ENSC US Equity☆

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

WASHINGTON,

D.C. 20549

Form

10-K

For

the fiscal year ended: December 31, 2021

OR

For

the transition period from to

Commission

File Number 001-38306

ENSYSCE

BIOSCIENCES, INC.

(Exact

name of registrant as specified in its charter)

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code)

SECURITIES

REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common Stock, $0.0001 par value per share ENSC The Nasdaq Stock Market

Warrants, to purchase one share of Common Stock ENSCW OTC Pink Open Market

SECURITIES

REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate

by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate

by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)

has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule

405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant

was required to submit such files). Yes ☒ No ☐

Indicate

by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company,

or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller

reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☒

If

an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act ☐

Indicate

by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness

of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered

public accounting firm that prepared or issued its audit report. ☐

Indicate

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Registrant

was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate

the aggregate market value of the voting and non-voting common equity held by non-affiliates as of such date.

Registrant

had 29,949,032 shares of common stock outstanding as of March 25, 2022.

DOCUMENTS

INCORPORATED BY REFERENCE

The

registrant has incorporated by reference into Part III of this report certain portions of its proxy statement for its 2022 Annual Meeting

of Shareholders, which is expected to be filed within 120 days after the end of the registrant’s fiscal year ended December 31,

2021.

ENSYSCE

BIOSCIENCES, INC.

INDEX

Risk Factor Summary 3

Glossary 4

Cautionary Note Regarding Forward-Looking Statements 7

PART I 9

Item 1. Business 9

Item 1A. Risk Factors 34

Item 1B. Unresolved Staff Comments 76

Item 2. Properties 76

Item 3. Legal Proceedings 76

Item 4. Mine Safety Disclosures 76

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 92

Item 8. Financial Statements and Supplementary Data 93

Item 9A. Controls and Procedures 93

Item 9B. Other Information 94

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 94

PART III 94

Item 10. Directors, Executive Officers and Corporate Governance 94

Item 11. Executive Compensation 94

Item 14. Principal Accounting Fees and Services 94

Item 15. Exhibits and Financial Statement Schedules 95

Risk

Factor Summary

Below

is a summary of material factors that make an investment in our securities speculative or risky. This summary does not address all of

the risks and uncertainties that we face. Discussion of the risks and uncertainties in this summary, as well as other risks and uncertainties

that we face, can be found under the section titled “Risk Factors” beginning on page 34 of this Annual Report

on Form 10-K. This summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should

consider carefully the risks and uncertainties described under the section titled “Risk Factors” as part of your evaluation

of an investment in our securities:

● We require substantial additional funding.

● Government grant awards may not be available to us in the future.

● Interim topline and preliminary data from our clinical trials may change.

● We may encounter difficulties enrolling patients in our clinical trials.

GLOSSARY

Definitions:

ADFs Abuse deterrent formulations

ADHD Attention deficit hyperactivity disorder

ANDA Abbreviated New Drug Application

API Active pharmaceutical ingredient

ASC 815 Accounting Standards Codification 815, Derivatives and Hedging

AUC Area under the concentration time curve

Board Board of directors of Ensysce, or a committee thereof, as applicable

CARA Comprehensive Addiction and Recovery Act

CBER Center for Biologics Evaluation and Research

CDC Center for Disease Control

Definitions:

CDER Center for Drug Evaluation and Research

cGMP Current Good Manufacturing Practice

CI Clinical investigation

Cmax Maximum plasma concentration

CMC Chemistry, manufacturing, and controls

CMOs Contract manufacturing organizations

CNS Central nervous system

Company Ensysce Biosciences, Inc. and its consolidated subsidiaries

COVID-19 Novel coronavirus disease

CROs Contract research organizations

CSA Controlled Substances Act

CSOS Controlled Substance Ordering System

DEA United States Drug Enforcement Agency

EMA European Medicines Agency

Ensysce Ensysce Biosciences Inc.

EPO European Patent Office

ETASU Elements to assure a products safe use

EUA Emergency Use Authorization

Exchange Act Securities Exchange Act of 1934

FDA United States Food and Drug Administration

FDC Act Federal Food, Drug and Cosmetic Act

GAAP Generally Accepted Accounting Principles in the United States of America

GCP Good Clinical Practices

Definitions:

