IXHL US Equity☆

Item 1A. Risk Factors 35

Item 1B. Unresolved Staff Comments 75

Item 1C. Cybersecurity 76

Item 2. Properties 77

Item 3. Legal Proceedings 77

Item 4. Mine Safety Disclosures 77

Item 6. [Reserved] 78

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 86

Item 8. Financial Statements and Supplementary Data F-1

Item 9A. Controls and Procedures 87

Item 9B. Other Information 88

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 88

PART III 89

Item 10. Directors, Executive Officers and Corporate Governance 89

Item 11. Executive Compensation 92

Item 14. Principal Accountant Fees and Services 103

Item 15. Exhibits and Financial Statement Schedules 104

i

Trademarks

We own or have rights to trademarks and trade names that we use in

connection with the operation of our business, including our corporate name, logos, product names and website names. Solely for your convenience,

some of the trademarks and trade names referred to in this annual report on Form 10-K for the fiscal year ended June 30, 2024 (“Annual

Report”) are listed without the ® and TM symbols, but we will assert, to the fullest extent

under applicable law, our rights to our trademarks and trade names.

Statistical

and Other Industry and Market

Data

This Annual Report includes statistical and other

industry and market data and contains estimates and information concerning our industry and our business, including estimated market size

and projected growth rates of the markets for our drug candidates. Unless otherwise expressly stated, we obtained this industry, business,

market, medical and other information from reports, research surveys, studies and similar data prepared by third parties, industry, medical

and general publications, government data and similar sources.

This information involves a number of assumptions

and limitations. Although we are responsible for all of the disclosure contained in this Annual Report and we believe the third-party

market position, market opportunity and market size data included in this Annual Report are reliable, we have not independently verified

the accuracy or completeness of this third-party data. In addition, projections, assumptions and estimates of our future performance and

the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety

of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially

from those expressed in these publications and reports.

Special Note Regarding Forward-Looking Statements

This Annual Report contains forward-looking statements

within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act’), and Section 21E of the

Securities Exchange Act of 1934, as amended, (the “Exchange Act”) adopted pursuant to the Private Securities Litigation Reform

Act of 1995. All statements other than statements of historical facts contained in this Annual Report, including statements regarding

our future results of operations, financial condition, business strategy and plans and objectives of management for future operations,

are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,”

“believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,”

“intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,”

“target,” “will,” or “would,” or the negative of these words or other similar terms or expressions.

We have based these forward-looking statements

largely on our current expectations and projections about future events and trends that we believe may affect our financial condition,

results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown

risks, uncertainties, other factors and assumptions, including the risks described in “Risk Factors” and elsewhere in this

Annual Report, regarding, among other things:

● estimates regarding market size and related future growth rates;

ii

● our ability to commercialize drug candidates and to generate revenues;

● any statement of assumptions underlying any of the foregoing.

These risks are not exhaustive. Other sections

of this Annual Report may include additional factors that could harm our business and financial performance.

You should not rely on forward-looking statements

as predictions of future events. We have based the forward-looking statements contained in this Annual Report primarily on our current

expectations and projections about future events and trends that we believe may affect our business, financial condition and operating

results. We undertake no obligation to update any forward-looking statements made in this Annual Report to reflect events or circumstances

after the date of this Annual Report or to reflect new information or the occurrence of unanticipated events, except as required by law.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place

undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions,

mergers, dispositions, joint ventures or investments.

In addition, statements that “we believe”

and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to

us as of the date of this Annual Report. While we believe that information provides a reasonable basis for these statements, that information

may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review

of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

We qualify all our forward-looking

statements by these cautionary statements.

As used in this Annual Report,

unless otherwise stated or the context otherwise indicates, references to “Incannex,” the “Company,” “we,”

“our,” “us” or similar terms refer to Incannex Healthcare Inc., and our wholly-owned subsidiaries.

iii

PART I

Item 1. Business

Overview

We are a clinical-stage biopharmaceutical company

dedicated to developing innovative medicines for patients living with serious chronic diseases and significant unmet needs. Our lead drug

candidates are currently in Phase 2/3 and Phase 2 clinical development.

IHL-42X, our drug candidate in a pivotal Phase

2/3 for the treatment of obstructive sleep apnea (“OSA”) is an oral fixed dose combination of dronabinol and acetazolamide

designed to act synergistically, targeting two different physiological pathways associated with the intermittent hypoxia and hypercapnia

that characterize OSA. In a proof-of-concept Australian Phase 2 clinical trial, we observed that IHL-42X reduced apnea hypopnea index

(“AHI") and was well tolerated in OSA patients. The ongoing Phase 2/3 clinical trial further investigates the safety and efficacy

of IHL-42X for the treatment of OSA. The Phase 2 portion is being conducted in the United States, and the expanded Phase 3 portion will

include the United Kingdom and European Union. We expect to report top-line data from the Phase 2 portion this pivotal U.S. Phase 2/3

clinical trial in the first half of 2025 and to release top-line results from our pharmacokinetic and safety study in 2024.

PSX-001, our drug candidate in Phase 2b clinical

development, is an oral synthetic psilocybin treatment, administered in combination with psychological therapy for patients with moderate-to-severe

generalized anxiety disorder (“GAD”). We completed a proof-of-concept clinical trial, known as PsiGAD1, in the top-line results

of which we observed that the combination of synthetic psilocybin with psychotherapy significantly reduced anxiety scores and was well

tolerated in GAD patients. We have received clearance of an Investigational New Drug (“IND”) application from the U.S. Food

and Drug Administration (“FDA”) to conduct a Phase 2b clinical trial to further investigate the safety and efficacy of PSX-001

for treatment of GAD. We anticipate reporting full data results from PsiGAD1 in the first half of 2025.

