ITEM 1A. RISK FACTORS
Our business faces significant risks. You should
carefully consider the risks described below, together with all of the other information included in our filings with the United States
Securities and Exchange Commission (SEC) when evaluating our business. If any of the following risks actually occurs, our business, financial
condition or results of operations could be materially adversely affected and the trading price of shares of our common stock could decline.
The occurrence of any of the following risks could cause our actual results to differ materially from those contained in forward-looking
statements we have made in this report and those we may make from time to time.
Summary of Risks
This section provides a summary of the risks that
may impact our performance in the future. For details of our various risk factors and their impacts, see “Risk Factors Discussion.”
Our risk factors are organized into the following
categories: 1) Risks related to our business, 2) Risks related to clinical and regulatory matters, 3) Risks related to our intellectual
property, 4) Risks related to government regulations, 5) Risks related to our reliance on third parties, and 6) Risks related to ownership
of our common stock.
Risks related to our business
Business risks include risks associated with
our products and regulatory approval, licensing agreements, historical losses, managing growth, and acquisitions. In general, the risks
related to our business can cause variability in the future profits of the Company.
Risks related to clinical and regulatory
matters
Clinical and regulatory matters include risks
associated with clinical trials and the future ability to commercially market the product. In order for any of our products to be commercialized
and produce future profits, successful trials need to be completed with supporting data to receive regulatory approval. Failing to complete
the trial will significantly increase our cost of doing business. In addition, the active ingredient in our products is a controlled substance
which can affect the supply available for clinical trials, as well as commercial sales. A limited supply could increase the time needed
to complete clinical trials and overall costs including product liability claims. We could also face potential fines or reputational risk
if we do not comply. Developments from competitors and the ability to obtain market exclusivity could also negatively impact future profits.
Risks related to our intellectual property
Our products depend upon securing and protecting
critical intellectual property. Patent positions are highly uncertain and involve complex legal and factual questions. Infringing upon
patents or trade secrets could force us to cease or alter our product development efforts or obtain a license to continue to develop or
sale our products. These risks could not only impact the future profits of the company but also create adverse publicity for us.
Risks related to government regulations
We are required to comply with various federal
and state pharmaceutical and healthcare laws and regulations, and to maintain secure systems to protect sensitive confidential information.
Complying with the various regulations can increase our cost of doing business. We could also face potential fines or reputational risk
if we do not comply. Litigation or investigations can increase costs, negatively affect our operating results and create adverse publicity
for us.
Risks related to our reliance on third parties
The Company relies on third parties to conduct
preclinical and clinical studies, as well as to manufacture our product candidates. Third parties’ failure to perform the trials
as contractually required could impact our ability to obtain regulatory approval. If our third-party manufacturers fail to meet our requirements
and strict regulatory requirements, our product development and commercialization efforts may be materially harmed.
Risks related to ownership of our common
stock
Common stocks risks include risks associated with
the limited market for our common stock, a potential issuance of a substantial number of additional shares, stock price volatility, and
reporting requirements of federal securities laws. The net effect of these risks can include reductions in future profits, additional
operating expenses, inability to meet liquidity needs, inability to access capital and increased cost of capital.
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Risk Factors Discussion
Risks Related to Our Business
Our business depends on the success of esmethadone
(d-methadone, dextromethadone, REL-1017), our only product candidate currently in clinical development, which is in a pivotal clinical
trial for the adjunctive treatment of MDD. If we are unable to obtain regulatory approval for and successfully commercialize REL-1017
or other future product candidates, or we experience significant delays in doing so, our business will be materially harmed.
To date, the primary focus of our product development
has been esmethadone (d-methadone, dextromethadone, REL-1017) for the adjunctive treatment of patients with MDD. Currently, esmethadone
is our only product candidate under clinical development. We intend, in 2024, to enter human studies of our proprietary, low dose modified-release
formulation of psilocybin (REL-P11) for metabolic indications, but there can be no assurance that such studies will be commenced or completed.
This may make an investment in our Company riskier than similar companies that have multiple product candidates in active development
and that therefore may be able to better sustain a setback of a lead candidate. Successful continued development and ultimate regulatory
approval of esmethadone for the adjunctive treatment of MDD or other indications is critical to the future success of our business. We
have invested, and will continue to invest, a significant portion of our time and financial resources in the clinical development of esmethadone.
If we cannot successfully develop, obtain regulatory approval for and commercialize esmethadone, we may not be able to continue our operations.
The future regulatory and commercial success of esmethadone is subject to a number of risks, including the following:
Esmethadone, psilocybin and any future product
candidates will be subject to rigorous and extensive clinical trials and extensive regulatory approval processes implemented by the FDA
and comparable foreign regulatory authorities before obtaining marketing approval, if at all, from these regulatory authorities. The drug
development and approval process is lengthy and expensive, and approval is never certain. Investigational new drugs, such as esmethadone,
may not prove to be safe and effective in clinical trials. We have limited experience as a company in conducting later stage clinical
trials required to obtain regulatory approval. We may be unable, if at all, to conduct future clinical trials at preferred sites, enlist
clinical investigators, enroll sufficient numbers of participants or begin or successfully complete clinical trials in a timely fashion.
In addition, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design
of a clinical trial may not become apparent until the clinical trial is well advanced. Because we have limited experience as a company
designing clinical trials, we may be unable to design and execute clinical trials to support regulatory approval.