GEM Global GEM Global Yield LLC SCS

GMP Good Manufacturing Practices

GYBL GEM Yield Bahamas Limited

HHS United States Department of Health and Human Services

IMPDs Investigational Medicinal Product Dossiers

IND Investigational New Drug

IRB Institutional Review Board

JOBS Act Jumpstart Our Business Startups Act of 2012

LACQ Leisure Acquisition Corp., a Delaware Corporation

Nasdaq Nasdaq Stock Market LLC

NCE New Chemical Entity

NDA New Drug Application

NIDA National Institute of Drug Abuse

NIH National Institutes of Health

NME New molecular entity

OPM Option Pricing Method

PCT Patent Cooperation Treaty

PDMA U.S. Prescription Drug Marketing Act

PK Pharmacokinetics

PTA Patent Term Adjustment

Definitions:

PTE Patent Term Extension

R&D Research and Development

Recro Recro Gainesville LLC

REMS Risk evaluation and mitigation strategy

SARS-CoV-2 Severe acute respiratory syndrome coronavirus 2

SAQ Signature Acquisition Corp., a wholly-owned subsidiary of Signature

SEC U.S. Securities and Exchange Commission

Securities Act Securities Act of 1933

Signature Signature Therapeutics Inc.

SPACs Special Purpose Acquisition Companies

TAAP Trypsin Activated Abuse Protection

TEAEs Treatment-emergent adverse events

USPTO United States Patent and Trademark Office

CAUTIONARY

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This

Annual Report on Form 10-K includes statements that express Ensysce’s opinions, expectations, beliefs, plans, objectives, assumptions,

or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.”

These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,”

“estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,”

“plans,” “may,” “will,” or “should” or, in each case, their negative or other variations

or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number

of places throughout this Annual Report on Form 10-K and include statements regarding our intentions, beliefs or current expectations

concerning, among other things, results of operations, financial condition, liquidity, prospects, growth, strategies and the markets

in which Ensysce operates. Such forward-looking statements are based on available current market material and management’s expectations,

beliefs and forecasts concerning future events impacting Ensysce. Factors that may impact such forward-looking statements include:

● effects of competition;

● the loss of key members of Ensysce’s management team;

● changes in Ensysce’s regulatory environment;

● changes in Ensysce’s industry;

● the risk that our common stock will be suspended from trading on Nasdaq;

● other factors disclosed in this Annual Report on Form 10-K

The

forward-looking statements contained in this Annual Report on Form 10-K are based on Ensysce’s current expectations and

beliefs concerning future developments and their potential effects Ensysce. There can be no assurance that future developments

affecting Ensysce will be those that Ensysce has anticipated. These forward-looking statements involve a number of risks,

uncertainties (some of which are beyond Ensysce’s control) or other assumptions that may cause actual results or performance

to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties

include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of

these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material

respects from those projected in these forward-looking statements. Moreover, the occurrence of the events described in the

“Risk Factors” section and elsewhere in this Annual Report on Form 10-K may adversely affect Ensysce. Ensysce

will not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future

events or otherwise, except as may be required under applicable securities laws.

References

in this Annual Report on Form 10-K to “we,” “our,” “us,” the “Company” or “Ensysce”

generally refer to Ensysce and its consolidated subsidiaries.

PART

I

Item

1. Business

Corporate

Information

We

were originally incorporated in the State of Delaware in April 2003 as PharmacoFore, Inc. and, in January 2012, we changed our name from

PharmacoFore, Inc. to Signature Therapeutics Inc. (“Signature”). On December 28, 2015, Signature, Signature Acquisition

Corp., a wholly-owned subsidiary of Signature (“SAQ”), and Ensysce Biosciences, Inc. (“EB”) entered

into an Agreement and Plan of Merger (“EB-ST Agreement”). Pursuant to the EB-ST Agreement, SAQ merged with and into

EB with EB surviving the merger as a wholly-owned subsidiary of Signature. As part of the transaction, Signature changed its name to

“Ensysce Biosciences, Inc.” (“Former Ensysce”) and changed EB’s name to EBI Operating Inc. On January

31, 2021, LACQ, Former Ensysce, and Merger Sub entered into the Merger Agreement. On June 30, 2021, pursuant to the Merger Agreement,

Merger Sub merged with and into Former Ensysce, with Former Ensysce surviving the transaction as a wholly-owned subsidiary of LACQ. As

part of the transaction, LACQ changed its name to “Ensysce Biosciences, Inc.” and Former Ensysce changed its name to EBI

OpCo, Inc. (the “Merger”).

The

mailing address of our principal executive office is 7946 Ivanhoe Avenue, Suite 201, La Jolla, California 92037. Our corporate telephone

number is (858) 263-4196. Our website address is www.ensysce.com. Information contained on our website, or connected thereto, does not

constitute part of, and is not incorporated by reference into, this Annual Report on Form 10-K.