IHL-675A is our drug candidate in an ongoing Australian

Phase 2 trial for the treatment of inflammatory conditions, with an initial focus on rheumatoid arthritis (“RA”). IHL-675A

is an oral fixed dose combination of cannabidiol and hydroxychloroquine sulfate designed to target two different pathways, acting synergistically

to alleviate inflammation. In our Phase 1 clinical trial, IHL-675A was observed to be well-tolerated and bioavailable. In preclinical

studies, IHL-675A was observed to reduce inflammatory markers and disease scores across multiple animal inflammatory disease models and

in vitro assays. The Phase 2 trial is investigating the safety and efficacy of IHL-675A in rheumatoid arthritis patients. We anticipate

reporting top-line data from this Phase 2 trial in the second half of 2025.

Each of these programs could offer a new approach

to treat serious conditions that currently have limited, inadequate, or no approved pharmaceutical treatment options.

Our Strategy

Our mission is to advance novel therapies, leveraging

evidence-based innovation, with the potential to transform the lives of people suffering from serious, chronic conditions and unmet medical

needs. Our three lead programs were created internally and prioritized based on their potential to offer new therapeutic approaches and

long-term patient benefits.

We aim to maximize value to our shareholders and

to provide important new treatment options to patients in need of new therapeutic options. Key elements of our strategy include:

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Lead Drug Candidates

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The estimated addressable global market opportunity

for OSA is approximately US$8.2 billion, with an estimated compound annual growth rate (“CAGR”) for the global market of OSA

devices from 2024 to 2029 of 7.33%. Sales for the treatment of in GAD in the United States reached approximately US$21 billion in 2023.

The rheumatoid arthritis market in the United States is growing rapidly with sales for rheumatoid arthritis treatments reaching US$25.37

billion in 2023. This market is expected to exceed US$31.58 billion by 2033. We believe that our leading drug candidate, IHL-675A, also

has the potential for use in other anti-inflammatory conditions, such as inflammatory bowel disease and pulmonary inflammatory diseases

like chronic obstructive pulmonary disease (“COPD”) and asthma. Sales for these other inflammatory conditions in the United

States totaled US$3.6 billion in 2022.

Clinical Approach

In our internal research and collaborative efforts

with leading medical institutions in Australia, we identified significant untapped opportunities to pursue combination strategies targeting

synthetic cannabinoid and psychedelics agents to develop innovative therapeutics that target unmet medical needs. The combination strategy

allows for the reduction of dose from that required when the drugs are used as monotherapies, which in turn reduces the likelihood of

unwanted side effects.

In our IHL-42x and IHL-675A programs, we are developing oral fixed

drug combinations where the two active agents target different components of the pathophysiology of the disease. Having two drugs with

independent mechanisms of action increases the likelihood of the drugs having a synergistic effect on the disease, such that the effect

of the two drugs in combination is greater than would be predicted based on their activity as monotherapies. We have generated clinical

data supporting promising synergistic advantages in combining agents in our IHL-42x and IHL-675A programs.

Our psilocybin treatment comprises administration

of PSX-001 with psychological support from trained therapists. There is accumulating evidence that psilocybin may have beneficial effects

on a number of mental health conditions. Furthermore, psilocybin in combination with psychological support is thought to optimize therapeutic

outcomes and enhance safety. We believe the combination of synthetic psilocybin and psychotherapy has the potential to offer the greatest

benefit to patients.

The drug development and regulatory strategies

underpinning our lead cannabinoid programs allow us to pursue the FDA’s 505(b)(2) pathway. A major potential advantage of this strategy

is that the nonclinical toxicology data package that is normally required before testing new drugs in humans may already be established

for our drug candidates. To the extent the FDA deems that there is sufficient preclinical evidence of safety and efficacy, this streamlined

pathway could substantially reduce the time from drug concept to in-human clinical trials.

Initial preclinical and clinical development of

our lead drug candidates was completed for the most part in Australia, which allowed for efficient execution, improved economics, and

access to the Australian government R&D rebate program. With rigorous preclinical, bioavailability, early clinical safety and efficacy

work conducted in Australia, we believe we are well-positioned to file the third of our U.S. Investigational New Drug (“IND”)

applications with the FDA. We may at times choose to conduct certain smaller studies in Australia, based on economics and speed, to generate

data that further supports our INDs.

IHL-42X

Obstructive Sleep Apnea or “OSA”

OSA is a disease of sleep disordered breathing

characterized by a narrow or collapse of the upper airway during sleep, which interferes with breathing and reduces sleep quality. Presentation

of OSA often includes snoring and waking up gasping for air. Though OSA is recognized as a relatively common and chronic disorder, it

remains underdiagnosed and inadequately treated. Untreated OSA is associated with a wide range of serious long-term outcomes, including

cardiovascular disease, cognitive impairments such as memory loss, poor concentration and judgment, depression and increased risk of death

or injury due to traffic accidents resulting from excessive daytime sleepiness. The substantial patient and society costs related to undiagnosed

and diagnosed obstructive OSA include increased healthcare usage, reduced productivity, and diminished quality of life.

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A 2019 article published by The Lancet premised

on literature-based analysis of 17 studies across 16 countries, estimated that OSA affects some 936 million adults worldwide. This alarming

statistic is thought to be increasing due to the growing prevalence of obesity and an aging global population. Many people with OSA develop

high blood pressure (hypertension), which can increase the risk of cardiovascular disease. Obstructive sleep apnea is considered a serious

medical condition; the more severe the OSA, the greater the risk of coronary artery disease, heart attack, heart failure, stroke and shortened

life span.

There are no currently approved drugs for the treatment

of OSA. Available treatment options include: the standard of care, positive airway pressure (“PAP”), including continuous

positive airway pressure (“CPAP”), in which an external device pneumatically splints the airway open to prevent disruptions

in breathing; oral appliances to advance the mandible or to retain the tongue, putting the mouth in a position more conducive to breathing;

surgery to remove physical obstructions to airflow; and implantable electronic stimulators to activate muscles at the base of the tongue,

opening the airway in synchrony with respiration. An estimated 50% of patients discontinue CPAP treatment within one year. Patient compliance

to PAP devices is low due to discomfort and claustrophobia resulting from pressurized air being pumped into the patient’s nose and/or

mouth via a mask or nasal pillow during sleep. These available treatment options, in many cases, are poorly tolerated, inadequate, expensive,

and for implantable stimulators and surgery, invasive.

