ITEM 1A. RISK
FACTORS
In addition to other information in
this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business because such
factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the
risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional
risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business,
operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial
condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could
decline, and you may lose all or part of your investment.
Risks Related to our Company
We have had a history of losses
and no revenue, which raises a risk regarding our ability to continue as a going concern in the future.
Since inception through September 30,
2022, we have accumulated a deficit of approximately $246 million. We can offer no assurance that we will ever operate profitably
or that we will generate positive cash flow in the future. To date, we have not generated any revenues from our operations. Our
history of losses and no revenues creates a greater risk of our continued ability to continue as a going concern in the future.
As a result, our management expects the business to continue to experience negative cash flows for the foreseeable future and cannot
predict when, if ever, our business might become profitable. We will need to raise additional funds, and such funds may not be
available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able
to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements.
This may seriously harm our business, financial condition and results of operations.
We are an early clinical stage pharmaceutical
research and development company and may never be able to successfully develop marketable products or generate any revenue. We
have a very limited relevant operating history upon which an evaluation of our performance and prospects can be made. There is
no assurance that our future operations will result in profits. If we cannot generate sufficient revenues, we may suspend or cease
operations.
We are an early clinical stage company and
have not generated any revenues to date and have no operating history. Moreover, we cannot be certain that our research and development
efforts will be successful or, if successful, that our potential drug compounds will ever be approved for sales to pharmaceutical
companies or generate commercial revenues. We have no relevant operating history upon which an evaluation of our performance and
prospects can be made. We are subject to all of the business risks associated with a new enterprise, including, but not limited
to, risks of unforeseen capital requirements, failure of potential drug compounds either in non-clinical testing or in clinical
trials, failure to establish business relationships and competitive disadvantages against larger and more established companies.
If we fail to become profitable, we may suspend or cease operations.
We will need additional funding
and may be unable to raise additional capital when needed, which would force us to delay, reduce or eliminate our research and
development activities.
To date, we have funded our operations primarily
through private placement of our equity securities, grants and our “at the market offering” in connection with an Amended
and Restated Sales Agreement, dated May 1, 2020, with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales Agents”),
pursuant to which we may offer and sell shares of common stock registered under an effective registration statement from time to
time through the Sales Agents.We will need to raise additional
funding and the current economic conditions may have a negative impact on our ability to raise additional needed capital on terms
that are favorable to our Company or at all. We may not be able to generate significant revenues for several years, if at all.
Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available,
we may be required to delay, reduce the scope of, or eliminate one or more of our research and development activities.
Risks Related to our Business
Even if we are able to develop
our potential drug compounds, we may not be able to receive regulatory approval, or if approved, we may not be able to generate
significant revenues or successfully commercialize our products, which will adversely affect our financial results and financial
condition and we will have to delay or terminate some or all of our research and development plans which may force us to cease
operations.
All of our potential drug compounds are exclusively
focused on SIGMAR1 which has not previously been the subject of any approved drug products and will require extensive additional
research and development, including non-clinical testing and clinical trials, as well as regulatory approvals, before we can market
them. In particular, human therapeutic products are subject to rigorous non-clinical and clinical testing and other approval procedures
of the FDA and similar regulatory authorities in other countries. Various federal statutes and regulations also govern or influence
testing, manufacturing, safety, labeling, storage, and record-keeping related to such products and their marketing. We cannot predict
if or when any of the potential drug compounds we intend to develop will be approved for marketing. There are many reasons that
we may fail in our efforts to develop our potential drug compounds. These include:
If we fail to develop our potential
drug compounds, our financial results and financial condition will be adversely affected, we will have to delay or terminate some
or all of our research and development plans and may be forced to cease operations.
Our research and development plans
will require substantial additional future funding which could impact our operations and financial condition.
It will take several years before we
can develop potentially marketable products, if at all. Our research and development plans will require substantial additional
capital, arising from costs to:
● conduct research, non-clinical testing and human clinical trials;
Our future operating and capital needs
will depend on many factors, including:
● the scope and results of pre-clinical testing and human clinical trials;
● the time and costs involved in obtaining regulatory approvals;
● competing technological and market developments;
● our ability to establish additional collaborations;
● changes in our existing collaborations;
● the cost of manufacturing scale -up; and
● the effectiveness of our commercialization activities.
We base our outlook regarding the need
for funds on many uncertain variables. Such uncertainties include the success of our research initiatives, regulatory approvals,
the timing of events outside our direct control such as negotiations with potential strategic partners and other factors. Any of
these uncertain events can significantly change our cash requirements as they determine such one-time events as the receipt or
payment of major milestones and other payments.
Additional funds may be required to
support our operations and if we are unable to obtain them on favorable terms, we may be required to cease or reduce certain further
research and development programs of our drug product platform, sell some or all our intellectual property, merge with another
entity or scale back operations.