Channels

for Disclosure of Information

Investors,

the media, and others should note that we announce material information to the public through filings with the SEC, the investor relations

page on our website, blog posts on our website, press releases, public conference calls, webcasts, and our twitter feed (@EnsysceBio).

The

information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media,

and others to follow the channels listed above and to review the information disclosed through such channels.

Any

updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on

our website.

Business

Overview

We

are a clinical stage pharmaceutical company seeking to develop innovative solutions for severe pain relief while reducing the fear of

and the potential for misuse, abuse, and overdose. We have also incorporated a 79.2%-owned subsidiary, Covistat, a clinical stage pharmaceutical

company that is developing a compound utilized in our overdose protection program for the treatment of COVID-19 and cystic fibrosis.

Certain of our affiliates own the remaining portions of Covistat. See “Certain Relationships and Related Person Transactions”

for additional information.

We

are currently developing product candidates designed to improve the safety and performance of prescription drugs. Our primary focus has

been on opioid pain products and opioid use disorder products. Prescription opioid abuse and addiction present major burdens to society,

resulting in significant costs, illnesses, and deaths, many of which we believe could be prevented through the use of our proprietary

technologies. We believe the intertwined issues of (1) the widespread abuse of prescription opioids and (2) the resultant reluctance

of many prescribers to write prescriptions for opioid analgesics, have resulted in the persistent under-treatment of patients with moderate-to-severe

pain. Our platforms utilize a novel molecular delivery technology designed to deter prescription opioid abuse at the molecular level.

Our

current development pipeline includes two new drug platforms - an abuse-resistant opioid prodrug technology – the Trypsin

Activated Abuse Protection, or the TAAP platform, and an over-dose protection opioid prodrug technology - the Multi-Pill Abuse Resistant,

or the MPARTM platform. The TAAP platform is designed to seek to improve the care of patients with moderate to severe acute or chronic

pain while reducing the human and economic costs associated with prescription opioid drug abuse. Our development pipeline of TAAP prodrugs

is summarized in the table below. The MPARTM platform when combined with our TAAP prodrugs is designed not only to seek to prevent

abuse of prescription drugs but also to reduce overdose occurrences. Each prodrug is intended to be able to be combined with our MPARTM

technology for overdose protection. Additionally, nafamostat di-mesylate (“nafamostat”), which is an ingredient in

our overdose protection combination products, is also being developed for the intended purpose of treating infection and pulmonary lung

diseases.

The

technology under the TAAP platform when applied to opioid drugs is designed to release clinically effective opioid drugs only when exposed

to specific physiological conditions (i.e., when the drug is ingested and exposed to the digestive enzyme trypsin). Our lead product

candidate, PF614, is a TAAP oxycodone prodrug that is a biologically inactive compound which can be metabolized in the body to produce

a drug with demonstrable features aimed at resisting both oral and non-oral modes of prescription drug abuse. This approach differs from

current formulation-based strategies such as OxyContin OP which uses Intac® Technology (crush-resistant polymers) and Extampza®ER

which uses DETERxTM (insoluble fatty acid salts in polymers), in a number of ways.

First,

the TAAP technology seeks to remove the ability of a user to abuse PF614 intravenously or intra-nasally. This is based on preclinical

studies that show PF614 does not readily convert into oxycodone in the blood stream and trypsin is not present in the nasal passage.

Accordingly, PF614 would not convert to oxycodone in the nose. Furthermore, the chemically modified and abuse-resistance TAAP opioid

drug is unaffected by simple physical manipulations designed to extract abusable amounts of opioid, such as through kitchen chemistry.

Our

portfolio of TAAP product candidates is based on a differentiated understanding of chemical reactivity and metabolism, as well as the

key pillars of our unique approach which focuses on: (1) enzyme mediated metabolic activation localized in the gastrointestinal tract;

(2) rearrangement chemistry to achieve ideal pharmacokinetic release of active drug products; and (3) robust packages of preclinical

data that set forth the metabolic and chemical activation profile for each of our clinical candidates. This approach led to the filing

of an Investigational New Drug application, or IND (116794), and a Phase 1 clinical trial for PF614, which was completed in February

2018. In addition, the clinical data from the Phase 1 trial demonstrated that oxycodone is released from PF614 as chemically designed,

and that it was absorbed following oral administration of the TAAP PF614, given blood levels that matched the same release profile as

the extended release oxycodone product, OxyContin OP.