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There is a high failure rate for drugs and biological
products proceeding through clinical trials. Failure can occur at any time during the clinical trial process. The results of preclinical
studies and early clinical trials of esmethadone, psilocybin or any future product candidate may not be predictive of the results of later-stage
clinical studies or trials and the results of studies or trials in one set of patients or line of treatment may not be predictive of those
obtained in another. In fact, many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in
late stage clinical trials even after achieving promising results in preclinical studies and earlier stage clinical trials. In addition,
data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory
approval. Owing in part to the complexity of biological pathways, esmethadone, psilocybin or any future product candidate may not demonstrate
in patients the biochemical and pharmacological properties we anticipate based on laboratory studies or earlier stage clinical trials,
and they may interact with human biological systems or other drugs in unforeseen, ineffective or harmful ways. The number of patients
exposed to product candidates and the average exposure time in the clinical development programs may be inadequate to detect rare adverse
events or findings that may only be detected once a product candidate is administered to more patients and for greater periods of time.
Our Phase 2 clinical study of REL-1017 involved a small population of subjects with MDD, and, because of the small sample size in such
trial, the results of this clinical trial may be subject to substantial variability and may not be indicative of either future top-line
results or final results. In addition, results from open-label trials, such as our open-label trial of REL-1017, may not predict results
in placebo-controlled trials for a number of reasons, including biases that may exaggerate therapeutic effect. On October 13, 2022, we
announced that the RELIANCE III study, evaluating REL-1017 in the monotherapy setting for MDD, did not achieve its primary endpoint, which
was a statistically significant improvement in depression symptoms compared to placebo as measured by the MADRS on Day 28. On December
7, 2022, we announced that the RELIANCE I study, evaluating REL-1017 in the adjunctive setting for MDD, did not achieve its primary endpoint,
which was a statistically significant improvement in depression symptoms compared to placebo as measured by the MADRS on Day 28. With
these findings, even if RELIANCE II, RELIGHT, or any additional Phase 3 studies achieve their primary endpoints, we may not have sufficient
evidence to demonstrate the efficacy of REL-1017 as an adjunctive treatment of MDD. If we are unable to successfully demonstrate the safety
and efficacy of esmethadone, psilocybin or other future product candidates and receive the necessary regulatory approvals, our business
will be materially harmed.
Even if we do receive regulatory approval to market
esmethadone, psilocybin or other future product candidates, any such approval may be subject to limitations on the indicated uses or patient
populations for which we may market the products. Accordingly, even if we are able to obtain the requisite financing to continue to fund
our development programs, we may be unable to successfully develop or commercialize esmethadone, psilocybin or other future product candidates.
If we or any of our future development collaborators are unable to develop, or obtain regulatory approval for, or, if approved, successfully
commercialize esmethadone, psilocybin or other future product candidates, we may not be able to generate sufficient revenue to continue
our business.
Preliminary or top-line results may not
accurately reflect the complete results of the clinical study.
Preliminary or top-line data remain subject to audit and verification
procedures that may result in the final data being materially different from the preliminary or top-line data. As a result, preliminary
or top-line data should be viewed with caution until the final data are available.
Our license agreement for esmethadone, our
only product candidate currently under clinical development, could terminate under certain circumstances, including if we terminate our
Chief Executive Officer except for cause, and we would be unable to conduct our business as planned.
In January 2018, we entered into an Intellectual
Property Assignment Agreement (the Assignment Agreement) and License Agreement (the License Agreement and together with the Assignment
Agreement, the Agreements), with Dr. Charles E. Inturrisi and Dr. Paolo Manfredi (collectively, the Licensor). Pursuant to the Assignment
Agreement, we assigned our existing rights, including patents and patent applications, to esmethadone in the context of psychiatric use
to Licensor, and pursuant to the License Agreement, Licensor then granted us an exclusive perpetual, worldwide license under the assigned
intellectual property rights as well as patents and know-how covering certain new inventions developed by Licensor and relating to esmethadone
in neurological and other uses, to develop and commercialize esmethadone in all fields of use. The License Agreement also grants to us
rights in all future inventions developed by Licensor, whether or not in collaboration with us that relate in any way to esmethadone or
the use thereof. The License Agreement was amended in December 2019 to modify certain termination rights relating to the Chief Executive
Officer, which are described further below.
If we develop any new inventions relating to esmethadone,
we are required to do so in collaboration with Licensor, and to file patents covering such inventions jointly in the name of the Company
and Licensor. All such future inventions or patents shall be jointly owned by us and Licensor and, will be included in and subject to
the financial and other terms of the License Agreement.
The License Agreement includes standard termination
rights for Licensor in the event of our insolvency, challenge of the licensed patents and uncured material breach of our obligations under
the License Agreement. In addition, the License Agreement contains certain “Key Man” provisions such that the Licensor may
terminate the License Agreement if we terminate the employment of our Chief Executive Officer, Mr. Sergio Traversa, for any reason other
than for specified causes determined by a majority of our Board of Directors (including fraud, gross negligence, unauthorized use of our
confidential information, conduct including harassment or discrimination, breach of fiduciary duty or uncured material breach), or if
we (a) substantially modify Mr. Traversa’s job responsibilities or decision-making rights in connection with the development and
commercialization of esmethadone, (b) remove him from the role of Chief Executive Officer other than in connection with a permitted change-of-control
transaction, (c) materially reduce his compensation, or (d) assign or transfer our rights under the License Agreement or the esmethadone
intellectual property without Mr. Traversa’s consent, in each case (termination or the events in (a) through (d) during the period
commencing on the effective date and ending on the later of five years from the original effective date of the License Agreement on December
31, 2022. The December 2019 amendment to the License Agreement made certain clarifications to the nature of a termination for Cause, including
to clarify that termination due to Mr. Traversa’s death or disability does not give Licensor the right to terminate the License
Agreement. On December 27, 2022, the Licensor and the Company entered into a new amendment extending the “Key Man” provision
period until December 31, 2027. The License Agreement was not otherwise modified.