If we or any companion diagnostic collaborator
of ours are unable to successfully develop and obtain regulatory approval for companion diagnostic tests for our drug candidates,
or experience significant delays in doing so, we may not realize the commercial potential of our drug candidates.
We analyze genomic data from clinical trials
to identify biomarkers, which we use in the analysis of our clinical trials.
Identification of these patients will
require the use and development of companion diagnostics. According to the FDA’s 2014 guidance document on In Vitro Companion
Diagnostic Devices, for novel therapeutic products that depend on the use of a diagnostic test and where the diagnostic device
could be essential for the safe and effective use of the corresponding therapeutic product, the premarket application for the companion
diagnostic device should be developed and approved or cleared contemporaneously with the therapeutic.
We do not have experience or capabilities
in developing or commercializing diagnostics. It may be necessary to resolve issues such as selectivity/specificity, analytical
validation, reproducibility, or clinical validation of companion diagnostics during the development and regulatory approval processes.
Moreover, even if data from preclinical studies and early clinical trials appear to support development of a companion diagnostic
for a drug candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of the
companion diagnostic. We and our future collaborators may encounter difficulties in developing, obtaining regulatory approval for,
manufacturing and commercializing companion diagnostics similar to those we face with respect to our drug candidates, including
issues with achieving regulatory clearance or approval, production of sufficient quantities at commercial scale and with appropriate
quality standards, and in gaining market acceptance. If we are unable to successfully develop companion diagnostics for our drug
candidates, or experience delays in doing so, the development of these drug candidates may be adversely affected, these drug candidates
may not obtain marketing approval, and we may not realize the full commercial potential of any of these therapeutics that have
or may obtain marketing approval. We may not be able to enter into arrangements with another diagnostic company to develop and
obtain regulatory approval for of an alternative diagnostic test for use in connection with the development and commercialization
of our drug candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or
commercialization of our therapeutic candidates or therapeutics.
Companion diagnostics are subject to
regulation by the FDA and comparable foreign regulatory authorities as medical devices and will likely require separate regulatory
approval prior to commercialization. If we or third parties are unable to successfully develop companion diagnostics for our drug
candidates, or experience delays in doing so:
Even if our drug candidates and any
associated companion diagnostics are approved for marketing, the need for companion diagnostics may slow or limit adoption of our
drug candidates. Our drug candidates may be perceived negatively compared to alternative treatments that do not require the use
of companion diagnostics, either due to the additional cost of the companion diagnostic or the need to complete additional prior
to administering our drug candidates.
If any of these events were to occur, our business
and growth prospects would be harmed materially.
All but one of our
clinical trials to date have been conducted outsidethe United States,and the FDAand otherforeignregulatoryauthoritiesmay not acceptdata fromsuch trials.
The acceptanceof studydatafromclinicaltrialsconductedoutsidetheUnitedStatesby the FDAmaybe subjectto certainconditionsor maynot be acceptedat all.In caseswhere datafromforeignclinicaltrialsareintendedto serveas thesolebasisforregulatoryapproval in theUnitedStates,theFDAwillgenerallynot approvetheapplicationon thebasisof foreigndataaloneunless (i)thedataareapplicableto theUnitedStatespopulationand UnitedStatesmedicalpractice;(ii)thetrialswere performedby clinicalinvestigatorsof recognizedcompetenceand pursuantto good clinicalpracticeregulations;
and (iii)thedatamaybe consideredvalidwithouttheneed foran on-siteinspectionby theFDA,or iftheFDA considerssuch inspectionto be
necessary,theFDAisableto validatethedatathroughan on-siteinspectionor otherappropriatemeans.Many foreignregulatorybodieshave similarapprovalrequirements.In addition,such foreigntrialswould be subjectto theapplicablelocallaws of theforeignjurisdictionswhere thetrialsare conducted.Therecan be no assurancethattheFDAor any otherforeignregulatoryauthoritywillacceptdata fromtrialsconductedoutsideof theUnitedStatesor theapplicablejurisdiction.IftheFDAor any comparable foreignregulatoryauthoritydoes not acceptsuch data,itwould resultin theneed foradditionaltrials, which would be costlyand time-consumingand delayaspectsof our businessplan,and which
mayresultin our product candidatesnot receivingapprovalor clearanceforcommercializationin theapplicablejurisdiction.
We have received Fast Track designation
for one of our compounds and may seek such designation or breakthrough therapy and priority review for other compounds in the future.
Fast Track designation or breakthrough therapy designation may not actually lead to a faster FDA review and approval process.