Despite these discomforts, the global annual market

for sleep apnea devices is over US$8.2 billion and growing. The estimated compound annual growth rate for the global market of OSA devices

from 2024 to 2029 is 7.33%.

IHL-42X in OSA

IHL-42X is an oral fixed dose combination of acetazolamide, a carbonic

anhydrase inhibitor approved for various indications, and dronabinol, a synthetic form of delta-9-tetrahydrocannabinol (“THC”)

approved for the treatment of nausea, vomiting and loss of appetite. Both agents have been shown in clinical studies to reduce the apnea

hypopnea index (“AHI”). We believe that the activity of dronabinol on cannabinoid receptors causes dilation of the airway,

and acetazolamide induces modest metabolic acidosis, signaling to the body that there is excess CO2 in the blood, thus increasing respiration.

By combining two agents with mechanisms known to reduce AHI in one pharmaceutical formulation, we believe IHL-42X may have therapeutic

benefit at lower doses of each constituent drug that are safe and tolerable.

Phase 2 Clinical Trial for IHL-42X for OSA

We completed a Phase 2 clinical trial in Australia

to investigate the safety and efficacy of IHL-42X for the treatment of OSA. This study established proof-of-concept, the combination reduced

AHI in patients with OSA.

The primary endpoint of this Australian Phase 2

clinical trial was the change in AHI relative to baseline, and the secondary endpoints included change in oxygen desaturation index (“ODI”),

daytime somnolence measured by the Epworth Sleepiness Scale, improvement in mood as measured by the Profile of Moods State (“POMS”),

and well-being as measured by the Short Form 36. Safety of the IHL-42X combination was assessed through adverse event (“AE”)

monitoring. Participants completed a single-blind placebo treatment period followed by three double-blind IHL-42X treatment periods, each

with a different dose strength of IHL-42X. Each treatment period was seven days with an overnight sleep study on night seven to determine

AHI and other secondary endpoint data. Blood samples were collected the morning after the sleep study and analyzed for THC content.

In the final analysis of data from this trial,

IHL-42X was observed to reduce AHI at all three dose strengths (2.5 mg dronabinol + 125 mg acetazolamide, 5 mg dronabinol + 250 mg acetazolamide,

and 10 mg dronabinol + 500 mg acetazolamide with the lowest dose (2.5 mg dronabinol + 125 mg acetazolamide )) observed to be the most

effective, reducing AHI by an average of 50.7 % relative to baseline with 25% of subjects’ AHI reduced by >80%. With low-dose

IHL-42X, THC was cleared below the common threshold for impaired driving (1 ng/mL) by the morning after dosing. Subjects also reported

improved sleep quality during IHL-42X treatment periods compared to placebo.

IHL-42X was observed to be generally well-tolerated

with no serious adverse events observed at any dosage level. Adverse events (“AEs”) were recorded from the time the subjects

enrolled in the trial until their end-of-study visit. After recording treatment emergent adverse events (“TEAE”), the study

team, including investigators and medical monitors, reviewed the TEAEs to determine whether they were likely related to the drug candidate.

Of the 11 subjects studied, TEAEs deemed to be possibly, probably, or related to study treatment occurred at a higher incidence at the

higher doses on dronabinol/acetazolamide (5 mg dronabinol plus 250 mg acetazolamide and 10 mg dronabinol plus 500 mg acetazolamide) compared

to the low (2.5 mg dronabinol plus 125 mg acetazolamide) dose and placebo treatment periods.

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Low dose IHL-42X had a similar proportion of subjects

reporting TEAEs and a lower number of total TEAEs than the placebo. This indicated that low-dose IHL-42X was well-tolerated.

This Phase 2 clinical trial both supported our

FDA IND submission and informed the design of the ongoing FDA pivotal Phase 2/3 clinical trial (or the Re-POSA Study, as discussed below).

Formulation Development and Manufacturing of IHL-42X

We engaged Procaps Group, S.A. (“Procaps”) for the manufacture

of a specific oral fixed dose formulation of IHL-42X that is now being tested in our clinical trials.

Bioavailability/Bioequivalence Clinical Trial

We are conducting a bioequivalence/bioavailability

(“BA/BE”) clinical trial for IHL-42X. The BA/BE study focuses on assessing the PK and tolerability of IHL-42X’s active

pharmaceutical ingredients (“APIs”), dronabinol (THC) and acetazolamide, in comparison to FDA reference listed drugs Marinol

(dronabinol) and acetazolamide oral tablets, respectively, manufactured by Taro Pharmaceutical Industries. The study will also investigate

the effect of food on IHL-42X tolerability and PK. The BA/BE study was designed to evaluate the concentrations of APIs and metabolites

in blood samples over 48 hours. This study was designed to adhere to FDA recommendations for bioequivalence studies. We expect the outcomes

of the BA/BE trial twill serve as a bridging mechanism to the reference listed drugs, potentially facilitating regulatory approval via

the FDA 505(b)(2) regulatory pathway.

We have completed dosing of 115 participants in

the BA/BE study, and we expect to release top-line results in 2024.

Phase 2/3 Clinical Trial Investigating IHL-42X in Patients with

OSA (the “RePOSA Study”)

The RePOSA Study is a global, randomized, double-blind

Phase 2/3 clinical trial, investigating the effect of IHL-42X in patients with OSA who are non-compliant, intolerant or naïve to

positive airway pressure devices, such as CPAP, to determine the safety and efficacy of the drug candidate. The RePOSA study is being

conducted in accordance with an IND cleared by the FDA.

