ITEM 1A. RISK
FACTORS
Risk Factor Summary
The following is a summary of the risks and
uncertainties that could cause our business, financial condition or operating results to be harmed. We encourage you to carefully
review the full risk factors contained in this report in their entirety for additional information regarding these risks and uncertainties.
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, 2023,
we have accumulated a deficit of approximately $293 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 sale 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, and grants or draws under 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 or the through the Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln
Park”) pursuant to which the Company may direct Lincoln Park to purchase shares of common stock registered under an effective
registration statement. The Company currently does not have access to sell shares under the Sales Agreement. 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 our information systems or data, or
those of third parties upon whom we rely, are or were compromised, our business may be adversely affected.
In the course of our business, we, or third
parties upon which we rely, may gather, collect, receive, use, transmit, store/retain or dispose of data and confidential information
(such as confidential employee information or health-related data), sensitive data, intellectual property and trade secrets.
Cyberattacks,
malicious internet-based activity, online and offline fraud and other similar activities threaten the confidentiality, integrity,
and availability of our sensitive information and information technology systems, and those of the third parties upon which we
rely. We, and the third parties upon which we may rely, may be subject to a variety of these evolving threats.
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. The existence of a remote workforce also poses increased risks to our information technology
systems and data, as more of our employees work from home, utilizing network connections outside our premises.
Any misappropriation, loss or other unauthorized
disclosure of confidential information gathered, stored or used by us or by third parties on our behalf, 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.
Our
contracts with third parties upon which we may rely, may not contain limitations of liability, and even where they do, there can
be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims
related to our data privacy and security obligations. In addition, we could incur increased litigation as a result of any
potential cyber-security breach and our insurance coverage may not be adequate or sufficient in type
or amount to protect us from or to mitigate liabilities arising out of our privacy and security practices.
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.
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, 2023, we had approximately
$126.3 million of U.S. federal and $192.0 million of state and local NOL carryforwards. We had approximately $12.9 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, 2023 and 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