For some of our compounds, including
ANAVEX®2-73, we hope to benefit from the FDA’s fast track and priority review programs. In February 2020,
the FDA granted Fast Track designation for the ANAVEX®2-73 clinical development program for the treatment of Rett
syndrome. Programs with Fast Track designation may benefit from early and frequent communications with the FDA, potential priority
review and the ability to submit a rolling application for regulatory review. Fast Track designation applies to both the product
candidate and the specific indication for which it is being studied. If any of our compounds receive Fast Track designation but
do not continue to meet the criteria for Fast Track designation, or if our clinical trials are delayed, suspended or terminated,
or put on clinical hold due to unexpected adverse events or issues with clinical supply, we will not receive the benefits associated
with the Fast Track program. Furthermore, Fast Track designation does not change the standards for approval. The receipt of Fast
Track designation for a compound may not result in a faster development or regulatory review or approval process compared to products
considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if
any product candidate qualifies for Fast Track designation, the FDA may later decide that the product candidates no longer meet
the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Fast Track designation
alone does not guarantee qualification for the FDA’s priority review procedures.
Under FDA policies, a compound is eligible
for priority review, or review within a six-month time frame from the time a complete NDA is accepted for filing, if the compound
provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention of a disease. The FDA determines
whether a drug qualifies for Priority Review after an NDA for such drug is submitted to the FDA. Therefore, until NDAs are submitted
for our compounds, we cannot be assured that they will be granted Priority Review. Additionally, even if Priority Review is granted
for one of our compounds, the FDA does not always meet its six-month PDUFA goal date for Priority Review and the review process
is often extended by FDA requests for additional information or clarification.
We may seek Breakthrough Therapy designation
for one or more of our current or future compounds. Designation as a Breakthrough Therapy is largely within the discretion of the
FDA. Accordingly, even if we believe that a compound meets the criteria for designation as a Breakthrough Therapy, the FDA may
disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for
a product candidate may not result in a faster development process, review or approval compared to candidate products considered
for approval under non-expedited FDA review procedures and does not assure ultimate approval by the FDA. In addition,
even if one or more compounds qualify as breakthrough therapies, the FDA may later decide that the product no longer meets the
conditions for qualification and revoke the designation.
Fast track or breakthrough therapy designation
for our compounds may not actually lead to a faster review process, and a delay in the review process or in the approval of our
compounds will delay revenue from their potential sales and will increase the capital necessary to fund these compound development
programs.
We have received orphan drug designation for several
of our compounds, but we may be unable to maintain any benefits associated with orphan drug designation, including market exclusivity.
Under the Orphan Drug Act, the FDA may
grant orphan designation to a drug intended to treat a rare disease or condition or for which there is no reasonable expectation
that the cost of developing and making available in the United States a drug for a disease or condition will be recovered from
sales in the United States for that drug. If a product that has orphan drug designation subsequently receives the first FDA approval
for the indication for which it has such designation, the product is entitled to orphan product exclusivity, which means that the
FDA may not approve any other applications, including a full NDA, to market the same drug or biologic for the same indication for
seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity.
We have received orphan drug designation
for several of our compounds, but we may not be able to obtain or maintain orphan drug exclusivity in the United States for hose
compounds. We may not be the first to obtain marketing approval of any compound for which we have obtained orphan drug designation
for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition,
exclusive marketing rights in the United States may be limited if we seek FDA marketing approval for an indication broader than
the orphan designated indication. Additionally, any compound with orphan drug designation may lose such designation if the FDA
later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or condition. Even after an orphan drug is approved,
the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the
later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In
addition, others may obtain orphan drug exclusivity for products addressing the same diseases or conditions as products we are
developing, thus limiting our ability to compete in the markets addressing such diseases or conditions for a significant period
of time.Orphan drug designation neither shortens the development
time or regulatory review time of a drug nor gives the product candidate any advantage in the regulatory review or approval process
or entitles the product candidate to priority review.
If we fail to demonstrate efficacy
in our non-clinical studies and clinical trials our future business prospects, financial condition and operating results will be
materially adversely affected.
The success of our research and development
efforts will be greatly dependent upon our ability to demonstrate potential drug compound efficacy in non-clinical studies, as
well as in clinical trials. Non-clinical studies involve testing potential drug compounds in appropriate non-human disease models
to demonstrate efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve clinical testing
in humans. If certain non-clinical data reveals potential safety issues or the results are inconsistent with an expectation of
the potential drug compound’s efficacy in humans, the regulatory agencies may require additional more rigorous testing before
allowing human clinical trials. This additional testing will increase program expenses and extend timelines. We may decide to suspend
further testing on our potential drug compounds if, in the judgment of our management and advisors, the non-clinical test results
do not support further development.
Moreover, success in non-clinical testing
and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results
of later clinical trials will replicate the results of prior clinical trials and non-clinical testing. The clinical trial process
may fail to demonstrate that our potential drug compounds are safe for humans and effective for indicated uses. This failure would
cause us to abandon a drug candidate and may delay development of other potential drug compounds. Any delay in, or termination
of, our non-clinical testing or clinical trials will delay the filing of an IND and NDA with the FDA or the equivalent applications
with pharmaceutical regulatory authorities outside the United States and, ultimately, our ability to commercialize our potential
drug compounds and generate product revenues. In addition, we expect that our early clinical trials will involve small patient
populations. Because of the small sample size, the results of these early clinical trials may not be indicative of future results.