The primary endpoint of the RePOSA Study is a change

in AHI as compared to baseline. Key secondary endpoints include a change in patient sleep quality, sleep related impairments and fatigue.

Other secondary endpoints include a change in oxygen saturation index, hypoxic burden and sleepiness. Exploratory endpoints are change

in sleep architecture, cognitive function, blood pressure and other biomarkers identified for those at risk for OSA. The RePOSA Study

consists of two component studies, or phases: a Phase 2, four-week, dose ranging, three-arm (IHL-42X low dose (2.5 mg dronabinol + 125

mg acetazolamide), IHL-42X high dose (5 mg dronabinol + 250 mg acetazolamide) and placebo) trial designed to determine the optimal dose

of IHL-42X based on safety and efficacy in OSA patients; and a Phase 3, 52-week, four-arm (IHL-42X, dronabinol, acetazolamide and placebo),

factorial trial that will compare the optimal dose of IHL-42X to the component APIs, dronabinol and acetazolamide, at equivalent doses,

as well as placebo. The endpoints, inclusion criteria and study procedures are similar across both component studies, which is designed

to streamline the transition process from Phase 2 to Phase 3.

The trial is expected to be conducted in as many

as 55 sites. This is anticipated to include 25 sites in the United States, 16 in Germany, seven in Spain, two in Finland and five in the

United Kingdom. The target patient population is individuals aged 18 years or older with OSA who are intolerant, non-compliant or naïve

to positive airway pressure. We plan to recruit 560 subjects, with a total of 355 subjects receiving IHL-42X (patients in the dronabinol

and acetazolamide arms will receive IHL-42X for part of the study) and 205 subjects receiving placebo over the course of the study. The

first subject in the Phase 2 portion of the Re-POSA Study was dosed in May 2024. We anticipate reporting top-line data from the Phase

2 portion of the RePOSA Study in the first half of 2025. We expect to dose the first subject in the Phase 3 portion of the RePOSA Study

in the first half of 2025 and to announce top-line Phase 3 data in the first half of 2027.

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General Anxiety Disorder

Generalized Anxiety Disorder or “GAD”

GAD is a chronic, often debilitating mental health

disorder that affects approximately 10% of U.S. adults in their lifetimes. Symptoms of GAD include excessive anxiety and worry that persists

for over six months, which can lead to significant impairments in social, occupational and other functioning, according to the National

Institute of Mental Health (“NIMH”). GAD is the most common anxiety disorder seen in primary care settings. An estimated 6.8

million adults are diagnosed with GAD in a given year in the United States.

Existing Treatments

There is a significant unmet need for new therapies

in GAD. Current recommendations for GAD treatment include selective serotonin reuptake inhibitors (“SSRIs”), serotonin and

noradrenaline reuptake inhibitors (“SNRIs”), and pregabalin as first-line options, with benzodiazepines as second-line options.

GAD is also treated with psychotherapy alone or in combination with pharmacotherapies. However, these treatments have significant limitations,

including a delayed onset of action, poor therapy adherence rates and substantial treatment side effects. In particular, the side effects

associated with long-term use of these pharmacotherapies include emotional numbness, reduced positivity, weight gain, sexual dysfunction,

and suicidal thoughts.

Psychedelic-Assisted Psychotherapy as a Treatment in Mental

Health

Psychedelic-assisted psychotherapy may provide

rapid, significant, and lasting benefits in treating unipolar depression, depression and anxiety symptoms associated with a terminal illness,

and substance misuse. Psilocybin is a psychoactive molecule that occurs naturally in several genera of mushrooms, which primarily acts

on the serotonin receptor system, and can modulate states of consciousness, cognition, perception, and mood.

Over the past decade, there has been an accumulating

body of evidence that psilocybin may have beneficial effects in anxiety, depression, and other mental health conditions. In these studies,

administration of psilocybin with psychological support from trained therapists provided a rapid reduction in anxiety and depression symptoms

on the day of administration with generally maintained treatment effects at follow-up assessments many months later. These studies have

shown psilocybin to be generally well-tolerated. Most studies do not report serious adverse events.

Two psilocybin third-party research programs for

depression have received breakthrough therapy designation from the FDA. A small number of other psilocybin treatment development programs

are underway globally. Should the results from any of these research programs be positive, approval of psilocybin-assisted psychotherapy

as a prescription treatment could occur within the next five years.

PSX-001 for GAD

Our oral psilocybin lead candidate, PSX-001 is designed to be used

in combination with psychological therapy from trained therapists that has been specifically designed for patients diagnosed with generalized

anxiety disorder. The therapy is designed to optimize patient safety and therapeutic outcomes in GAD with specific support before, during

and after PSX-001 dosing sessions.

Our psilocybin treatment includes administration

of two therapeutic doses of our drug candidate, PSX-001, with psychological support from trained therapists before, during and after each

dose session. The psychotherapy comprises three distinct phases:

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Phase 2 Exploratory Proof-of-Concept Clinical Trial

We conducted a Australian Phase 2 exploratory,

proof-of-concept clinical trial, known as PsiGAD1, pursuant to an authorization from the Human Research Ethics Committee (“HREC”).

The trial was a Phase 2 randomized triple-blind

active-placebo-controlled trial to assess the safety and efficacy of psilocybin-assisted psychotherapy for GAD. Participants experienced

two psilocybin or active-placebo dosing sessions and up to 11 non-drug, specialist psychotherapy sessions over a period of ten weeks.

Primary outcomes were safety, efficacy and tolerability,

and secondary outcomes included quality of life, functional impairment, and comorbidities. Safety was assessed by monitoring adverse events

including but not limited to liver function tests and scores on the Ultra Brief Checklist of Suicidality. Efficacy was assessed by comparing

the change in Hamilton Anxiety Ratings Scale (“HAM-A”) from baseline between the placebo and treatment group. Tolerability

was assessed by comparing the proportion of participants who complete both dosing sessions in the placebo and treatment groups. Secondary

endpoints were assessed by monitoring disability, comorbidity, productivity and quality of life using patient reported outcome measures.