The

MPARTM technology is a combination of TAAP prodrug and trypsin inhibitor nafamostat. It is designed to provide overdose protection

to all TAAP prodrugs. MPARTM applied to TAAP opioids enables the release of active opioid following ingestion of multiple doses,

whether inadvertent or intentional. Nafamostat is a small molecule, highly potent protease inhibitor (trypsin inhibitor) with a steep

dose response curve. MPARTM at prescribed doses is designed to release of the active pharmaceutical ingredient. However, if the

TAAP prodrug nafamostat combination (MPARTM) is taken in larger quantities than intended, the excess nafamostat is present to inhibit

trypsin, thereby preventing metabolic activation of TAAP and averting a drug overdose. We believe the potential benefits to society of

an opioid that resists both oral and parenteral abuse are considerable.

Our

pipeline, developed over the course of 15 years of research and investment, includes three clinical-stage product candidates. While our

principal focus and lead product candidates are geared towards combating abuse and overdose of opioid drugs, we have, over the years

of research and development, discovered and recognized qualities and unique features of certain product candidates that may be useful

in addressing other treatments. For example, we discovered the ability of nafamostat in inhibiting the action of enzymes associated with

the COVID-19 infection, and, as such, have devoted efforts to develop an oral and inhalation drug product of nafamostat, for use against

coronaviral infections and other pulmonary diseases such as cystic fibrosis.

PF614

PF614

is our lead TAAP prodrug candidate under development for the treatment of acute or chronic pain. PF614 is a delayed release TAAP prodrug

designed to release oxycodone under certain specific physiological circumstances when taken orally. PF164 was evaluated for safety and

pharmacokinetic release of oxycodone in a Phase 1 single ascending dose clinical trial in 64 healthy subjects. The trial showed that

PF614 was well tolerated with no serious adverse events. The study also showed pharmacokinetics had a maximum blood concentration of

oxycodone at 4 to 6 hours after swallowing PF614, demonstrating its delayed release profile. A second Phase 1b study was initiated in

2021 to evaluate PF614 delivered to healthy subjects twice daily for 4.5 days. This study evaluated both safety and PK, with a second

part to evaluate the bioequivalence of PF614 versus OxyContin. Final data from this trial will be available in the second quarter of

2022.We believe PF614 has the potential to provide a safer alternative to the abuse deterrent formulated opioid products that are currently

commercially available.

PF614-MPARTM

PF614-MPARTM,

a combination product of PF614 and nafamostat has been designed to limit abuse potential by providing resistance to use through injection

or inhalation and to provide overdose protection against excessive oral ingestion. Our IND application (150966) for PF614-MPARTM

received FDA allowance and we initiated a Phase 1 clinical trial to evaluate safety and PK in healthy subjects in December 2021. Data

from this trial will be available in the second half of 2022.

Nafamostat

Nafamostat

is an enzyme inhibitor (protease inhibitor) used in our combination overdose protection technology, MPARTM. Due to its ability to

inhibit the action of enzymes associated with the COVID-19 infection, we are also developing an oral and inhalation drug product for

use against coronaviral infections and other pulmonary diseases such as cystic fibrosis. An IND was submitted (149877) for the evaluation

of oral nafamostat in coronaviral infections. A Phase 1 trial to evaluate safety and PK was completed in 2021.

Next

Steps

We

intend to undertake additional clinical studies in 2022. Two human abuse liability studies of PF614 will be initiated in the second and

third quarter of 2022 to understand the tendency for drug abusers to like the effects achieved from taking PF614 either orally or nasally

as compared to that of a comparator product such as crushed OxyContin. We are also exploring pain indications to evaluate PF614 for efficacy

and safety which we are seeking to initiate by end of 2022. We are also planning to evaluate nafamostat in COVID-19 subjects when delivered

as an oral drug product. The ability to undertake these studies will depend on additional financing. We have funded our operations to

date primarily with proceeds from the sale of equity and borrowings under convertible promissory notes and federal grants. See “Convertible

Promissory Notes” and “Government Grants” for additional information.

Our

Strategy

We

seek to become a leading specialty pharmaceutical company focused on addressing the safe use of pharmaceuticals by developing a broad

portfolio of TAAP and MPARTM products with enhanced safety features and benefits. Specifically, we intend to:

Our

Strengths

We

seek to achieve our strategic goals through the utilization of our key competitive strengths, including:

Market

Opportunity

Drug

Abuse and Drug Overdose

Opioid

pain medications are essential for improving the care and outcomes of a majority of Americans who live with chronic pain. A recent NIH

study reported that 25.3 million adults suffered from pain every day for the preceding three months and almost 40 million adults experience

severe levels of pain, which is linked to worse health status. Prescription opioids drugs, such as morphine, hydromorphone, hydrocodone,

and oxycodone, have a long history of use for the management of patient pain. Prescriptions for opioid medications in 2020 totaled 153

million, with $4.2 billion in market size in the United States, where 80% of world’s opioids are consumed.