Also, the IND process may be extremely costly and may substantially delay the development of our potential drug compounds. Moreover,
positive results of non-clinical tests will not necessarily indicate positive results in subsequent clinical trials.
Following successful non-clinical testing,
potential drug compounds will need to be tested in a clinical development program to provide data on safety and efficacy prior
to becoming eligible for product approval and licensure by regulatory agencies. From the first human trial through to regulatory
approval can take many years and 10-12 years is not unusual for certain compounds.
If any of our future clinical development
potential drug compounds become the subject of problems, our ability to sustain our development programs will become critically
compromised. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the suspension or
termination of our clinical programs. Examples of problems that could arise include, among others:
● manufacturing difficulties or concerns;
● pressure from competitive products; or
● introduction of more effective treatments.
Each clinical phase is designed to test
attributes of the drug and problems that might result in the termination of the entire clinical plan can be revealed at any time
throughout the overall clinical program. The failure to demonstrate efficacy in our clinical trials would have a material adverse
effect on our future business prospects, financial condition and operating results.
If we do not obtain the support
of qualified scientific collaborators, our revenue, growth and profitability will likely be limited, which would have a material
adverse effect on our business.
We will need to establish relationships
with leading scientists and research institutions. We believe that such relationships are pivotal to establishing products using
our technologies as a standard of care for various indications. Additionally, although in discussion, there is no assurance that
our current research partners will continue to work with us or that we will be able to attract additional research partners. If
we are not able to establish scientific relationships to assist in our research and development, we may not be able to successfully
develop our potential drug compounds. If this happens, our business will be adversely affected.
We may not be able to develop,
market or generate sales of our products to the extent anticipated. Our business may fail and investors could lose all their investment
in our Company.
Assuming that we are successful in developing
our potential drug compounds and receiving regulatory clearances to market our products, our ability to successfully penetrate
the market and generate sales of those products may be limited by a number of factors, including the following:
If this happens, our business will be
adversely affected.
None of our potential drug compounds
may reach the commercial market for a number of reasons and our business may fail.
Successful research and development
of pharmaceutical products is high risk. Most products and development candidates fail to reach the market. Our success depends
on the discovery of new drug compounds that we can commercialize. It is possible that our products may never reach the market for
a number of reasons. They may be found ineffective or may cause harmful side-effects during non-clinical testing or clinical trials
or fail to receive necessary regulatory approvals. We may find that certain products cannot be manufactured at a commercial scale
and, therefore, they may not be economical to produce. Our potential products could also fail to achieve market acceptance or be
precluded from commercialization by proprietary rights of third parties. Our patents, patent applications, trademarks and other
intellectual property may be challenged, and this may delay or prohibit us from effectively commercializing our products. Furthermore,
we do not expect our potential drug compounds to be commercially available for a number of years, if at all. If none of our potential
drug compounds reach the commercial market, our business will likely fail and investors will lose all of their investment in our
Company. If this happens, our business will be adversely affected.
If our competitors succeed in
developing products and technologies faster or that are more effective or with a better profile than our own, or if scientific
developments change our understanding of the potential scope and utility of our potential products, then our technologies and future
products may be rendered undesirable or obsolete.
We face significant competition from
industry participants that are pursuing technologies in similar disease states to those that we are pursuing and are developing
pharmaceutical products that are competitive with our products. Nearly all of our industry competitors have greater capital resources,
larger overall research and development staffs and facilities, and a longer history in drug discovery and development, obtaining
regulatory approval and pharmaceutical product manufacturing and marketing than we do. With these additional resources, our competitors
may be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical industries faster
than we can. Our future success will depend in large part on our ability to maintain a competitive position with respect to these
technologies. Rapid technological development, as well as new scientific developments, may result in our products becoming obsolete
before we can recover any of the expenses incurred to develop them. For example, changes in our understanding of the appropriate
population of patients who should be treated with a targeted therapy like we are developing may limit the drug’s market potential
if it is subsequently demonstrated that only certain subsets of patients should be treated with the targeted therapy.
We have advanced our research and development
efforts on the treatment of neurodegenerative and central nervous system, or CNS, disorders, a field that has seen very limited success
in product development.
We have advanced our research
and development efforts on addressing neurodegenerative, neurodevelopmental and CNS disorders. Collectively, efforts by pharmaceutical
companies in the field of neurodegenerative, neurodevelopmental and CNS disorders have seen very limited successes in product
development. The development of neurodegenerative and CNS therapies presents unique challenges, including an imperfect understanding of
the biology, the presence of the blood brain barrier, or BBB, that can restrict the flow of drugs to the brain, a frequent lack of translatability
of preclinical study results in subsequent clinical trials and dose selection, and the product candidate having an effect that may be
too small to be detected using the outcome measures selected in clinical trials or if the outcomes measured do not reach statistical significance.