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As a result of the provisions described above,
we are limited in our ability to terminate, as well as to decrease the salary or authority of, our Chief Executive Officer until December
31, 2027. In addition, the agreement provides that any assignor that we assign the agreement to must agree in writing to all terms of
the license, including the key man provisions, and as noted above, our Chief Executive Officer has the right to consent to any such assignment
of the agreement unless previously terminated for cause or due to death. As the license agreement relates to our only product candidate
currently under clinical development, these provisions may be deemed to have an anti-takeover effect and may delay, deter or prevent
a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result
in a premium being paid over the market price for the shares held by stockholders. If we fail to comply with the terms of the License
Agreement, our rights to those patents may be terminated, and we will be unable to conduct our business.
We have generated no revenue from commercial
sales to date and our future profitability is uncertain.
We have a limited operating history and our business
is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success must be considered
in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with this. Since we began
our business, we have focused on research, development and clinical trials of product candidates, and have incurred significant losses
since inception and generated no product revenues. If we continue to incur operating losses and fail to become a profitable company, we
may be unable to continue our operations. We expect to continue to operate at a net loss for at least the next several years as we continue
our research and development efforts, continue to conduct clinical trials and develop manufacturing, sales, marketing and distribution
capabilities. There can be no assurance that the products under development by us will be approved for sales in the US or elsewhere. Furthermore,
there can be no assurance that if such products are approved they will be successfully commercialized, and the extent of our future losses
and the timing of our profitability are highly uncertain.
International commercialization of our product
candidates faces significant obstacles.
We may plan to commercialize some of our products
internationally through collaborative relationships with foreign partners. We have limited foreign regulatory, clinical and commercial
resources. Future partners are critical to our international success. We may not be able to enter into collaboration agreements with appropriate
partners for important foreign markets on acceptable terms, or at all. Future collaborations with foreign partners may not be effective
or profitable for us. We will need to obtain approvals from the appropriate regulatory, pricing and reimbursement authorities to market
any of our proposed products internationally, and we may be unable to obtain foreign regulatory approvals. Pursuing foreign regulatory
approvals will be time-consuming and expensive. The regulations can vary among countries and foreign regulatory authorities may require
different or additional clinical trials than we conducted to obtain FDA approval for our product candidates. In addition, adverse clinical
trial results, such as death or injury due to side effects, could jeopardize not only regulatory approval, but if approval is granted,
may also lead to marketing restrictions. Our product candidates may also face foreign regulatory requirements applicable to controlled
substances.
We have a history of losses and we may never achieve or sustain
profitability.
We have incurred substantial losses since our inception, and we may
not achieve profitability for the foreseeable future, if at all. Since inception, we have an accumulated deficit of approximately $560.9
million at December 31, 2023. The Company had cash, cash equivalents and short-term investments of approximately $96.3 million at December
31, 2023. Even if we succeed in developing and commercializing one or more of our product candidates, we expect to incur substantial net
losses and negative cash flows for the foreseeable future due in part to increasing research and development expenses, including clinical
trials, and increasing expenses from leasing additional facilities and hiring additional personnel. As a result, we will need to generate
significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability
in the future. Even if we do achieve profitability, we may not be able to sustain or increase profitability.
We have a limited operating history upon
which to base an investment decision.
Our limited operating history may limit your ability
to evaluate our prospects due to our limited historical financial data and our unproven potential to generate profits. You should evaluate
the likelihood of financial and operational success in light of the risks, uncertainties, expenses and difficulties associated with an
early-stage business, many of which may be beyond our control, including:
● our potential inability to obtain regulatory approvals, and
● our potential inability to manufacture, sell and market our products.
Our operations have been limited to organizing
and staffing, on a limited basis, our company, acquiring, developing and securing our proprietary technology and undertaking preclinical
studies and clinical trials of our principal product candidates. These operations provide a limited basis for you to assess our ability
to commercialize our product candidates and the advisability of investing in our common stock.
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Our ability to use our net operating loss
carryforwards and certain other tax attributes may be limited.
As of December 31, 2023, we had Federal, New York
State and New York City net operating loss (NOL) carryforwards of approximately $100,077,000, $15,016,000 and $14,998,000, respectively,
which begin expiring in 2027, 2032 and 2032, respectively. Under U.S. federal tax legislation enacted in 2017, informally titled the Tax
Cuts and Jobs Act, or Tax Act, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility
of such federal NOLs is limited to 80% of taxable income in the year. It is uncertain if and to what extent various states will conform
to the Tax Act. Under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership
change” (generally defined as a greater than 50 percentage-point cumulative change (by value) in the equity ownership of certain
stockholders over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes
to offset its post-change taxable income or taxes may be limited. We may also experience ownership changes as a result of stock offerings
or as a result of subsequent shifts in our stock ownership, some of which are outside our control. We have not completed an analysis to
determine whether any such limitations have been triggered. If any were determined to be triggered, our ability to use our current NOLs
and other pre-change tax attributes to offset post-change taxable income or taxes would be subject to limitation. We will be unable to
use our NOLs if we do not attain profitability sufficient to offset our available NOLs prior to their expiration.
We may not be successful in hiring and retaining
key employees.