The

CDC recently provided recommendations for clinicians who provide pain care, defining acute pain (duration less than 1 month), subacute

pain (duration of 1–3 months), or chronic pain (duration of 3 months or more), not including sickle cell disease related pain management,

cancer pain treatment, palliative care, and end-of life care. These guidelines provide the market indications, acute and chronic,

that Ensysce will explore for its TAAP and MPARTM opioid products including PF614.

Opioids

are offered in a variety of dosages including immediate-release tablets (or capsules), extended-release tablets (or capsules), patches,

and other dose forms. Oxycodone is one of the most effective pain killers available today. This drug helps the patient to overcome pain

and focus on his or her work. Opioids have an increased risk of dependence and, when used improperly, a common side effect of high doses

of opioids like oxycodone can be euphoria, or a “high.” As a result of these side effects, opioids have become amongst the

most misused or abused prescription drugs in the United States. Opioid abuse was declared a public-health emergency in 2017 when more

than 130 people died each day from opioid-related overdoses. Currently, that number has risen to over 200 deaths per day.

The

large increase in overall overdose deaths is now driven by use of synthetic opioids, in particular fentanyl, as prescription opioids

have become harder to obtain. From 2017 to 2018 the prescription opioid-involved death rates decreased by 13.5% showing that attention

to the problem had beneficial effect. However, 1.6 million people reported having opioid use disorder (“Opioid Use Disorder”)

in 2019. Based on information from the CDC, the most common drugs involved in prescription opioid overdose deaths include Methadone,

Oxycodone (such as OxyContin®), and Hydrocodone (such as Vicodin®). The CDC indicates that improving opioid prescribing, treatment

of opioid use disorder, and prevention of opioid use disorder would help to improve the opioid crisis. Misuse or abuse of opioids is

often done in one of the following manners:

Amphetamines

like Adderall are manufactured in pill form and are intended for oral ingestion. Fifty-three percent of Adderall prescriptions are prescribed

to the 10.5 million adults that are diagnosed with attention deficit hyperactivity disorder, or ADHD. ADHD is the most common neurodevelopment

disorder in children. Five million adults misuse stimulant medication annually, by using alternative consumption methods to achieve a

more intense high faster; snorting or injecting are most-common methods of abuse. Both of these methods involve crushing pills.

We

believe that having prescription drug products available that have a reduced potential for abuse by crushing and injecting, snorting,

and chewing could provide an even greater reduction of prescription opioid related deaths in the abuse of opioids or amphetamines.

Nafamostat

Nafamostat’s

market opportunity is multifaceted. The oral form could be used alone or in combination with other antiviral drugs that target separate

processes needed for virus product, such as RNA replication or viral protein processing. An inhaled form of nafamostat could be applied

to patients that have a more severe stage of the disease.

Our

lead clinical program is an oral drug product of nafamostat for use against COVID-19 and other coronaviral infections. The dosing and

positioning of oral nafamostat will be similar to antiviral drug oseltamivir phosphate, Tamiflu®. Tamiflu® is a seasonal influenza

treatment that is taken in oral form within two days of influenza symptoms starting and applying a two-dosage daily schedule. During

the H5N1 outbreaks and the H1N1 and other coronavirus outbreaks, Tamiflu® had annual U.S. sales above $1 billion and has had cumulative

sales of $15.9 billion since its launch in 1999.

The

World Health Organization estimates influenza epidemics result in approximately three to five million cases of severe illness and 250,000

to 500,000 deaths each year. Nafamostat will be well positioned to generate revenue from several changing market conditions:

Our

Technology Platform Solution

TAAP

Prescription Drugs

The

technology under the TAAP platform utilizes a novel technology designed to deter prescription drug abuse at the molecular level. The

molecular delivery system is designed to release clinically effective drugs only when exposed to specific physiological conditions (i.e.,

when the drug is ingested and exposed to the digestive enzyme trypsin). We believe that our TAAP prodrugs delivery system demonstrates

several features aimed at resisting both oral and non-oral modes of abuse. This platform’s approach differs from current formulation-based

strategies (abuse deterrent formulations, or ADFs) in a number of ways including that it is designed to be unaffected by simple physical

manipulations (e.g. crushing and extraction and/or chewing of the dose form provided to patients). We believe the potential benefits

to society of applying TAAP to opioids and amphetamines providing medication that resists both oral and parenteral abuse are considerable.