Based on topline results from this trial, the trial

met its primary endpoint, supporting a large clinical effect in the psilocybin treatment group compared to the placebo group.

The reduction in HAM-A score from baseline in the

psilocybin group was 12.8 points, from 29.5 at baseline to 16.8 at week 11 (6 weeks following the final dosing session). This reduction

in HAM-A score observed in the psilocybin group was 9.2 points greater than the reduction observed in the placebo group (-12.8 psilocybin

vs. -3.6 placebo; p<0.0001). In the trial, 44% of subjects in the psilocybin group were observed to show a clinically meaningful improvement

of at least 50% subjects in anxiety score from baseline; a ‘response rate’ more than four times higher than that of the placebo

group.

Psilocybin within the context of psychotherapy

was observed to be well-tolerated, with only mild and moderate TEAEs reported. No serious or severe adverse events were observed. Only

one of the 73 participants withdrew from the trial during the 7-week treatment program.

We anticipate announcing final results from this

trial in the first half of 2025.

Next Steps in PSX-001 Clinical Development

The FDA has completed its review of our IND and

gave its authorization for us to proceed with a Phase 2b clinical trial in the United States. This trial is expected to include approximately

94 subjects (including those currently treated with SSRIs who meet the study inclusion and exclusion criteria), evaluate change in the

HAM-A anxiety score and other measures of efficacy and be conducted at multiple sites in the United States and the United Kingdom. The

required review of the trial dossier by the UK’s Medicines and Healthcare products Regulatory Agency (“MHRA”) is underway.

We have designed the follow-up Phase 2b clinical trial with the assistance of Clerkenwell Health, a UK-based contract research organization

(“CRO”) specializing in psychiatry and central nervous system treatments.

Development and Manufacture of cGMP Psilocybin Drug Product

We have engaged Catalent for the development and cGMP manufacture of

Incannex’s oral psilocybin drug candidate, PSX-001. Final preparations for the manufacture of the cGMP clinical trial supply of

PSX-001 are currently ongoing. This drug candidate will be used in our planned clinical trials.

Model Mental Health Clinic for Psychedelic-Assisted Psychotherapy

We have opened one of the first psychedelic-assisted

psychotherapy clinics in Australia, which will serve as a model for potential future sites. We believe this first clinic will provide

real-world experience in treating mental health patients utilizing psychedelic-assisted psychotherapy. Assuming regulatory approval, this

experience will provide insight on the potential commercialization of PSX-001.

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IHL-675A

We are developing IHL-675A, an oral fixed dose combination drug candidate

that contains synthetic cannabidiol (“CBD”) and hydroxychloroquine sulphate (“HCQ”) for the treatment of inflammatory

conditions, with an initial focus on rheumatoid arthritis. Inflammatory conditions occur when the body’s immune system attacks its

own tissues and organs causing inflammation, pain, discomfort, and damage to the affected tissues.

IHL-675A comprises a combination of hydroxychloroquine

sulphate, an approved anti-rheumatic drug, and synthetic CBD. HCQ is a disease modifying antirheumatic drug that regulates the activity

of the immune system, which may be overactive in some conditions. HCQ can modify the underlying disease process, rather than simply treating

the symptoms. In our in vitro studies and experiments, we demonstrated that IHL-675A components, CBD and HCQ, act synergistically to inhibit

production of key inflammatory cytokines. Based on the results of these experiments and in vitro studies, we believe IHL-675A also has

the potential for use in rheumatoid arthritis and other inflammatory conditions, such as acute respiratory distress syndrome, COPD, asthma,

bronchitis and inflammatory bowel diseases, e.g. colitis and Crohn’s disease. The rheumatoid arthritis market in the United States

is growing rapidly with sales for rheumatoid arthritis treatments reaching US$25.37 billion in 2023. This market is expected to exceed

US$31.58 billion by 2033.

Manufacturing Arrangements

We engaged Procaps for the manufacture of a specific

oral, fixed dose formulation of IHL-675A that is now being tested in our clinical trials.

Rheumatoid Arthritis

Rheumatoid arthritis is a chronic inflammatory

disorder that can affect joints, skin, eyes, lungs, heart and blood vessels. As an autoimmune disorder, rheumatoid arthritis is caused

by attacks to body tissues by one’s immune system. Unlike the wear-and-tear damage caused by osteoarthritis, rheumatoid arthritis

causes a painful swelling that can eventually result in bone erosion and joint deformity. HCQ is approved for treatment of rheumatoid

arthritis in the form of hydroxychloroquine sulphate and marketed as Plaquenil and generic equivalents.

Phase 1 Clinical Trial for IHL-675A

A Phase 1 clinical trial to assess the safety and

PK of IHL-675A in healthy volunteers, the results of which will form part of our planned FDA IND for rheumatoid arthritis, and potentially

lung inflammation and inflammatory bowel disease. The key endpoints of the trial were the adverse events reported and the plasma levels

of the APIs, CBD and HCQ, and their major metabolites over a 28-day period. Three cohorts of 12 participants (n = 36) received either

IHL-675A, Epidiolex (CBD) or Plaquenil (HCQ) and the assessments were identical across the three arms of the trial. The trial measured

the safety, tolerability, and PK profiles of IHL-675A compared to the reference listed drugs, Epidiolex (CBD) and Plaquenil (HCQ).