Our future operations and successes depend in
large part upon the continued service of key members of our senior management team whom we are highly dependent upon to manage our business,
specifically Dr. Sergio Traversa, our Chief Executive Officer, and Dr. Paolo Manfredi, Acting Chief Scientific Officer. If either terminates
employment with us, such a departure would have a material adverse effect on our business.
Our future success also depends on our ability
to identify, attract, hire or engage, retain and motivate other well-qualified managerial, technical, clinical and regulatory personnel.
We currently only have 16 full time employees and are likely to hire additional qualified personnel with expertise in nonclinical pharmacology
and toxicology, pharmaceutical development, clinical research, regulatory affairs, manufacturing, sales and marketing. We compete for
qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals,
particularly in the United States, is intense, and we may not be able to hire sufficient personnel to support our efforts. There can be
no assurance that these professionals will be available in the market, or that we will be able to retain existing professionals or to
meet or to continue to meet their compensation requirements. Furthermore, the cost base in relation to such compensation, which may include
equity compensation, may increase significantly, which could have a material adverse effect on us. Failure to establish and maintain an
effective management team and work force could adversely affect our ability to operate, grow and manage our business.
Managing our growth as we expand operations
may strain our resources.
We expect to need to grow rapidly in order to
support ongoing and additional, larger, and potentially international, pivotal clinical trials of our drug candidates, which will place
a significant strain on our financial, managerial and operational resources. In order to achieve and manage growth effectively, we must
continue to improve and expand our operational and financial management capabilities. Moreover, we will need to increase staffing and
to train, motivate and manage our employees.
We may expand our business through the acquisition
of rights to new drug candidates that could disrupt our business, harm our financial condition and may also dilute current stockholders’
ownership interests in our company.
Our business strategy includes expanding our products
and capabilities, and we may seek acquisitions of drug candidates or technologies to do so. Acquisitions involve numerous risks, including
substantial cash expenditures; potentially dilutive issuance of equity securities; incurrence of debt and contingent liabilities, some
of which may be difficult or impossible to identify at the time of acquisition; difficulties in assimilating the acquired technologies
or the operations of the acquired companies; diverting our management’s attention away from other business concerns; risks of entering
markets in which we have limited or no direct experience; and the potential loss of our key employees or key employees of the acquired
companies.
We cannot assure you that any acquisition will
result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired product, company or business.
In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions.
We cannot assure you that we will be able to make the combination of our business with that of acquired products, businesses or companies
work or be successful. Furthermore, the development or expansion of our business or any acquired products, business or companies may require
a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms
or at all. We may also seek to raise funds by selling shares of our preferred or common stock, which could dilute each current stockholder’s
ownership interest in us.
Business interruptions could limit our ability
to operate our business.
Our operations as well as those of our collaborators
on which we depend are vulnerable to damage or interruption from computer viruses, human error, natural disasters, electrical and telecommunication
failures, international acts of terror and similar events. We have not established a formal disaster recovery plan and our back-up operations
and our business interruption insurance may not be adequate to compensate us for losses we may suffer. A significant business interruption
could result in losses or damages incurred by us and require us to cease or curtail our operations.
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Risks Related to Clinical and Regulatory Matters
If we or our potential collaborators fail
to obtain the necessary regulatory approvals, or if such approvals are limited, we and our potential collaborators will not be allowed
to commercialize our drug candidates, and we will not generate product revenues.
Satisfaction of all regulatory requirements for
commercialization of a drug candidate typically takes many years, is dependent upon the type, complexity and novelty of the drug candidate,
and requires the expenditure of substantial resources for research and development. Our research and clinical approaches may not lead
to drugs that the FDA considers safe for humans and effective for indicated uses we are studying. The FDA may require studies in addition
to those we are conducting, in which case we or our collaborators would have to expend additional time and resources and would likely
delay the date of potentially receiving regulatory approval. The approval process may also be delayed by changes in government regulation,
future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining
regulatory approvals would:
Even if we or our collaborators comply with all
FDA regulatory requirements, our drug candidates may never obtain regulatory approval. If we or our collaborators fail to obtain regulatory
approval for any of our drug candidates we will have fewer commercial products, if any, and corresponding lower product revenues, if
any. Even if our drug candidates receive regulatory approval, such approval may involve limitations on the indications and conditions
of use or marketing claims for our products. Further, later discovery of previously unknown problems or adverse events could result in
additional regulatory restrictions, including withdrawal of products. The FDA may also require us or our collaborators to commit to perform
lengthy Phase 4 post-approval clinical efficacy or safety studies. Our expending additional resources on such trials would have an adverse
effect on our operating results and financial condition.
In jurisdictions outside the United States, we
or our collaborators must receive marketing authorizations from the appropriate regulatory authorities before commercializing our drugs.
Regulatory approval processes outside the United States generally include all of the aforementioned requirements and risks associated
with FDA approval.
If we or our collaborators are unable to
design, conduct and complete successful clinical trials, our drug candidates will not be able to receive regulatory approval.
Before obtaining regulatory approvals for the
commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive nonclinical testing and
clinical trials that the product is both safe and effective for use in each target indication.
Results from early clinical trials may not support
moving a drug candidate to later-stage clinical trials. Phase 3 clinical trials may not demonstrate the safety or efficacy of our drug
candidates. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful. Results
of later clinical trials may not replicate the results of prior clinical trials and preclinical studies. For example, our RELIANCE I study
did not achieve its primary endpoint, statistically significant improvements in depression symptoms compared to placebo on Day 28, even
though our Phase 2 study was positive. Further, our monotherapy Phase 3 study, RELIANCE III, also did not meet its primary endpoint, statistically
significant improvements in depression symptoms compared to placebo on Day 28. Even if our RELIANCE II, RELIGHT or other potential Phase
3 clinical trials are positive, we or our collaborators may have to commit substantial time and additional resources to conducting further
preclinical studies and clinical trials before obtaining FDA approval for any of our drug candidates.