MPARTM

Prescription Drugs

MPARTM

combination therapy, involves co-formulating TAAP prodrugs with a trypsin inhibitor, nafamostat, which, when administered at prescribed

dose levels, are intended to have no effect on the conversion of the prodrug to the active ingredient thus allowing normal drug plasma

exposure levels. However, if the drug were taken in greater than prescribed quantities, the trypsin inhibitor would also be present at

higher levels, inhibiting the first step in the activation process, preventing the conversion of the prodrug to the active ingredient

thus limiting the potential to an overdose from the medication.

Our

Development Programs

We

are currently developing product candidates designed to improve the safety and performance of prescription drugs. Our primary focus has

been on opioid pain products and opioid use disorder products. Our development pipeline of TAAP prodrugs is summarized in the table below.

Each prodrug is intended to be able to be combined with our MPARTM technology for overdose protection. Additionally, nafamostat,

which is an ingredient in our overdose protection combination products, is also being developed for infection and pulmonary lung diseases.

Besides our clinical candidates, we have a product portfolio of other TAAP and MPARTM opioids that could potentially be

developed to build on this pipeline.

Clinical

agents

PF614

PF614

is a chemically modified, delayed onset oxycodone-derivative which releases clinically effective oxycodone only when exposed trypsin

in the gut (i.e., when the drug is ingested). This approach differs from formulation-based strategies which are currently commercially

available, in several ways. Foremost, the abuse-resistance provided by PF614 is designed to be unaffected by simple physical manipulations

(e.g., extraction, chewing, and/or crushing). It also limits the bioavailability of active medication following co-ingestion of multiple

doses.

Following

ingestion, the release of oxycodone from PF614 proceeds via a two-step process comprised of (1) trypsin activation in the small intestine

and (2) a subsequent intramolecular cyclization release reaction. This reaction releases oxycodone with concomitant formation of a cyclic

urea metabolite. The time-course of oxycodone release from PF614 is a function of the kinetics of (i) the trypsin hydrolysis and (ii)

the cyclization-release reaction. In the Phase 1 study of PF614, the time to maximal blood concentration of oxycodone (Tmax)

was five to six hours for the release of oxycodone and this time cannot be modified by crushing, chewing, or physically manipulating

the drug product. Oxycodone safety, metabolism, and pharmacokinetics have been well studied.

PF614-101

Phase 1 Clinical Trial

PF614

(IND 116796) has been evaluated in a Phase 1 clinical study for safety and pharmacokinetics of oxycodone release in 64 healthy subjects

in seven different closing cohorts from November 2016 to January 2018. This study was conducted for us by PRA Health Sciences –

Early Development Services Lenexa, Kansas, principal investigator, Daniel Dickerson, M.D., Ph.D. to evaluate the safety and pharmacokinetics

of PF614, as well as the pharmacokinetics of oxycodone at doses sufficient to characterize the extent to which plasma oxycodone is produced

and maintained following oral ingestion of PF614 and was compared to the oxycodone released from extended release oxycodone from OxyContin

OP. Subjects were randomized to receive a single dose of PF614 (dose of 15, 25, 50, 100, and 200 mg with 6 subjects per dosing group)

or OxyContin OP (dose of 10, 20, 50, and 80 mg with 2 subjects per dosing group). New subjects were recruited for each cohort. Cohort

1 compared subjects receiving PF614 and OxyContin OP with and without naltrexone blockade. Naltrexone is an opioid blocker to prevent

opioids from attaching to the opioid receptors, preventing the effect of the opioid medication such as pain relief, feeling of euphoria

or respiratory depression. The single ascending dose study also compared the release of oxycodone from PF614 under both fasted and fed

conditions at the highest does of PF614 evaluated, 200 mg. The pharmacokinetics of the prodrug fragments was also evaluated. In addition,

this study instructed as to the “conversion efficiency” of the PF614 prodrug to oxycodone, with respect to OxyContin.

Pharmacokinetic

Analyses

The

shape of the plasma concentration versus time curve of oxycodone was similar following administration of OxyContin OP (oxycodone extended

release) and PF614. The efficiency of conversion for PF614 to oxycodone was determined to be approximately 86%. A PF614 dose of 50 mg

yields oxycodone exposure comparable to a 20.01 mg dose of OxyContin, indicating a potency ratio of 0.40. This data has allowed us to

match doses of PF614 to those of commercially available OxyContin OP.

Safety

A

total of 64 subjects were included in this study, of which 23 (35.9%) experienced 47 treatment-emergent adverse events, or TEAEs. The

majority of TEAEs were either gastrointestinal disorders or nervous system disorders with no deaths, serious adverse events, or severe

TEAEs. Additionally, there were no discontinuations due to study drug-related adverse events. Over half of TEAEs were study drug related,

but they were mostly mild in severity. The three TEAEs that were moderate in severity were nephrolithiasis, or kidney stones, nausea,

and vomiting, with the nausea and vomiting being study drug related. Comparing safety data across cohorts, the data indicated that dose,

naltrexone, and fed/fasted state had no clinically relevant effect on the safety profile of PF614. PF614 was generally well tolerated

at doses up to 200 mg in healthy subjects.