Our reliance on third parties, such as
university laboratories, contract manufacturing organizations and contract or clinical research organizations, may result in delays
in completing, or a failure to complete, non-clinical testing or clinical trials if they fail to perform under our agreements with
them or non-compliance with regulations.
In the course of product development, we may
engage university laboratories, other biotechnology companies or contract or clinical manufacturing organizations to manufacture
drug material for us to be used in non-clinical and clinical testing and contract research organizations to conduct and manage
non-clinical studies and clinical trials. If we engage these organizations to help us with our non-clinical and clinical programs,
many important aspects of this process have been and will be out of our direct control. If any of these organizations we may engage
in the future fail to perform their obligations under our agreements with them or fail to perform non-clinical testing and/or clinical
trials in a satisfactory manner, we may face delays in completing our clinical trials, as well as commercialization of any of our
potential drug compounds. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion
of our clinical trials, regulatory filings and the potential market approval of our potential drug compounds.
In addition, any of these third parties may
engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements. Misconduct
by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that
violate the regulations of any regulatory authorities, including those laws requiring the reporting of true, complete and accurate
information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that
require the reporting of financial information or data accurately. It is not always possible to identify and deter misconduct by
employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to comply with these laws or regulations.
If we fail to compete successfully
with respect to partnering, licensing, mergers, acquisitions, joint venture and other collaboration opportunities, we may be limited
in our ability to research and develop our potential drug compounds.
Our competitors compete with us to attract
established biotechnology and pharmaceutical companies or organizations for partnering, licensing, mergers, acquisitions, joint
ventures or other collaborations. Collaborations include contracting with academic research institutions for the performance of
specific scientific testing. If our competitors successfully enter into partnering arrangements or license agreements with academic
research institutions, we will then be precluded from pursuing those specific opportunities. Since each of these opportunities
is unique, we may not be able to find a substitute. Other companies have already begun many drug development programs, which may
target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research
institutions, reducing the pool of available opportunities.
Universities and public and private
research institutions also compete with us. While these organizations primarily have educational or basic research objectives,
they may develop proprietary technology and acquire patent applications and patents that we may need for the development of our
potential drug compounds. In some instances, we will attempt to license this proprietary technology, if available. These licenses
may not be available to us on acceptable terms, if at all. If we are unable to compete successfully with respect to acquisitions,
joint venture and other collaboration opportunities, we may be limited in our ability to develop new products.
The use of any of our products
in clinical trials may expose us to liability claims, which may cost us significant amounts of money to defend against or pay out,
causing our business to suffer.
The nature of our business exposes us
to potential liability risks inherent in the testing, manufacturing and marketing of our products. We currently have one drug compound
in clinical trials, however, when any of our products enter clinical trials or become marketed products, they could potentially
harm people or allegedly harm people possibly subjecting us to costly and damaging product liability claims. Some of the patients
who participate in clinical trials are already ill when they enter a trial or may intentionally or unintentionally fail to meet
the exclusion criteria. The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product
liability litigation. Although we intend to obtain product liability insurance, which we believe is adequate, we are subject to
the risk that our insurance will not be sufficient to cover claims. The insurance costs along with the defense or payment of liabilities
above the amount of coverage could cost us significant amounts of money and management distraction from other elements of the business,
causing our business to suffer.
If we are unable to safeguard
against security breaches with respect to our information systems, our business may be adversely affected.
In the course of our business, we gather,
transmit and retain confidential information through our information systems. Although we endeavor to protect confidential information
through the implementation of security technologies, processes and procedures, it is possible that an individual or group could
defeat security measures and access sensitive information about our business and employees. Any misappropriation, loss or other
unauthorized disclosure of confidential information gathered, stored or used by us could have a material impact on the operation
of our business, including damaging our reputation with our employees, third parties and investors. We could also incur significant
costs implementing additional security measures and organizational changes, implementing additional protection technologies, training
employees or engaging consultants. In addition, we could incur increased litigation as a result of any potential cyber-security
breach. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential
or personally identifiable information as a result of a cyber-security breach or other act, however, a cyber-security breach or
other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects,
financial condition or results of operations.
Even if we receive regulatory
approval for one or more compounds, we will be subject to continuing regulatory obligations and ongoing regulatory review, which
may result in significant additional expense. Additionally, our compounds, if approved, could be subject to labeling and other
restrictions on marketing or withdrawal from the market, and we may be subject to penalties, if we fail to comply with regulatory
requirements or if we experience unanticipated problems with our compounds, when and if any of them are approved.
Following potential approval of any
our compounds, the FDA may impose significant restrictions on a drug’s indicated uses or marketing or require potentially
costly and time-consuming post-approval studies, post-market surveillance or clinical trials to monitor the safety and efficacy
of the drug. The FDA may also require a Risk Evaluation and Mitigation Strategy (“REMS”) as a condition of approval
of one or more of our compounds, which could include requirements for a medication guide, physician communication plans or additional
elements to ensure safe use of the drug. Additional REMS elements may include restricted distribution methods, patient registries
and other risk minimization tools.