Clinical trial results from the study of depression
are inherently difficult to predict. In addition, our clinical trials and our future clinical trials for esmethadone measure clinical
symptoms, such as depression that are not biologically measurable. The primary measure of depression is subjective and can be influenced
by factors outside of our control, and can vary widely from day to day for a particular patient, and from patient to patient and site
to site within a clinical study. The results we have obtained in completed animal studies or we have observed in our clinical trials
conducted to date may not be predictive of results from our future clinical trials. For example, our RELIANCE III and RELIANCE I studies
did not achieve their primary endpoints, statistically significant improvements in depression symptoms compared to placebo on Day 28.
Clinical trials are very expensive and difficult
to design and implement, in part because they are subject to rigorous requirements. The clinical trial process also consumes a significant
amount of time. Furthermore, if participating patients in clinical trials suffer drug-related adverse reactions during the course of
such clinical trials, or if we, our collaborators or the FDA believe that participating patients are being exposed to unacceptable health
risks, such clinical trials will have to be suspended or terminated. Failure can occur at any stage of the clinical trials, and we or
our collaborators could encounter problems that cause abandonment or repetition of clinical trials.
We have a limited history of developing drug
candidates. We do not know whether any of our ongoing or planned clinical trials will result in marketable drugs.
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In addition, completion of clinical trials can
be delayed by numerous factors, including:
● slower than expected rates of patient recruitment and enrollment;
● unanticipated patient dropout rates; and
Any of these delays could significantly impact
the timing, approval and commercialization of our drug candidates and could significantly increase our overall costs of drug development.
We cannot predict whether regulatory agencies
will determine that the data from our clinical trials support marketing approval.
The FDA’s and other regulatory agencies’
decisions to approve our product candidates will depend on our ability to demonstrate through adequate well-controlled clinical trials,
that the product candidate is effective. For esmethadone product candidate, efficacy is measured statistically by comparing the overall
improvement in depression in actively-treated patients against improvement in depression in the control group (a placebo control). However,
there is a possibility that our data may fail to show a statistically significant difference from the placebo control or the active control.
For example, our RELIANCE III and RELIANCE I studies did not achieve their primary endpoints, statistically significant improvements in
depression symptoms compared to placebo on Day 28. Alternatively, there is a possibility that our data may be statistically significant,
but that the actual clinical benefit of the product candidates may not be considered to be clinically significant, clinically relevant
or clinically meaningful. Even if we believe that the data from our trials will support marketing approval in the United States or in
Europe, we cannot predict whether the agencies will agree with our analysis and approve our applications.
Developments by competitors may establish
standards of care that affect our ability to conduct our clinical trials as planned.
Changes in standards related to clinical trial
design could affect our ability to design and conduct clinical trials as planned. In that case, both the cost and the amount of time
required to conduct a clinical trial could increase.
Conducting clinical trials of our drug
candidates or commercial sales of a drug candidate may expose us to expensive product liability claims and we may not be able to maintain
product liability insurance on reasonable terms or at all.
The risk of product liability is inherent in
the testing of pharmaceutical products. If we cannot successfully defend ourselves against product liability claims, we may incur substantial
liabilities or be required to limit or terminate testing of one or more of our drug candidates. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against product liability claims could prevent or inhibit the commercialization
of our drug candidates. We currently carry clinical trial insurance but do not carry product liability insurance. If we successfully
commercialize our drug candidates, we may face product liability claims, regardless of FDA approval for commercial manufacturing and
sale. We may not be able to obtain such insurance at a reasonable cost, if at all. Even if our agreements with any current or future
corporate collaborators entitle us to indemnification against product liability losses, such indemnification may not be available or
adequate should any claim arise.
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If our drug candidates receive regulatory
approval, we and our collaborators will also be subject to ongoing FDA obligations and continued regulatory review, such as continued
safety reporting requirements, and we and our collaborators may also be subject to additional FDA post-marketing obligations or new regulations,
all of which may result in significant expense and limit our and our collaborators’ ability to commercialize our drugs.
Any regulatory approvals that our drug candidates
receive may also be subject to limitations on the indicated uses for which the drug may be marketed or contain requirements for costly
post-marketing follow-up studies. In addition, if the FDA approves any of our drug candidates, the manufacturing processes, labeling,
packaging, distribution, post-approval monitoring and adverse event reporting, storage, import, export, advertising, promotion and record
keeping for the drug will be subject to extensive and ongoing regulatory requirements. The FDA has significant post-market authority,
including the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials
to evaluate safety risks related to the use of a product or to require withdrawal of the product from the market. The manufacturing facilities
used to manufacture our product candidates will also be subject to periodic review and inspection by the FDA and other regulatory agencies,
including for continued compliance with cGMPs requirements. The discovery of any new or previously unknown problems with our third-party
manufacturers, manufacturing processes or facilities may result in restrictions on the product, manufacturer or facility, including withdrawal
of the product from the market. Any product promotion and advertising will also be subject to regulatory requirements and continuing
regulatory review. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products. If
we promote our product candidates in a manner inconsistent with FDA-approved labeling or otherwise not in compliance with FDA regulations,
we may be subject to enforcement action. If we or our collaborators, manufacturers or service providers fail to comply with applicable
continuing regulatory requirements in the United States or foreign jurisdictions in which we seek to market our products, we or they
may be subject to, among other things, fines, warning or untitled letters, holds on clinical trials, suspension or withdrawal of regulatory
approval, product recalls and seizures, administrative detention of products, refusal to permit the import or export of products, operating
restrictions, injunction, civil penalties and criminal prosecution.