CBD and HCQ have historically been used independently

in treating rheumatoid arthritis and other inflammatory disorders. However, as with any pharmaceuticals, there were risks involved when

evaluating as a combination. Part of the strategy in the design of IHL-675A was that the combination of CBD with HCQ permitted a reduction

in HCQ, which reduced the known risks associated with cumulative HCQ dose, without sacrificing efficacy. Results from the in vitro preclinical

studies we conducted prior to the trial led to the hypothesis that a lower cumulative dose of HCQ, when combined with CBD, would also

reduce disease severity scores in IHL-675A’s target indications in humans. Nonetheless, there was always the potential for the two

drugs to interact and exacerbate minor concerns that exist when used alone or lead to new safety concerns. Demonstrating that a combination

drug containing CBD and HCQ had a similar safety profile to the component drugs was an important step in the development program and was

a requirement set out by regulatory agencies. Safety assessments in this trial included cardiac monitoring via 24-hour Holter monitor

and electrocardiogram (“ECG”), and blood biomarkers, serum liver enzyme levels, blood cell counts and biochemistry, monitoring

of vital signs and mental health questionnaires.

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The other component of this study was monitoring

the PK of the API of IHL-675A, CBD and HCQ, and comparing them to their respective reference listed drugs Epidiolex and Plaquenil. Study

participants were dosed with either IHL-675A, Epidiolex or Plaquenil with equivalent amounts of the respective API. Blood samples were

drawn at predetermined intervals over a 48-hour period, as well as seven, 14, 21 and 28 days post dosing, and analyzed for levels of CBD

and HCQ as well as their major metabolites. For each molecule the maximum concentration (“Cmax”), time to maximum concentration

(“Tmax”) and total exposure (“AUCinf”) were determined. The PK parameters for IHL-675A, Epidiolex and Plaquenil

were compared to determine whether the APIs in IHL-675A were bioequivalent to the reference listed drugs. Bioequivalence is an important

component of the FDA 505(b)2 approval pathway that Incannex is targeting with IHL-675A.

Based on final available study results, IHL-675A

was observed to be well-tolerated and both the active pharmaceutical ingredients were bioavailable.

CBD PK Results

Comparison of the average PK of CBD in participants

administered IHL-675A compared to those administered Epidiolex revealed that the CBD was taken up from IHL-675A more quickly and reached

a higher maximum concentration than from Epidiolex. The average Cmax of CBD from IHL-675A was 1.57 times higher than for Epidiolex. The

Tmax was 26% faster for IHL-675A than Epidiolex. CBD administered in IHL-675A was also cleared more quickly than Epidiolex. The half-life

(t1/2) of CBD from IHL-675A was 13% faster than Epidiolex. The AUCinf was similar for CBD administered as IHL-675A and Epidiolex. These

patterns are trends at this point (p >0.05). Similar results were observed for CBD metabolites 7-COOH-CBD and 7-OH-CBD.

Hydroxychloroquine PK Results

A comparison of the average PK of HCQ in participants

administered IHL-675A compared to those administered Plaquenil revealed that HCQ was taken up more slowly from IHL-675A than from Plaquenil.

However, the two drugs had a similar maximum plasma concentration. The Tmax for HCQ administered as IHL-675A was 46% slower than for Plaquenil.

The hydroxychloroquine clearance and total exposure were similar for the two drugs. These patterns are trends at this point (p >0.05).

Plasma concentrations of hydroxychloroquine of HCQ metabolites desethylhydroxychloroquine, bisdesethylhydroxychloroquine and desethylchloroquine

were detected only at low levels (<2 ng/mL) at all points in the study.

Tolerance

IHL-675A was observed to be well-tolerated, with

no serious adverse events reported. The same number of treatment related TEAEs were reported for IHL-675A as for Epidiolex. Fewer treatment

related TEAEs were reported for Plaquenil. All treatment related TEAEs were minor, with the exception of one incidence of moderate severity

abdominal cramps, which was resolved soon after onset.

Interpretation of the Results from the Phase 1 Clinical Trial

Both APIs, CBD and HCQ, were absorbed from IHL-675A.

Trends in PK profiles indicated that the uptake of CBD may be more rapid for IHL-675A than Epidiolex and uptake of HCQ may be slower for

IHL-675A than Plaquenil. This could be advantageous for IHL-675A. Clinical evidence suggests that CBD provides immediate relief for inflammation

and pain, whereas HCQ is a slower acting molecule and provides extended relief.

Phase 2 Clinical Trial Assessing the Effects of IHL-675A on

Pain and Function in Patients with Rheumatoid Arthritis

We are conducting a Phase 2 clinical trial in Australia

to assess the safety and efficacy of IHL-675A on pain and function in patients with rheumatoid arthritis. The trial is planned to include

approximately 128 subjects who meet the eligibility criteria and who upon enrollment will be randomized according to one of four arms:

either IHL-675A, CBD alone, HCQ alone or placebo. The treatments will be double blinded, meaning neither the investigators nor patients

will know which treatment an individual is receiving.

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The primary endpoint for the Phase 2 trial is pain

and function relative to baseline determined via the score on the RAPID3 assessment at 24 weeks. Per the protocol, participants will record

their pain and function outcomes daily, by completing questionnaires on pain, fatigue, joint stiffness and quality of life, using an electronic

patient reported outcomes device (similar to completing a questionnaire on an electronic tablet). The participants will also attend monthly

visits at the clinical trial site, where blood tests, and physical examinations will monitor additional safety and efficacy outcomes,

including inflammatory biomarkers. We anticipate reporting top-line data in the second half of 2025.

FDA Development

We

have completed pre-IND meetings with the FDA to discuss the regulatory pathway for the development of IHL-675A for rheumatoid arthritis

and inflammatory lung conditions in the United States and plan to initially open an IND for a Phase 2 trial forrheumatoid arthritis. The

FDA provided guidance on the requirements for 505(b)(2) NDA submissions, as was proposed for IHL-675A, that rely on the FDA’s finding

of safety and/or effectiveness for listed drugs. In the pre-IND meeting for use of IHL-675A for treatment of rheumatoid arthritis, the

FDA confirmed that no further non-clinical studies are needed to open an IND and provided guidance on the proposed clinical development

plan for IHL-675A in rheumatoid arthritis.

