process is uncertain,
requires us to utilize significant resources, and may prevent us or our future commercial partners from obtaining approvals for the commercialization
of AL001 or ALZN002.
The research, testing, manufacturing,
labeling, approval, sale, marketing and testing of AL001 and ALZN002 are and will be subject to extensive regulation by regulatory authorities
in the United States, Europe and elsewhere, and regulatory requirements applicable to our product differ from country to country. Neither
we nor any commercial partner will be permitted to market any of our current or future product candidates in the United States until we
receive approval from the FDA of either an NDA or a BLA for AL001 and ALZN002, respectively. Obtaining approval of an NDA or a BLA is
an uncertain process that requires us to utilize significant resources. Furthermore, regulatory authorities possess broad discretion regarding
processing time and usually request additional information and raise questions which have to be answered. There is considerable uncertainty
regarding the times at which products may be approved and we have no control over the FDA review process. In addition, failure to comply
with FDA and other applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions,
including: warning letters, civil and criminal penalties, injunctions, withdrawal of approved products from the market, product seizure
or detention, product recalls, total or partial suspension of production, and refusal to approve pending applications or supplements to
approved applications.
Even if we fully comply with
all applicable laws and regulations, the FDA may still determine that our clinical data are insufficient for final approval of an NDA
or a BLA. The process required by the FDA and most foreign regulatory authorities before human health care pharmaceuticals may be marketed
generally involves nonclinical laboratory and, in some cases, animal tests; submission of an IND, which must become effective before clinical
trials may begin; adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its
intended use or uses; pre-approval inspection of manufacturing facilities and clinical trial sites; and FDA approval of an NDA or BLA,
which must occur before a drug can be marketed or sold.
Regulatory approval of an
NDA or a BLA, or any supplement thereof, is not guaranteed, and the approval process requires us to utilize significant resources, could
take several years, and is subject to the substantial discretion of the FDA. Despite the time and expense exerted, failure can occur
at any stage, and we could encounter problems that cause us to abandon or have to repeat or perform additional studies. If our product
or any of our future product candidates fails to demonstrate safety and efficacy in our studies, or for any other reason does not gain
regulatory approval, our business and results of operations will be materially and adversely harmed.
In addition, separate regulatory
approvals are required in order to market any product in many jurisdictions, including the United States, the United Kingdom, European
Economic Area, which consists of the 27 Member States (known as the “EU Member States”) of the European Union plus Norway,
Iceland and Liechtenstein, and others. Approval procedures vary among countries and can involve additional studies and testing, and the
time required to obtain approval may differ from that required to obtain FDA approval. Studies conducted in one country may not be accepted
by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries,
and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries
or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory
process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may
be unable to file for regulatory approvals or do so on a timely basis and, even if we are able to, we may not receive necessary approvals
to commercialize our products in any market. Any of these results could have a material adverse effect on our business, results of operations
and financial condition.
There is a high rate of failure for drug
candidates proceeding through clinical trials.
Generally speaking, there
is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our clinical trials
similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising
results in earlier trials. Further, even if we view the results of a clinical trial to be positive, the FDA or other regulatory authorities
may disagree with our interpretation of the data. For instance, any such differing interpretation could cause the FDA to require additional
trials. In the event that:
(iii) the FDA does not approve our NDA for AL001 or our BLA for ALZN002, then:
• our ability to execute our current business plan will be materially impaired;
• the price of our common stock would likely decrease significantly.
Any of these results could
materially and adversely affect our business, results of operations or financial condition.
Most attempts at
drug approval for Alzheimer’s have failed.
Despite
billions of dollars invested by the NIH and the biopharmaceutical industry in research programs to develop novel therapeutics for Alzheimer’s,
the FDA has only approved three new drugs for Alzheimer’s since 2003; in June 2021, aducanumab
(Biogen, Inc) received approval from the FDA for the treatment of Alzheimer’s using the accelerated approval pathway; in July 2023,
Leqembi (Eisai) received full approval by the FDA for treatment of Alzheimer’s; and in July 2024, Kisunla (Eli Lilly) received full
approval by the FDA for treatment of Alzheimer’s. Since 2003, many new types and classes of drugs have been developed and tested
in Alzheimer’s, including monoclonal antibodies, gamma secretase modulators and inhibitors, β-site amyloid precursor protein
cleaving enzyme inhibitors, receptor for advanced glycation end-products inhibitors, nicotinic partial agonists and allosteric modulators,
serotonin subtype receptor antagonists, and others. Except for Biogen’s, Eisai’s and Eli Lilly’s approvals, referred
to above, virtually all of these scientific programs have failed in clinical testing.