The FDA’s policies may change and additional
government regulations may be enacted that could prevent or delay regulatory approval of our drug candidates. We cannot predict the likelihood,
nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United
States or abroad.
Fast Track Designation may not lead to a faster development
or regulatory review or approval process.
We have obtained Fast Track Designation for esmethadone
for the adjunctive treatment of MDD. Fast Track Designation is granted if a drug is intended for the treatment of a serious or life-threatening
condition and the drug demonstrates the potential to address unmet medical needs for this condition. Fast Track Designation does not
guarantee a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track Designation
if it believes that the designation is no longer supported by data from our clinical development program.
Even though we have obtained orphan drug
designation in the United States for esmethadone for the treatment of postherpetic neuralgia, we may not obtain or maintain orphan
drug exclusivity for that product candidate, and we may not obtain orphan drug designation or exclusivity for any of our other product
candidates or indications.
The FDA may designate drugs for relatively small
patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended
to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United
States.
Generally, if a product with an orphan drug designation
subsequently receives the first marketing approval for the indication for which it has such designation, the active ingredient is entitled
to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same active ingredient
for the same disease for seven years. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially
defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease
or condition.
We have obtained orphan drug designation for
esmethadone for the treatment of postherpetic neuralgia. If the product candidate were to obtain orphan drug exclusivity upon approval,
such exclusivity would prevent the FDA from approving another application to market a drug containing the same active moiety for the
same orphan indication, except in very limited circumstances, including when the FDA concludes that the later drug is safer, more effective
or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is
approved for a use, such as MDD, that is broader than the indication for which it received orphan designation.
Even though we have received orphan drug designation
for esmethadone for the treatment of postherpetic neuralgia, we may not be the first to obtain marketing approval for this active moiety
for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical product candidates. Further,
even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because
different drugs with different active moieties can be approved for the same condition or a drug with the same active moiety can be approved
for a different indication. Orphan drug designation by the FDA neither shortens the development time or regulatory review time of a drug
nor gives the drug any advantage in the regulatory review or approval process. In addition, even if we intend to seek orphan drug designation
for other product candidates or indications, we may never receive such designations or obtain orphan drug exclusivity.
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We may not be able to obtain marketing
exclusivity under the Hatch-Waxman Amendments or equivalent regulatory data exclusivity protection in other jurisdictions for our products.
We intend to rely, in part, on Hatch-Waxman exclusivity
for the commercialization of our products in the United States, if approved. The Hatch-Waxman Amendments provide marketing exclusivity
to the first applicant to gain approval of an NDA under specific provisions of the FDCA. For esmethadone, which we intend to elect to
have not be considered the same active ingredient as methadone and therefore an NCE, we anticipate obtaining 5-year exclusivity. If FDA
were to determine that we do not meet the requirements to make the election, we may not be able to obtain 5-year exclusivity for the product.
In addition, under the statute, this election currently may only be made in an NDA submitted before October 1, 2027.
There can be no assurance that European authorities
will grant data exclusivity for esmethadone, because it does not contain a new active molecule. Even if European data exclusivity is
granted for esmethadone, this may not protect us from direct competition. A competitor(s) with a generic version of our product
may be able to obtain approval of its product during our product’s period of data exclusivity, by submitting a marketing authorization
application (MAA) with a less than full package of nonclinical and clinical data.
We may need to focus our future efforts
in new therapeutic areas where we have little or no experience.
Although our primary strategic interest is in
the areas of depression, esmethadone has potential benefits in other therapeutic areas. If our drug development efforts in depression
fail, or if the competitive landscape or investment climate for antidepressant drug development is less attractive, we may need to change
the company’s strategic focus to include development of our product candidates, or of newly acquired product candidates, for therapeutic
areas other than depression. We have very limited drug development experience in other therapeutic areas and we may be unsuccessful in
making this change from a depression company to a company with a focus in areas other than depression, such as metabolic disorders with
psilocybin, or a company with a focus in multiple therapeutic areas including depression.
Our product candidates contain controlled
substances, the supply of which may be limited by U.S. statutes and regulations, and the use of which may generate public controversy.
The active ingredients in esmethadone and psilocybin
are listed by the CSA and regulations promulgated by the DEA as controlled substances. The CSA and regulations promulgated by the DEA
regulate certain drug substances in Schedule I, II, III, IV or V, with Schedule I substances considered to present the highest risk of
substance abuse and Schedule V substances the lowest risk. These product candidates are also subject to the CSA and DEA regulations relating
to their handling (i.e., manufacturing, storage, distribution, prescribing and dispensing procedures). Furthermore, the amount of controlled
substances that can be obtained for clinical trials and commercial distribution is limited by the DEA through its quota system. Quotas
may not be sufficient to complete clinical trials or meet commercial demand. There is a risk that federal statutes and DEA regulations
concerning applicable quotas may interfere with the supply of the drugs used in clinical trials for our product candidates and the ability
to manufacture and distribute our product candidates, if approved, in the volume needed to meet commercial demand.
Products containing controlled substances may
generate public controversy. Opponents of these products may seek restrictions on marketing and withdrawal of any regulatory approvals.