Next

Steps

We

initiated additional clinical studies with PF614 in the fourth quarter of 2021. A multi ascending dose study with a bioequivalence arm,

PF614-102 concluded enrollment, with data anticipated in the second quarter of 2022. In 2022, two human abuse liability studies will

be initiated to understand the tendency for drug abusers to like the effects achieved from taking PF614 either orally or nasally as compared

to that of a comparator product such as crushed OxyContin.

PF614-MPARTM

Our

IND application (IND 150966) received FDA allowance and a Phase 1 study was initiated in December 2021 with first patients dosed. The

study to evaluate PF614-MPARTM is entitled “A Single Dose, 2 Part Study to Evaluate the Pharmacokinetics of Oxycodone, PF614,

PFR06082, and nafamostat, when PF614 Solution is Co-Administered with nafamostat, as an Immediate Release Solution and/or Extended Release

(ER) Capsule Formulations in Healthy Subjects”.

PF614-MPARTM-101

Phase 1 Clinical Trial

The

primary objectives of the Phase 1 study are to assess the pharmacokinetics of oxycodone, when PF614 solution is administered alone and

with nafamostat as an immediate release solution and/or extended-release capsule prototypes. The study is designed to aid in the selection

of the optimal nafamostat formulation and dose to combine with PF614 in order to provide oxycodone when a prescribed dose is taken yet

attenuate the maximum plasma concentration (Cmax) and the area under the concentration time curve (AUC) of oxycodone when

more than the prescribed PF614-MPARTM dose is taken. Extended-release prototype capsule formulations will be selected from a two-dimensional

design space describing formulation variables for release rate and dose.

NAFAMOSTAT

NAF-101

Phase 1 Clinical Trial

We

believe nafamostat has the potential to be effective in the treatment of patients with COVID-19 as it is an inhibitor of transmembrane

protease Serine 2 (TMPRSS2) the protease responsible for cleaving the spike protein of SARS-CoV-2. While patients with COVID-19 typically

present with fever and a respiratory illness, some patients also report gastrointestinal symptoms, such as diarrhea, vomiting, and abdominal

pain. Studies have identified a recent strain of COVID-19 virus, SARS-CoV-2 RNA, in stool specimens of infected patients, and its viral

receptor angiotensin converting enzyme 2 was found to be highly expressed in gastrointestinal epithelial cells. These suggest that SARS-CoV-2

can actively infect and replicate in the gastrointestinal tract, and oral nafamostat which acts locally in the gut may be able to reduce

the ability of the virus to replicate. The purpose of our study was to evaluate the safety of oral nafamostat in healthy volunteers.

This was a three-part single ascending dose study (Part 1) examining safety and pharmacokinetics of single doses of 50, 100, and 200

mg nafamostat administered sequentially on three separate days to a single cohort of eight subjects. The multiple ascending dose study

(Part 2) administered 100 mg nafamostat twice daily to four healthy subjects and evaluated safety and pharmacokinetic for five days.

A second cohort of four subjects received 200 mg nafamostat twice daily for five days and evaluated safety and pharmacokinetic. A final

group of six healthy subjects received 200 mg nafamostat the multiple fixed dose study (Part 3) to evaluate the safety and tolerability

of oral nafamostat solution administered three times daily.

Pharmacokinetic

Analyses

Nafamostat

was shown to have limited bioavailability at any dose level evaluated up to 200 mg.

Safety

There

were no drug-related adverse events reported for nafamostat delivered at 200 mg three times daily, therefore additional dose levels are

currently being examined for safety. We concluded that 200 mg can be delivered three times daily which may provide local effects in the

gastrointestinal tract.

Next

Steps

We

are also planning to evaluate nafamostat in a Phase 2 clinical trial in COVID-19 subjects when delivered as an oral drug product.

Competition

Our

industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. We expect

to face competition from a number of sources, including pharmaceutical and biotechnology companies, generic drug companies, drug delivery

companies, and academic and research institutions. Many of these existing and potential competitors have significantly greater financial

resources, more people and other resources than we do.

The

key competitive factors that are expected to affect the development and commercial success of our product candidates include their respective

degree to limit human abuse potential, bioavailability, enhance therapeutic efficacy, and convenience of dosing and distribution. In

addition, other factors include their respective safety, cost and tolerability profiles are likely to be important factors. Our lead

product candidate, PF614, may also face competition from commercially available generic and branded immediate and extended-release opioid

drugs other than oxycodone, including, but not limited to, fentanyl, hydromorphone, and oxymorphone, as well as opioids that may be currently

in clinical development.