Clinical trials for AL001 or ALZN002 can
be expensive, time consuming, uncertain and susceptible to change, delay or termination.
Clinical trials are expensive,
time consuming and difficult to design and implement. The result of a clinical trial may be undesirable and can result in a clinical trial
cancellation or the need for re-evaluation and supplementation. Even if the results of our clinical trials are favorable, the clinical
trials for AL001 or ALZN002 are expected to continue for a few years and may even take significantly longer to complete. In addition,
we, the FDA, an IRB, or other regulatory authority, whether in the United States, European Union or elsewhere, may suspend, delay or terminate
our clinical trials at any time, for various reasons, including, without limitation:
• lack of effectiveness of AL001 or ALZN002 during clinical trials;
• inadequacy of or changes in our manufacturing process or product formulation;
• changes in applicable regulatory policies and regulations;
• unfavorable results from ongoing preclinical studies and clinical trials;
• scheduling conflicts with participating clinicians and clinical institutions;
• failure to design appropriate clinical trial protocols; or
The occurrence of any of the
foregoing could have a material adverse effect on our business, results of operations and financial condition. See the risk factor “There
is a high rate of failure for drug candidates proceeding through clinical trials” above.
If our products do not receive breakthrough
therapy designation, it could potentially increase the FDA’s review time and adversely impact our development timeline. Even if
the FDA grants breakthrough therapy designation, it does not guarantee faster product development or FDA review and does not necessarily
increase the likelihood of the product candidates receiving approval from the FDA.
Breakthrough therapy designation
is reserved for drug or biologic products that are intended to treat serious conditions and for which preliminary clinical evidence indicates
that the candidate may demonstrate a substantial improvement on one or more clinically significant endpoints over currently available
therapies. The benefits of receiving the designation include additional guidance from FDA throughout the development process, assistance
with designing clinical trials, and coordination with FDA senior managers and experienced review staff. We plan to seek breakthrough therapy
designation for both AL001 and ALZN002. However, we have neither received breakthrough therapy designation nor have we qualified
for expedited development, and no assurance can be given that we will. Even if we qualify for breakthrough therapy designation or expedited
development, it may not actually lead to faster development or expedited regulatory review and approval or necessarily increase the likelihood
that we will receive FDA approval.
Even if we believe that our
products are strong candidates for breakthrough therapy designation, it is possible that the FDA may determine that our preliminary clinical
evidence is insufficient to justify breakthrough therapy designation. Without this designation, we would not be able to benefit from the
increased FDA guidance and assistance throughout the development process, and it is possible that our development timeline could be extended.
The breakthrough therapy designation,
while at times advantageous for the development process for the reasons identified above, may nevertheless have little or no positive
impact on our development process. There is no guarantee that, even with the FDA’s assistance through the breakthrough therapy designation,
that the development process will be accelerated, the FDA will review or approve our submissions in a timely manner, or that our product
candidates will ultimately receive approval from the FDA.
In summary, we cannot guarantee
that our product candidates will receive breakthrough therapy designations and, even if one does, we cannot guarantee that such designations
will have any bearing on the FDA’s review or approval of our product candidates.
Even if we receive regulatory approval for
any of our future product candidates, we will be subject to ongoing FDA and other regulatory body obligations and continued regulatory
review, which may result in significant additional expense. Additionally, our product candidates, if approved, will be subject to labeling
and manufacturing requirements and could be subject to other restrictions. Failure to comply with these regulatory requirements or the
occurrence of unanticipated problems with our products could result in significant penalties.