In addition, if the FDA or a comparable
foreign regulatory authority approves one or more of our compounds, the manufacturing processes, labeling, packaging, distribution,
adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for the approved drug will be subject
to additional and potentially extensive ongoing regulatory requirements. These requirements include submissions of safety and other
post-marketing information and reports, establishment registration, as well as continued compliance with cGMPs and GCP requirements
for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our products, 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:
● injunctions or the imposition of civil or criminal penalties; and
The occurrence of any event or penalty
described above may limit our ability to commercialize our compounds and generate revenue, and could require us to expend significant
time and resources in response or generate negative publicity.
If any of our compounds are approved,
our product labeling, advertising and promotion will also be subject to regulatory requirements and ongoing regulatory review.
The FDA strictly regulates the promotional claims that may be made about drug products. In particular, a drug may not be promoted
for uses that are not approved by the FDA as reflected in the drug’s approved labeling. If we receive marketing approval
for a compound, physicians may nevertheless lawfully prescribe it to their patients in a manner that is inconsistent with the approved
label. While the FDA recently clarified that mere knowledge that a physician is prescribing an approved drug for off label use
is not sufficient to constitute unlawful off-label promotion, if we are found to have actively promoted such off label uses, we
may become subject to significant liability under the FDCA. The federal government has levied large civil and criminal fines against
companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. Additionally,
promotion for off label uses could result in significant liability under the False Claims Act. The FDA has also requested that
companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
The FDA’s and other regulatory
authorities’ policies are subject to change at any time, and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our compounds. If we are unable to timely adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance post-marketing, we may
lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
Finally, we cannot predict the likelihood,
nature or extent of government regulation that may arise from future legislation or administrative or executive action, either
in the United States or abroad. It is difficult to predict how any such legislative, administrative or executive actions will be
implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these legislative
or executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the
normal course, our business may be negatively impacted.
The COVID-19 coronavirus could
adversely impact our business, including our clinical trials, and financial condition.
In December 2019, a novel strain of
coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to multiple
countries, including the United States, Australia and European and Asia-Pacific countries, including countries in which we have
planned or active clinical trial sites. As the COVID-19 coronavirus continues to spread around the globe, we may experience disruptions
that could potentially impact our business and clinical trials.
The extent to which the COVID-19 coronavirus
may impact our future business operations, including our clinical trials, and financial condition will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the
duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures
or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the
disease.Moreover, to the
extent the COVID-19 pandemic adversely affects our business, financial condition and results of operations, it may also have the
effect of heightening many of the other risks described in this “Risk Factors” section.
We receive Australian government
research and development income tax incentive refunds. If our research and development expenditures are not deemed to
be eligible for the refund, proposed modifications to the tax incentive program are enacted, or the tax incentive
program is discontinued by the Australian government, it could have a negative effect on our future cash flows and the
funding of future research and development projects.
Our subsidiary, Anavex Australia Pty
Ltd., is incorporated in Australia where we are currently engaged in research and development activities for ANAVEX®2-73
and ANAVEX®3-71. Our subsidiary is eligible to participate in the Australian Federal Government’s
Research and Development Tax Incentive program, under which the government provides a cash refund for a portion of eligible
research and development expenditures (currently 43.5% to 48.5% depending on the entity’s corporate tax rate) by small Australian entities,
which are defined as Australian entities with less than $20 million (Australian) in revenue.
The Research and Development Tax Incentive
refund is offered by the Australian federal government for eligible research and development purposes based on the filing
of an annual application. As part of this program, our subsidiary applied for and received cash refunds from the Australian Taxation
Office, or the ATO, for a percentage of the research and development costs expended by our subsidiary in Australia. Since the fiscal
year ended September 30, 2015, we have been receiving Research and Development Tax Incentive refunds related to research
and development expenditures made.
Certain research and development expenses
incurred outside of Australia are also eligible for the Australian research and development tax incentive program,
provided we obtain an Advance Overseas Finding from AusIndustry, a division of the Australian Government’s Department of
Industry, Innovation and Science (“AusIndustry”). To receive an Advance Overseas Finding, the expenses must have
been for eligible research and development activities, as determined by AusIndustry, and the expenditures must have a scientific
link to the Australian activities, be unable to be conducted in Australia and the total actual and reasonably anticipated
overseas costs must be expected to be less than the total actual and reasonably anticipated expenditures for activities conducted
within Australia, as determined by AusIndustry at the time of application for an Advance Overseas Finding (“OSF”).
This OSF binds
both AusIndustry and the Commissioner of Taxation for three income years. However, for compliance purposes, specific issue guidance
jointly issued by AusIndustry and the ATO in 2014 provides that an OSF can apply for the duration of the overseas activity provided
the activities are not new or materially different then the activities described in the OSF. Currently, the Company is outside
of the binding three-year period with respect to OSF applicable to some of its programs being claimed in Australia.