Secondary Assets and Additional Opportunities

While we are focusing our available resources on

the continued development of our three lead drug candidates in the above indications, we are also exploring the development of 25 other

secondary assets where we believe proof-of-concept has been established in either preclinical studies, Phase 1 clinical trials or Phase

2 clinical trials.

These secondary drug candidates target a variety

of potentially high-value indications, including topical cannabinoid candidates for various skin conditions (estimated global market size

US$1.8 billion in 2021), a chewable candidate for smoking cessation (estimated global market size US$28.9 billion in 2024 with estimated

9.2% CAGR) and a candidate for the treatment of opioid addiction (estimated global market size of $4.59 billion in 2021). We also believe

our lead drug candidate, IHL-675A, may be able to treat inflammatory bowel disease (estimated U.S. market size US$21 billion in 2021)

and pulmonary inflammatory diseases such as COPD and asthma (estimated combined U.S. market size US$36.7 billion in 2022).

Intellectual Property

We strive

to protect the proprietary know-how and technology that we believe is important to our business, including seeking and maintaining patents

intended to cover our drug candidates and compositions, their methods of use and processes for their manufacture, and any other aspects

of inventions that are commercially important to the development of our business. In addition to pursuing patent protection for

all our assets, we rely on unpatented trade secrets, know-how and other confidential information as well as proprietary technological

innovation and expertise that are protected in part by confidentiality and invention assignment agreements with our employees, advisors

and consultants.

We plan to

continue to expand our intellectual property estate by filing patent applications directed to compositions, methods of use, treatment

and patient selection, formulations and manufacturing processes created or identified from our ongoing development of our drug candidates.

We have three primary patent families in our lead drug candidates, including IHL-42X, IHL-675A, and PSX-001. Our IHL-42X patent

portfolio consists of ten pending applications, and our IHL-675A patent portfolio consists

of 16 pending applications. If granted, the patent applications in the IHL-42X patent portfolio

are expected to expire as far out as 2041 to 2043, and the patent applications in the IHL-675A patent

portfolio are expected to expire as far out as 2041 to 2042 (in each case, subject to any patent

term disclaimers, adjustments, or extensions). Patent applications in each of these families are active in multiple jurisdictions, including,

the United States, Australia, Canada, Colombia, European Patent Organization, Israel, New Zealand, and Japan. Our. Our

PSX-001 patent portfolio consists of one pending application. If granted, the patent application is expected to expire in 2045.

PSX-001 1 Standard/utility Provisional

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We

plan to continue to expand our intellectual property estate by filing patent applications directed to compositions, methods of use, treatment

and patient selection, formulations and manufacturing processes created or identified from our ongoing development of our drug candidates.

Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology,

inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and

operate without infringing the valid and enforceable patents and proprietary rights of third parties. We seek to obtain domestic and international

patent protection, and endeavor to promptly file patent applications for new commercially valuable inventions.

The

patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions.

In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and patent scope can

be reinterpreted by the courts after issuance. Moreover, many jurisdictions, including the United States, permit third parties to challenge

issued patents in administrative proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot predict

whether the patent applications we are currently pursuing, or may in the future pursue, will issue as patents in any particular jurisdiction

or whether the claims of any issued patents will be enforceable or provide sufficient protection from competitors.

Because

patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer,

and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain

of the priority of inventions covered by our issued patents, our pending patent applications or of patent applications we may file in

the future. Moreover, we may have to participate in interference proceedings or derivation proceedings declared by the U.S. Patent and

Trademark Office (“USPTO”), or similar proceedings outside the United States, to determine priority of invention.

As of June 30, 2024, we also own trademark registrations

in Australia and the United States to distinguish and/or protect our brand, including our company name and logo.

Competition

We are targeting indications that have limited,

inadequate, or no approved pharmaceutical treatment options. The table below outlines existing drugs and therapies used to treat the illnesses

we aim to treat with our drug candidates and what believe are some of the associated pitfalls for patients with these existing drugs and

therapies.

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However, the biopharmaceuticals

industry is highly competitive. While we believe that our investigational synthetic cannabinoid-combination and psychedelic-assisted treatments

represent a fundamental shift in the treatment paradigm relative to other treatments for these serious, chronic diseases, we face or may

face potential competition from many different sources, including major pharmaceutical, biopharmaceutical, specialty pharmaceutical and

biotechnology companies, academic institutions, governmental agencies and medical research organizations. Many

of our competitors may have significantly greater financial, manufacturing, marketing, drug development, technical and human resources

than we do. Accordingly, our potential competitors may succeed in obtaining FDA or other regulatory approval for alternative or

superior products. Any drug candidates, that we successfully develop, will compete with the standard of care and new therapies that may

become available in the future.

Our competitors also may compete with us in recruiting and retaining

qualified scientific and management personnel, in establishing clinical trial sites and enrolling subjects for our clinical trials and

in acquiring technologies complementary to, or necessary for, our programs. In addition, competitors may have higher name recognition

and more extensive collaborative relationships. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries

may result in even more resources being concentrated among a smaller number of competitors. Smaller or emerging earlier stage companies

may also prove to be significant competitors, particularly if they have collaborations with larger, established companies. Competitors

in the OSA drug development space include Apnimed, Inc. and Desitin Arzneimittel GmbH. A number of companies are developing drug candidates

intended for the treatment of GAD, including Cybin Inc., Otsuka Pharmaceutical Development & Commercialization, Inc., Sunovion Pharmaceuticals

Inc., Mind Medicine Inc., and others. Competitors working on novel biopharmaceuticals focused on modulation of the serotonin and dopamine

systems include atai Life Sciences N.V., Compass Pathways plc, GH Research plc and others. There are a large number of existing pharmaceutical

companies marketing drugs for the treatment of rheumatoid arthritis, including Pfizer Inc., Abbvie Inc., Amgen Inc., Novartis AG, Boehringer

Ingelheim International GmbH, Eli Lilly and Company, F. Hoffmann-La Roche AG, Bristol Myers Squibb, AstraZeneca PLC, Merck & Co.,

Inc. While we believe we have identified the potential for IHL-675A to more effectively reduce pain and increase quality of life over

these existing therapies and standard of care, IHL-675A will compete with these other therapeutic options.