Obtaining

an abuse-deterrent label through the FDA involves a lengthy and complicated process. We believe abuse-deterrent opioids represent a therapeutic

option to maximize pain relief in patients for whom opioid analgesia is indicated, while reducing the risks of abuse and diversion. Before

approval, the FDA evaluates the results from in vitro manipulation and extraction, pharmacokinetics, and clinical human abuse potential

studies to determine whether the accumulated evidence is sufficient to warrant claims of abuse deterrence. Post-marketing studies may

also be required to determine whether the marketing of a product with abuse-deterrent properties results in meaningful reductions in

abuse, misuse, and related adverse clinical outcomes, including addiction, overdose, and death in the post-approval setting.

There

are only four commercially available (in the United States) opioid drugs for chronic pain relief that have an abuse-deterrent label.

These drugs are MorphaBondTM ER, marketed by Daiichi Sankyo, OxyContin® ER and Hysingla® ER, both of which are marketed

by Purdue Pharma, LP, and Collegium Pharmaceutical, Inc.’s XTampza®ER. Hysingla® ER is a once-a-day hydrocodone extended-release

product. Xtampza® ER is a twice daily, extended-release opioid formulation that contains microspheres that combine oxycodone with

inactive ingredients to increase the difficulty of tampering. Xtampza®ER has abuse-deterrent properties in the FDA approved product

label, and post-marketing data has shown Xtampza®ER abuse, misuse, and diversion and tampering are low relative to other prescription

opioid analgesics.

Purdue

Pharma LP is expected to have tighter marketing and management controls than it has exhibited in the past which may impact its overall

market share. While Oxycontin OP is an abuse-deterrent formula that has impacted the ability to snort or inject, the drug has been documented

to be abused through other means.

Several

other companies including, but not limited to, Pfizer Inc., Daiichi Sankyo, Teva Pharmaceutical, Inc., Egalet Ltd., KemPharm Inc., Elysium

Therapeutics Inc., and Acura Pharmaceutical, have either extended-release or abuse-deterrent products in various stages of development.

Other companies offer products indicated for chronic, severe, long-term pain with various delivery technologies, but these products do

not have abuse-deterrent claims on their labels.

We

do not believe there are other companies developing products that have an overdose mechanism to compete with our MPARTM technology.

Intellectual

Property

Our

commercial success depends in part on our ability to obtain and maintain proprietary protection for product candidates and any of our

future product candidates, novel discoveries, product development technologies, and know-how; to operate without infringing on the proprietary

rights of others; and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position

by, among other methods, filing or in-licensing United States and foreign patents and patent applications related to our proprietary

technology, inventions, and improvements that are important to the development and implementation of our business. We also rely on trademarks,

trade secrets, know-how, continuing technological innovation, and potential in-licensing opportunities to develop and maintain our proprietary

position.

Patents

and Patent Applications

We

own numerous patents and applications in the United States and significant commercial markets, such as Europe, China, and Japan, relating

to our product candidates currently in development, as well as other product candidates that may be developed in the future. These patents,

and patents that may issue from pending patent applications, are projected to expire between 2028 and 2041, subject to any patent term

adjustment or extension that might be available in a particular jurisdiction. A table of the key patent families and their projected

expiry dates is presented below.

Jurisdiction of Filings Earliest Projected Expiry Date

TAAP and MPARTM Patents and Applications for Opioids

Enzyme-Cleavable Methadone Prodrugs and Methods of Use Thereof U.S. 2042

Nafamostat Patents and Applications

Oral formulations of Nafamostat U.S. 2042

TAAP and MPARTM Patents and Applications for Amphetamines

*“Europe”

refers to patent applications filed in, and patents issued by, the European Patent Office (“EPO”), which can

provide the basis for rights in multiple countries that are members of the European Patent Convention.

While

we seek broad coverage under our existing patent applications, there is always a risk that an alteration to the products or processes

may provide sufficient basis for a competitor to avoid infringing our patent claims. In addition, patents, if granted, expire, and extension

of term may not be available. We also cannot provide any assurance that any patents will be issued from our pending or any future applications

or that any potentially issued patents will adequately protect our product candidates.

The

enforceable term of an individual patent varies depending on the date of filing of the patent application, the date of patent issuance,

and the statutory term of patents in the countries in which they are obtained. Generally, in the United States, patents are granted a

term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended

to recapture a period due to delay by the United States Patent and Trademark Office (“USPTO”) in issuing the patent

as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component,