To the extent that some or all of our
research and development expenditures are deemed to be “ineligible,” then our refunds may decrease or be eliminated.
In addition, the Australian government may in the future modify the requirements of, reduce the amounts of the refunds
available under, or discontinue the Research and Development Tax Incentive program. Any such change to our anticipated
refunds or change to the Research and Development Tax Incentive program would have a negative effect on our future cash
flows.
A variety of risks are associated with
operating our business internationally which could materially adversely affect our business.
We are presently
conducting clinical development solely in Australia, United Kingdom, The Netherlands, Germany and Canada
and may choose to conduct additional international and U.S. clinical trials in the future. Additionally, while we have not taken
any steps to enter into any non-U.S. markets, we may do so in the future. Accordingly, we are subject to risks related to operating
in foreign countries, including:
● different United States and foreign drug import and export rules;
● reduced protection for intellectual property rights in certain countries;
● unexpected changes in tariffs, trade barriers and regulatory requirements;
● compliance with the FCPA and other anti-corruption and anti-bribery laws;
● foreign taxes, including withholding of payroll taxes;
Additionally, in connection with the ongoing
conflict between Russia and Ukraine, the U.S. government and European Union countries have imposed enhanced export controls on
certain products and sanctions on certain industry sectors and parties in Russia. The U.S. government has also indicated it will
consider imposing additional sanctions and other similar measures in the near future. Although we do not currently conduct any
clinical trials in Russia or Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into
other markets where we do business or conduct certain research and development operations, which could adversely affect our business,
our supply chain for our product candidates, our collaborators or our ability to carry out our clinical trials.
Our
ability to use our net operating loss (“NOL”) carryforwards and certain tax credit carryforwards may be subject to
limitation.
As of September 30, 2022, we had $123.4 million
of U.S. federal and $199.0 million of state and local NOL carryforwards. We had approximately $10.6 million of NOL carryforwards
in Australia as of the same period. Our NOL carryforwards are subject to review and possible adjustment by the U.S. and state tax
authorities. In addition, under Sections 382 and 383 of the Code and corresponding provisions of state law, if a corporation undergoes
an “ownership change,” which is generally defined as a greater than 50% change (by value) in its equity ownership over
a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and research and development credits
to offset its post-change income may be limited. This could limit the amount of NOLs or research and development credit carryforwards
that we can utilize annually to offset future taxable income or tax liabilities. Subsequent ownership changes and changes to the
U.S. tax rules in respect of the utilization of NOLs and research and development credits carried forward may further affect the
limitation in future years. In addition, at the state level, there may be periods during which the use of NOLs is suspended or
otherwise limited, which could accelerate or permanently increase state taxes owed.
We conducted a Section 382 study during the
year ended September 30, 2021 and determined that, during the year ended September 30, 2015, there was a change in ownership which
resulted in $25.8 million of federal NOLs being subject to an annual limitation. During the year ended September 30, 2021, we reduced
our federal NOLs by $12.1 million and our research and development tax credit carryforwards by $0.8 million, which are the amount
of tax assets that will expire unutilized pursuant to the Section 382 study. This resulted in a reduction of $2.5 million of NOLs
and $0.8 million of research and development credits and a corresponding reduction in the valuation allowance of $3.3 million,
which was recorded in the 2021 fiscal year. Subsequent ownership changes in future years could trigger additional limitations of
our NOLs. During the year ended September 30, 2022, we determined that there were no changes in ownership pursuant to Section 382.
We are subject to healthcare laws and
regulations which may require substantial compliance efforts and could expose us to criminal sanctions, civil and administrative
penalties, contractual damages, reputational harm and diminished profits and future earnings, among other penalties.
Healthcare providers, physicians and others
will play a primary role in the recommendation and prescription of our products, if approved. Our arrangements with such persons
and third-party payors and our general business operations will 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 research, market,
sell and distribute our drugs, if we obtain marketing approval. Restrictions under applicable U.S. federal, state and foreign healthcare
laws and regulations include, but are not limited to, the following:
Ensuring that our business arrangements with
third parties comply with applicable healthcare laws and regulations will likely be costly. It is possible that governmental authorities
will conclude that our business practices do 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 were 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, disgorgement, imprisonment, possible exclusion from government funded healthcare programs, such as Medicare
and Medicaid, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations,
any of which could substantially disrupt our operations. If the physicians or other providers or entities with whom we expect to
do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions,
including exclusions from government funded healthcare programs. We may incur significant costs achieving and maintaining compliance
with applicable federal and state privacy, security, and fraud laws. Any action against us for violation of these laws, even if
we successfully defend against it, could cause us to incur significant legal expenses and divert our attention from the operation
of our business.
We expect current and future legislation
affecting the pharmaceutical industry, including drug pricing reform, to impact our business generally, which could adversely affect
our business operations.