Any regulatory approvals that
we or any of our collaborators receive for AL001, ALZN002 or any future product candidate may be subject to conditions of approval or
limitations on the approved indicated uses for which the product may be marketed or may contain requirements for potentially costly surveillance
to monitor the safety and efficacy of the product candidate. In addition, AL001, ALZN002 and any of our future product candidates, if
approved by the FDA or other regulatory bodies, will be subject to extensive and ongoing regulatory requirements regarding the manufacturing
processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping. These requirements
will include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with
cGMP, Good Laboratory Practice and Good Clinical Practice, the three types of audits related to the progressive stages needed to bring
a pharmaceutical product to market, for any studies that we conduct post-approval. Later discovery of previously unknown problems with
a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes,
or failure to comply with regulatory requirements, may result in, among other things:
• fines, warning letters or holds on target studies;
• injunctions or the imposition of civil or criminal penalties.
The policies of the FDA and
other regulatory bodies may change, and additional government regulations may be promulgated that could prevent, limit or delay regulatory
approval of AL001 or ALZN002. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation
or administrative action, either in the United States or elsewhere. If we are slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval
that we may have obtained, and we may not achieve or sustain profitability, which would materially and adversely affect our business,
results of operations and financial condition.
AL001 or ALZN002 and any of our future product
candidates, if approved, may cause or contribute to adverse medical events that we are required to report to the FDA and regulatory authorities
in other countries and, if we fail to do so, we could be subject to sanctions that would materially harm our business.
If we are successful in commercializing
AL001, ALZN002 or any of our future product candidates, regulations promulgated by the FDA and by the regulatory authorities in other
countries require that we report certain information about adverse medical events if those products may have caused or contributed to
those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well
as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail
to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if
it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations,
the FDA and regulatory authorities in other countries could take action including criminal prosecution, the imposition of civil monetary
penalties, seizure of our products, or delay in approval or clearance of future products, which could have a material adverse effect on
our business, results of operations and financial condition.
Legislative or regulatory reforms with respect
to products may make it more difficult and costly for us to obtain regulatory clearance or approval of AL001, ALZN002 or any of our future
product candidates and to produce, market, and distribute our products after clearance or approval is obtained.
From time to time, legislation
is drafted and introduced in the U.S. Congress and lawmaking bodies in states and other countries that could significantly change the
statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition,
FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our
products. Similar changes in regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing
regulations in the United States or in other countries may impose additional costs or lengthen review times of AL001, ALZN002 and any
of our future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies,
when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
• requests for additional endpoints or studies;
• changes to manufacturing methods;
• recall, replacement, or discontinuance of certain products; and
• additional record keeping.
Each of these would likely
entail substantial time and cost and could have a material adverse effect on our ability to obtain regulatory approval for our product
candidates. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products could materially
and adversely affect our business, results of operations and financial condition.
Our ability to market AL001, ALZN002 and
any future product candidates in the United States, if approved, will be limited to use for the treatment of the indications for which
they are approved, and if we want to expand the indications for which we may market AL001, ALZN002 and any future product candidates,
we will need to obtain additional FDA approvals, which may not be granted.
We plan to seek full FDA approval
in the United States for AL001 and ALZN002 to treat neurodegenerative diseases and psychiatric disorders, including Alzheimer’s,
BD, MDD and PTSD. If AL001 or ALZN002 is approved, the FDA will restrict our ability to market or advertise it for the treatment of indications
other than the one for which it is approved, which would limit its use. If we decide to attempt to develop, promote and commercialize
new treatment indications and protocols for AL001, ALZN002 and potentially other product candidates in the future, we could not predict
when, or if, we would ever receive the approvals required to do so. We would be required to conduct additional studies to support such
applications for additional use, which would consume additional resources and may produce results that do not result in FDA approvals.
If we do not obtain additional FDA approvals, our ability to expand our business in the United States would be adversely affected, which
could materially and adversely affect our business, results of operations and financial condition.
The anticipated development of a REMS for
AL001 or ALZN002 could cause delays in the approval process and would add additional layers of regulatory requirements that could impact
our ability to commercialize AL001 and ALZN002 in the United States and reduce their market potential.
As a condition of approval
of an NDA or a BLA, the FDA may require a REMS to ensure that the benefits of the drug outweigh the potential risks. REMS elements can
include medication guides, communication plans for health care professionals, and elements to assure safe use (“ETASU”). ETASU’s
can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances,
special monitoring, and the use of patient registries. Moreover, product approval may require substantial post-approval testing and surveillance
to monitor the drug’s safety or efficacy. We may be required to adopt a REMS for AL001 or ALZN002 to ensure that the benefits outweigh
the risks of abuse, misuse, diversion and other potential safety concerns. Even if the risk of abuse, misuse or diversion are not as high
as for some other products, there can be no assurance that the FDA will approve a manageable REMS for AL001 or ALZN002, which could create
material and significant limits on our ability to successfully commercialize AL001 and ALZN002 in the U.S. Delays in the REMS approval
process could result in delays in the NDA or BLA approval process, respectively. In addition, as part of the REMS, the FDA could require
significant restrictions, such as restrictions on the prescription, distribution and patient use of the product, which could significantly
impact our ability to effectively commercialize AL001 or ALZN002, and dramatically reduce their market potential thereby adversely impacting
our business, financial condition and results of operations. Even if initial REMS are not highly restrictive, if, after launch, AL001,
ALZN002 and other drug candidates were to become subject to significant abuse/non-medical use or diversion from licit channels, this could
lead to negative regulatory consequences, including a more restrictive REMS, which could materially and adversely affect our business,
results of operations and financial condition.
If we are found in violation of “fraud
and abuse” laws, we may be subject to criminal and civil penalties and/or be suspended or excluded from participation in government-run
health care programs, which may adversely affect our business, financial condition and results of operations.
If we are successful in obtaining
marketing approval for our products in the United States and elsewhere, we will be subject to various health care “fraud and abuse”
laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and abuse in government-run health care
programs, which could materially and adversely affect us, particularly upon successful commercialization of our products in the United
States. For example, the federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or
a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the
referral of business, including the purchase, order or prescription of a particular drug for which payment may be made under a U.S. health
care program such as Medicare or Medicaid. Under U.S. federal government regulations, some arrangements, known as safe harbors, are deemed
not to violate the Anti-Kickback Statute. Compliance with every element of a safe harbor regulation is required for the arrangement to
be protected. However, arrangements that do not comply with a safe harbor are not per se illegal. Instead, they will be analyzed on a
case-by-case basis. Although we intend to seek to structure our business arrangements in compliance with all applicable requirements,
these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances.
Accordingly, it is possible that our practices may be challenged under the Anti-Kickback Statute and similar laws in other jurisdictions.
Further, false claims laws
prohibit anyone from knowingly and willfully presenting or causing to be presented for payment to third-party payers, including government
payers, reimbursement claims for drugs or services that are false or fraudulent, claims for items or services that were not provided as
claimed, or claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that off-label
promotion of pharmaceutical products or the payment of kickbacks by pharmaceutical providers has resulted in the submission of false claims
to governmental health care programs. Under laws such as the Health Insurance Portability and Accountability Act of 1996 in the United
States, we are prohibited from knowingly and willfully executing a scheme to defraud any health care benefit program, including private
payers, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. Violations of fraud and
abuse laws may be punishable by criminal and/or civil sanctions, including fines and/or exclusion or suspension from government-run health
care programs such as Medicare and Medicaid and debarment from contracting with the U.S. and other governments. In addition, in the United
States, individuals have the ability to bring actions on behalf of the government and potentially share in the recovery under the federal
False Claims Act as well as under state false claims laws.
Many states in the United
States have adopted fraud and abuse laws similar to their federal counterparts, including laws similar to the Anti-Kickback Statute, some
of which apply to the referral of patients for health care services reimbursed by any source, not just governmental payers. In addition,
California and some other states in the United States have passed laws that require pharmaceutical companies to comply with the April 2003
Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers
of America Code on Interactions with Health Care Professionals. In addition, several states impose other marketing restrictions or require
pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with
these state requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties.
We have yet to receive definitive
guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing
these laws, and it is possible that some of our future practices may be challenged under these laws. While we believe we will be able
to structure our business arrangements to comply with these laws, it is possible that the government could in the future allege violations
of, or convict us of violating, these laws. If we are found in violation of one of these laws, we could be required to pay a penalty and
could be suspended or excluded from participation in certain government-run health care programs, and our business, results of operations
and financial condition may be materially and adversely affected.
Risks Related to Our Business and Industry
If we fail to attract and keep senior management
and key scientific personnel, we may be unable to successfully develop AL001, ALZN002 or any future product candidates, conduct our in-licensing
and development efforts or commercialize AL001, ALZN002 or any of our future product candidates.