In addition, these opponents may seek to generate negative publicity in an effort to persuade the medical community to reject these products.
Political pressures and adverse publicity could lead to delays in, and increased expenses for, and limit or restrict the introduction
and marketing of our product candidates.
Failure to comply with the CSA or DEA regulations,
or the cost of compliance with these regulations, may adversely affect our business.
Esmethadone and psilocybin are subject to extensive
regulation by the DEA. Although esmethadone is substantially devoid of opioid activity, and psychotomimetic effects, it is currently classified
as a Schedule II drug. Upon approval, the DEA may continue to designate it as a controlled substance falling under a DEA controlled
substance schedule. Esmethadone is produced by separation from racemic methadone, a scheduled drug subject to extensive regulation by
the DEA. Any psilocybin-containing product candidate we develop is also subject to extensive regulation by the DEA as a Schedule I substance.
The manufacture, shipment, storage, sale and use
of controlled substances are highly regulated, including security, recordkeeping and reporting obligations enforced by the DEA. Schedule
I substances by definition have a high potential for abuse, have no currently “accepted medical use” in the United States,
lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Schedule I and
II substances (as well as substances defined as narcotics in any Schedule) are subject to the strictest regulatory requirements and restrictions
involving registration, storage, security, recordkeeping and reporting. In particular, distribution and dispensing of Schedule II drugs
are strictly controlled. For example, all Schedule II drug prescriptions cannot be refilled and must contain a written or electronic signature
of a practitioner when presented to a pharmacy. This high degree of regulation can result in significant costs in order to comply with
the required regulations, which may have an adverse effect on the development and commercialization of our product candidates.
The DEA limits the availability and production
of all scheduled substances, including esmethadone and psilocybin, through a quota system. The DEA requires substantial evidence and documentation
of expected legitimate medical and scientific needs before assigning quotas to manufacturers. In future years, we may need greater amounts
of controlled substances to sustain our development program, and we will need significantly greater amounts to implement our commercialization
plans if the FDA approves our proposed formulations. Any delay or refusal by the DEA in establishing the procurement quota or a reduction
in our quota for scheduled controlled substances or a failure to increase it over time as we anticipate could delay or stop the clinical
development or commercial sale of some of our products or product candidates. This could have a material adverse effect on our business,
results of operations, financial condition and prospects.
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Psilocybin is currently classified as a Schedule I drug in the
United States, and any product containing this substance must be rescheduled to be marketed. There can be no assurance that the DEA will
make a favorable scheduling decision. Even assuming categorization as a Schedule II or lower controlled substance (i.e., Schedule III,
IV or V) at the federal level, such substances would also require scheduling determinations under state laws and regulations.
If approved by FDA, and if
the finished dosage form of a future psilocybin-containing drug product is listed by the DEA as a Schedule II, III, or IV controlled
substance, its manufacture, importation, exportation, domestic distribution, storage, sale, prescribing, and dispensing will continue
to be subject to a significant degree of regulation by the DEA. In addition, the final scheduling process may take significantly longer
than the 90-day deadline set forth in the CSA, especially if there are objections to such scheduling, thereby delaying the launch of
our psilocybin-containing product candidate in the United States. Furthermore,
the FDA, DEA or any comparable foreign regulatory authority could require us to generate more clinical or other data than we currently
anticipate to establish whether or to what extent the substance has an abuse or misuse potential, which could increase the cost and/or
delay the launch of any future psilocybin-containing product candidates. In addition, product candidates containing controlled substances
are subject to regulations relating to manufacturing, storage, distribution, prescribing, and dispensing, including:
The
potential reclassification of psilocybin in the United States could create additional regulatory burdens on our operations and negatively
affect our results of operations.
If psilocybin, rather than
just a specific FDA-approved formulation, is rescheduled under the CSA as a Schedule II or lower controlled substance (i.e., Schedule
III, IV or V), the ability to conduct research on psilocybin would most likely be improved. However, rescheduling psilocybin may materially
alter enforcement policies across many federal and state agencies, primarily FDA and DEA. FDA’s responsibilities include regulating
the ingredients as well as the marketing and labeling of drugs sold in interstate commerce. Because it is currently illegal under federal
law to produce and sell psilocybin, and because there are no federally recognized medical uses, FDA has historically deferred enforcement
related to psilocybin to the DEA. If psilocybin were to be rescheduled to a federally controlled, yet legal, substance, FDA would likely
play a more active regulatory role. The DEA would continue to be active in regulating manufacturing, distribution and dispensing of such
substances. The potential for multi-agency enforcement post-rescheduling, including state agencies, e.g., Boards of Pharmacy, could threaten
or have a materially adverse effect on our business. In addition, if the psilocybin-containing product candidate is scheduled as Schedule
II, III, IV or V, we would also need to identify wholesale distributors with the appropriate DEA registrations and authority to distribute
the psilocybin-containing product candidate. The failure to obtain, or delay in obtaining, or the loss of any of those registrations could
result in increased costs to us. If the psilocybin-containing product candidate is classified as a Schedule II drug, participants in our
supply chain may have to maintain enhanced security including specially constructed vaults at manufacturing and distribution facilities.
This additional security may also discourage some pharmacies from carrying the product.
If a supplier of an active pharmaceutical
ingredient (API) or a pharmaceutical excipient fails to provide us sufficient quantities, we may not be able to obtain an alternative
supply on a timely or acceptable basis.