We are further aware

that there are non-FDA approved CBD preparations being made available from companies in the medical marijuana industry, which might compete

with our drug candidates. While federal law prohibits the sale and distribution of most marijuana products not approved or authorized

by FDA, the vast majority of states and the District of Columbia have legalized either CBD or marijuana for either recreational or medical

use, or both, and congressional efforts related to legalization of marijuana continue. Further, under the U.S. Farm Bill, enacted in late

2018, certain extracts and other material derived from cannabis are no longer controlled under the federal Controlled Substances Act of

1970 (“CSA”). However, the marketing of such products as a food, dietary supplement, or for medical purposes remains subject

to FDA requirements. With respect to the marketing of CBD as a food or dietary supplement, in January 2023, the FDA concluded that the

existing regulatory frameworks for foods and supplements were not appropriate for CBD products and denied three citizen petitions that

had asked the agency to conduct rulemaking to allow the marketing of CBD products as dietary supplements. In addition, Congressional efforts

related to legalization of marijuana continue. Although our business is distinct from that of entities marketing FDA-unapproved marijuana

and CBD-containing dietary supplement, future enacted legislation or federal government action authorizing the sale, distribution, use,

and insurance reimbursement of non-FDA approved marijuana or CBD products could increase competition for and adversely affect our ability

to generate sales from our drug candidates.

We are also aware that

a number of companies are increasing their efforts in discovery of non-traditional alternative compounds including psychedelics. A number

of for-profit biotechnology companies or institutions are specifically pursuing the development of psilocybin to treat mental health illnesses.

There are also other organizations or institutions evaluating the use of psilocybin in mental health and neurocognitive conditions. In

addition, there are various companies exploring other psychedelic compounds for the treatment of mental health and neurocognitive conditions.

Regulatory Authorities

The research, development, testing, manufacture,

quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, distribution, marketing, sales, among

other things, of drug products are extensively regulated by governmental authorities in the United States and other countries. We, along

with our third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval and post-approval

requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure

of our drug candidates.

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United States

U.S. Government Regulation of Drug Products

In the United States, the FDA regulates drugs under

the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations, which govern, among other things, pharmaceutical

product quality, safety, efficacy, development, manufacturing, testing, packaging, labeling, storage, recordkeeping, advertising and promotion.

In addition, controlled substances, like synthetic cannabidiol, THC, and psilocybin, as well as security, recordkeeping, storage, manufacturing,

distribution, and importation, among other things, are regulated by the Drug Enforcement Administration (“DEA”).

The process of obtaining required authorizations

from FDA or DEA and achieving and maintaining compliance with applicable laws and regulations requires the expenditure of substantial

time and financial resources. Failure to comply with applicable FDA or other requirements may result in refusal to approve pending applications,

imposition of clinical holds on ongoing trials, warning letters, civil or criminal penalties, recall or seizure of products, partial or

total suspension of production or distribution, or withdrawal of the product from the market. FDA approval is required before any new

drug, including any new indication for a previously approved drug, can be marketed in the United States.

The steps required before a drug may be marketed

in the United States generally include the following:

Clinical Development

Before any drug candidate may be tested in humans,

it must undergo rigorous preclinical testing. Preclinical tests generally include laboratory evaluations of a drug candidate’s chemical

and biological activities, formulation and stability, as well as studies to evaluate toxicity and potential for other adverse events,

which support subsequent clinical testing and rationale for therapeutic use.

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The Consolidated Appropriations Act for 2023, signed

into law on December 29, 2022, (P.L. 117-328) amended both the FDCA and Public Health Service Act to specify that nonclinical testing

for drugs and biologics, respectively, may, but is not required to, include in vivo animal testing. According to the amended language,

a sponsor may fulfill nonclinical testing requirements by completing various in vitro assays (e.g., cell-based assays, organ chips,

or microphysiological systems), in silico studies (i.e., computer modeling), other human or non-human biology-based tests (e.g.,

bioprinting), or in vivo animal tests.

The results of preclinical tests, together with

manufacturing information and analytical data, are submitted as part of an IND to the FDA. An IND is a request for authorization from

the FDA to administer an investigational product to humans and must become effective before human clinical trials may begin. A 30-day

waiting period after the submission of each IND is required before commencement of clinical testing in humans. An IND automatically becomes

effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed

clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding

concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to

commence. Clinical holds may also be imposed by the FDA at any time before or during clinical trials due to safety concerns or non-compliance.

A clinical trial involves the administration of

the investigational drug candidate to patients under the supervision of qualified investigators following GCP standards, which include

the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial (unless

the consent requirement has been waived by an IRB) along with the requirement to ensure that the data and results reported from the clinical

trials are credible and accurate. GCP requirements are meant to protect the rights and health of patients and to define the roles of clinical

trial sponsors, administrators and monitors. A clinical trial is conducted under a protocol that details, among other things, the objectives

of the trial, the criteria for determining subject eligibility, the dosing plan, the parameters to be used in monitoring safety, the procedure

for timely reporting of AEs, and the efficacy criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent

protocol amendments must be submitted to the FDA as part of the IND.

Further, an IRB representing each institution that

is participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution,

and the IRB must thereafter conduct a continuing review and re-approve the trial at least annually until completion. The IRB must review

and approve, among other things, the trial protocol and informed consent information to be provided to clinical trial subjects. An IRB

must operate in compliance with FDA regulations.

Information about certain clinical trials, including

details of the protocol and eventually study results, also must be submitted within specific time frames to the National Institutes of

Health (“NIH”), for public dissemination on the ClinicalTrials.gov data registry. Information related to the product, patient