Our future growth and success
depend in part on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We are highly
dependent upon our senior management, particularly Stephan Jackman, our Chief Executive Officer, David J. Katzoff, our Chief Financial
Officer, Kenneth S. Cragun, our Senior Vice President of Finance and Henry Nisser, our Executive Vice President and General Counsel. The
loss of services of any of these individuals could delay or prevent the successful development of our current or future product pipeline,
completion of our planned development efforts or the commercialization of AL001 or ALZN002. It is possible that current or former employees
of ours could put forward claims for an alleged right to our patents and demand compensation therefor. If one or more of the key personnel
were to leave us and engage in competing operations, our business, results of operations and financial condition could be materially and
adversely affected.
We expect to face substantial competition,
with other entities possibly discovering, developing or commercializing products before, or more successfully than, we do.
The development, FDA approval
and commercialization of new therapy and vaccine products is highly competitive. We will face competition with respect to AL001, ALZN002
and any other product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty
pharmaceutical companies and biotechnology companies worldwide. In addition to existing therapeutic treatments for the indications we
are targeting with AL001 and ALZN002, we also face potential competition from other drug candidates in development by other companies.
Our potential competitors include, without limitation, large health care companies, such as AbbVie, Biogen Inc., Eisai Co., Ltd., Takeda
Pharmaceuticals, Bristol Myers Squibb, Pfizer Inc., Merck & Co., Inc., Sanofi S.A., Eli Lilly and Company, Bayer AG, Novartis AG,
Johnson and Johnson and Boehringer Ingelheim GmbH. We also know of several smaller early-stage companies that are developing
products for use in our segment of the market. Some of the potential competitive compounds referred to above are being developed by large,
well-financed and established pharmaceutical and biotechnology companies or have been partnered with such companies, which may give them
development, regulatory and marketing advantages over our products.
Our commercial opportunity
could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less
severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain
FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many
cases by insurers or other third-party payers seeking to encourage the use of generic products. If AL001 or ALZN002 achieves marketing
approval, we expect that it will be priced at a significant premium over competing generic products.
Some of the companies against
which we are competing or against which we may compete in the future have significantly greater financial, physical and human resources
and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals
and marketing approved products than we do. 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 and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
If we are unable to compete
successfully, we may be unable to grow and sustain our revenue, which could materially and adversely affect our business, results of operations
and financial condition.
Changes in funding
for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise
prevent our product candidates from being developed or commercialized in a timely manner, which could negatively impact our business.
We
rely on the FDA to assist with the development of our product candidates. The ability of the FDA to review and approve new drug products
can be affected by a variety of factors outside of our control, including government budget and funding levels, ability to hire and retain
key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have
fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development
activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions
at the FDA and other agencies may also slow the time necessary for our product candidates to be reviewed and/or potentially approved by
necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days
beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have
had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly
impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our
business. If the timing of FDA’s review and approval of new products is delayed, the estimated timing of our drug development program
may be delayed, which would materially increase costs of drug development and harm our operations or business.
Risks Related to Our Intellectual Property
We may be forced to litigate to enforce
or defend our intellectual property rights, or the intellectual property rights of our licensors.
We may be forced to litigate
to enforce or defend our intellectual property rights against infringement and unauthorized use by competitors. In so doing, we may place
our intellectual property at risk of being invalidated, held unenforceable, or narrowed in scope. Further, an adverse result in any litigation
or defense proceedings may place pending applications at risk of non-issuance. In addition, if any licensor fails to enforce or defend
its intellectual property rights, this may adversely affect our ability to develop and commercialize AL001 or ALZN002 as well as our ability
to prevent competitors from making, using, and selling competing products. Any such litigation could be very costly and could distract
our management from focusing on operating our business. The existence or outcome of any such litigation could harm our business, results
of operations and financial condition.
Furthermore, because of the
substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
and proprietary information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements
of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results
to be negative, it could have a material adverse effect on the price of our common stock.
We may be unable to adequately prevent disclosure
of trade secrets and other proprietary information.
We rely on trade secrets to
protect our proprietary know-how and technological advances, 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 employees, consultants, outside
scientific collaborators, sponsored researchers 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, others may independently discover our trade secrets and proprietary information.
Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain
or maintain trade secret protection or failure to adequately protect our intellectual property could enable competitors to develop generic
products or use our proprietary information to develop other products that compete with our products or cause additional, material adverse