Our APIs and pharmaceutical excipients are multisource,
although not all sources have an active Drug Master File (DMF) with the FDA. A DMF is a submission to the FDA used to provide confidential
detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of drugs to
support drug development and approval. In addition, some of the countries for our multisource APIs may not be same as our drug manufacturing
locations. Thus, any disruption in supply from our preferred vendors could result in significant delays with our pharmaceutical development,
clinical trials, NDA submission, NDA approval or commercial sale of the finished product due to contract delays, the need to manufacture
a new batch of API, out of specification API, the need for import and export permits, and the failure of the newly sourced API to perform
to the standards of the previously sourced API.
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Modifications to our products, if approved,
may require new NDA approvals.
After a product candidate receives FDA approval,
expanded uses or uses in new indications of our products may require additional clinical trials and new regulatory approvals, including
additional IND submissions before we can begin clinical development and supplemental NDA approval prior to marketing and sales. If we
are required to conduct additional clinical studies, it would require additional expenditures and impact our operating results. Delays
in obtaining required future approvals could adversely affect our ability to introduce new or enhanced products in a timely manner, which
in turn would harm our future growth.
Delays in the commencement or completion
of pharmaceutical development, manufacturing or clinical testing could result in increased costs to us and delay our ability to generate
revenues.
We do not know whether our pharmaceutical development,
manufacturing or clinical testing will be on time or be completed on schedule, if at all. For example, we may encounter delays during
the manufacture of pilot scale batches including delays with our contract development or manufacturing organization, sourcing satisfactory
quantities of APIs, narcotic import and export permits, sourcing of excipients, contract disputes with our third party vendors and manufacturers,
or failure of the product to meet specification. Similar delays may occur a during our cGMP manufacture of the product.
The commencement and completion of clinical trials
can be disrupted for a variety of reasons, including difficulties in:
● recruiting and enrolling patients to participate in a clinical trial;
● obtaining regulatory approval to commence a clinical trial;
● manufacturing sufficient quantities of a product candidate;
● diversion of controlled substances by clinical trial personnel.
A clinical trial may also be suspended or terminated
by us, the FDA or other regulatory authorities due to a number of factors, including:
● unforeseen safety issues; or
In addition, changes in regulatory requirements
and guidance may occur and we may need to amend clinical trial protocols to reflect these changes, which could impact the cost, timing
or successful completion of a clinical trial. If we experience delays in the commencement or completion of our clinical trials, the commercial
prospects for our product candidates will be harmed, and our ability to generate product revenues will be delayed. Many of the factors
that cause, or lead to, a delay in the commencement or completion of clinical trials may also lead to the denial of regulatory approval
of a product candidate.
Conducting successful clinical studies
may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.
Patient enrollment in clinical trials and completion
of patient participation and follow-up depends on many factors, including the size of the patient population; the nature of the trial
protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability
of appropriate clinical trial investigators; support staff; the number of ongoing clinical trials in the same indication that compete
for the same patients; and proximity of patients to clinical sites and ability to comply with the eligibility and exclusion criteria
for participation in the clinical trial and patient compliance. For example, patients may be discouraged from enrolling in our clinical
trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness
of our products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable
risks or discomforts. Patients may also not participate in our clinical trials if they choose to participate in contemporaneous clinical
trials of competitive products.
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Adverse safety outcomes could affect our
ability to conduct our clinical trials or obtain approval of our product candidates.
Serious injury or death resulting from a failure
of one of our drug candidates during current or future clinical trials could result in the FDA halting or delaying our clinical trials
or denying or delaying clearance or approval of a product. Even though an adverse event may not be the result of the failure of our drug
candidate, FDA or an IRB could delay or halt a clinical trial for an indefinite period of time while an adverse event is reviewed, and
likely would do so in the event of multiple such events. Any delay or termination of our current or future clinical trials as a result
of the risks summarized above, including delays in obtaining or maintaining required approvals from IRBs, delays in patient enrollment,
the failure of patients to continue to participate in a clinical trial, and delays or termination of clinical trials as a result of protocol
modifications or adverse events during the trials, may cause an increase in costs and delays in the submission of any NDAs to the FDA,
delay the approval and commercialization of our products or result in the failure of the clinical trial, which could adversely affect
our business, operating results and prospects. Lengthy delays in the completion of clinical trials of our products would adversely affect
our business and prospects and could cause us to cease operations.
On November 29, 2006, the FDA required a boxed
warning to be added to the Prescribing Information related to cardiac death for racemic methadone, a parent compound to our esmethadone.
Although the decision was based on case reports and not on a controlled clinical trial, as part of the development of esmethadone, we
currently assess (and have actively assessed) the cardiac safety profile of esmethadone in our Phase 3 clinical trials. There is no assurance
that the results of our clinical studies will demonstrate an absence of cardiac adverse events with esmethadone. An adverse safety outcome
could result in a similar bolded warning on the label of esmethadone or in a decision not to approve esmethadone, either one of which
could have serious consequences for our continued operation.
If approved, esmethadone and any psilocybin-containing
drug product we successfully develop may require Risk Evaluation and Mitigation Strategies (REMS).
Esmethadone and any psilocybin-containing drug
product we successfully develop, may require REMS. The REMS may include requirements for special labeling or medication guides for patients,
special communication plans to health care professionals and restrictions on distribution and use. We cannot predict the specific REMS
to be required as part of the FDA’s approval of any of our products. Depending on the extent of the REMS requirements, our costs
to commercialize our products may increase significantly. Furthermore, controlled substances risks that are not adequately addressed through
proposed REMS for our product candidates may also prevent or delay their approval for commercialization.
Our products will face significant competition
in the markets for such products, and if they are unable to compete successfully, our business will suffer.