In the United States, there have been, and continue to be proposed and enacted
legislation at the federal and state levels designed to, among other things, bring more transparency to drug pricing, review the relationship
between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement
methodologies for drugs. For example, in July 2021, the Biden administration released an executive order, “Promoting Competition
in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on
September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform
and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can
take to advance these principles. In addition, the IRA, among other things, (1) directs HHS to negotiate the price of certain single-source
drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases
that outpace inflation. These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to
legal challenges. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical
industry. If any of our products are subject to such negotiation, we may lose a significant amount of the revenues expected during the
full life cycle of these products. Further, the Biden administration released an additional executive order on October 14, 2022, directing
HHS to submit a report within 90 days on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models
for lowering drug costs for Medicare and Medicaid beneficiaries. We expect that additional U.S. federal healthcare reform measures
will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products
and services, which could result in reduced demand for our product candidates or additional pricing pressures.
The coverage and reimbursement status
of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates,
if approved, could limit our ability to market those products and decrease our ability to generate product revenue.
Significant uncertainty exists as to the coverage
and reimbursement status of any compound for which we may seek regulatory approval. Sales in the United States will depend in part
on the availability of sufficient coverage and adequate reimbursement from third-party payors, which include government health
programs such as Medicare, Medicaid, CHIP, TRICARE and the Veterans Administration, as well as managed care organizations and private
health insurers. Prices at which we or our customers seek reimbursement for our therapeutic compounds can be subject to challenge,
reduction or denial by payors.
The process for determining whether a payor
will provide coverage for a product is typically separate from the process for setting the reimbursement rate that the payor will
pay for the product. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate
will be available. Additionally, in the United States there is no uniform policy among payors for coverage or reimbursement. Third-party
payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies,
but also have their own methods and approval processes. Therefore, coverage and reimbursement for products can differ significantly
from payor to payor. If coverage and adequate reimbursement are not available, or are available only at limited levels, successful
commercialization of, and obtaining a satisfactory financial return on, any product we develop may not be possible.
Third-party payors are
increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition
to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved for marketing, we
may need to conduct expensive studies in order to demonstrate the medical necessity and cost-effectiveness of any products, which would
be in addition to the costs expended to obtain regulatory approvals. Third-party payors may not consider our compounds to be medically
necessary or cost-effective compared to other available therapies, or the rebate percentages required to secure favorable coverage may
not yield an adequate margin over cost or may not enable us to maintain price levels sufficient to realize an appropriate return on our
investment in drug development. Additionally, we or our collaborators may develop companion diagnostic tests for use with our
product candidates. Companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement
for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to
pharmaceutical or biological products, will apply to companion diagnostics. Our inability to promptly obtain
coverage and adequate reimbursement from third-party payors for the product candidates, and for us or our collaborators to obtain coverage
and adequate reimbursement for related companion diagnostic tests that may be developed, could have a material and adverse effect on
our business, financial condition, results of operations and prospects.
Risks Related to our Common Stock
A decline in the price of our
common stock could affect our ability to raise further working capital and adversely impact our operations and would severely dilute
existing or future investors if we were to raise funds at lower prices.
A prolonged decline in the price of
our common stock could result in a reduction in our ability to raise capital. Because our operations have been financed through
the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our continued operations.
Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and
would have a significant negative effect on our business plans and operations, including our ability to develop new products and
continue our current operations. If our stock price declines, there can be no assurance that we can raise additional capital or
generate funds from operations sufficient to meet our obligations. We believe the following factors could cause the market price
of our common stock to continue to fluctuate widely and could cause our common stock to trade at a price below the price at which
you purchase your shares of common stock:
● actual or anticipated variations in our quarterly operating results;
● changes in accounting treatments or principles;
● general political, economic, regulatory and market conditions.
The market price for our common stock
may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations,
even if minor, could materially adversely affect the market price of our common stock.
If we issue additional shares
of common stock in the future, it will result in the dilution of our existing stockholders and may cause the share price of our
common stock to fall.
We have 200,000,000 shares of common
stock authorized for issuance and we also have 10,000,000 shares of preferred stock authorized. Our Board of Directors has the
authority to issue additional shares of preferred and common stock up to the authorized capital stated in the articles of incorporation.
Our Board of Directors may choose to issue some or all such shares of common stock to acquire one or more businesses or to provide
additional financing in the future. The issuance of any such shares of common stock will result in a reduction of the book value
or market price of the outstanding shares of our common stock. If we do issue any such additional shares of common stock, such
issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. Further, any such
issuance may result in a change of control of our corporation. In the event we do issue or sell additional shares of common or
preferred stock, it may result in stockholder dilution and may cause our share price to fall.
Our stock price has been volatile and
may be volatile in the future.
Our stock price has been volatile at certain
times historically, and may be volatile in the future. We may incur rapid and substantial increases or decreases in our stock price
in the foreseeable future that are do not coincide in timing with the disclosure of news or developments by us. The stock market
in general, and the market for biotechnology and pharmaceutical companies in particular, has experienced extreme volatility that
has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced
by many factors, including the following: