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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2023

For the transition period from __________ to __________

Commission File Number: 000-55136

Skye Bioscience, Inc.

(Exact name of registrant as specified in its charter)

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (858) 410-0266

Securities registered pursuant to Section 12(b) of the Act:

Title of Class: Name of each exchange on which registered:

None None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.001

(Title of Class)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated Filer ☒ Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Yes ☐ No

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Yes ☒ No

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Yes ☒ No

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates was approximately $20,402,540 as of June 30, 2023, based upon the closing price of $5.25 per share of the registrant’s common stock on the OTCQB on June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 20, 2024, there were 28,062,907 shares of the registrant’s common stock issued and outstanding.

Table of Contents

TABLEOF CONTENTS

PAGE

PART I

Item 1. Business 4

Item 1A. Risk Factors 16

Item 1B. Unresolved Staff Comments 54

Item 1C. Cybersecurity 54

Item 2. Properties 55

Item 3. Legal Proceedings 55

Item 4. Mine Safety Disclosures 55

PART II

Item 6. Selected Financial Data 56

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63

Item 8. Financial Statements and Supplementary Data 63

Item 9A. Controls and Procedures 63

Item 9B. Other Information 64

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 48

PART III

Item 10. Directors, Executive Officers and Corporate Governance 65

Item 11. Executive Compensation 71

Item 14. Principal Accountant Fees and Services 81

PART IV

Item 15. Exhibits, Financial Statement Schedules 83

Signatures

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PARTI

As used in this report, unless otherwise indicated, the terms “we,” “us,” “our,” “Company” and “Skye Bioscience” refer to Skye Bioscience, Inc., a Nevada corporation, together with its wholly owned subsidiaries, (i) Nemus, a California corporation, (ii) SKYE Bioscience Pty Ltd ("SKYE Bioscience Australia"), an Australian proprietary limited company, (iii) Emerald Health Therapeutics, Inc. ("EHT") a corporation governed by the Business Corporations Act (British Columbia), (iv) Bird Rock Bio Sub, Inc. ("BRB"), a Delaware corporation, (v) Ruiyi Acquisition Corp, a Delaware corporation and (vi) Avalite Sciences, Inc. ("AVI"), a corporation governed by the Business Corporations Act (British Columbia).

FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K contain forward-looking statements that are based on management’s current expectations and assumptions and information currently available to management and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially and negatively affected. In some cases, you can identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section below titled “Risk Factors,” including, without limitation, risks relating to:

•the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our product candidates;

•the timing, progress and results of our clinical studies for SBI-100 Ophthalmic Emulsion (SBI-100 OE) and nimacimab and our estimates regarding the market opportunity for SBI-100 OE and nimacimab if approved;

•the early stage of our product candidates presently under development;

•our ability to obtain and, if obtained, maintain regulatory approval of our current product candidates, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;

•our ability to retain or hire key scientific or management personnel;

•our ability to protect our intellectual property rights that are valuable to our business, including patent and other intellectual property rights;

•our dependence on University of Mississippi, third party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators, including global supply chain disruptions;

•our ability to develop successful sales and marketing capabilities in the future as needed;

•the size and growth of the potential markets for any of our current product candidates, and the rate and degree of market acceptance of any of our current product candidates;

•competition in our industry;

•regulatory developments in the United States and foreign countries; and

•current pending litigation matters, including the Cunning Lawsuit.

We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, including the current global economic environment, the impacts of the high inflationary environment, and associated business disruptions such as delayed clinical trials, laboratory resources and supply chain limitations, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

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Item1. Business.

Overview

We are a clinical stage biopharmaceutical company with a mission to pioneer the development of new medicines that unlock the pharmaceutical potential of the endocannabinoid system ("ECS"). Our clinical assets focus on the modulation of cannabinoid receptor 1 ("CB1") to provide novel treatments and alternatives for diseases caused by metabolic disorders, inflammation, fibrosis and neurodegeneration, such as obesity and glaucoma. Our Phase 2 clinical candidates include nimacimab, a negative allosteric modulating antibody that inhibits peripheral CB1 receptors, currently being developed for the treatment of obesity and SBI-100 Ophthalmic Emulsion ("SBI-100 OE"), a CB1 agonist (activator), currently being developed for the treatment of glaucoma and ocular hypertension. Both of these differentiated drug candidates are focused on distinct opportunities with large unmet needs: 1) Obesity - where a patients now need additional treatments that have the ability to preserve muscle tissue and improve metabolic dysfunction either as new monotherapies or in combination which existing treatments, and 2) Glaucoma - where novel drugs with distinct mechanisms are needed, especially those that are safe, well-tolerated and have neuroprotective potential. We have filed and successfully opened an Investigational New Drug ("IND") application with the U.S. Food and Drug Administration ("FDA") for nimacimab in obesity, and we plan to launch a Phase 2 clinical trial to evaluate nimacimab for the treatment of obesity as monotherapy compared against placebo, as well as evaluate the combination of nimacimab and a GLP-1 agonist in Q3 2024, with final data in late 2025. We are also continuing clinical development of SBI-100 OE for glaucoma and ocular hypertension, with the first data read out from our recently completed Phase 2a trial anticipated in Q2 2024.

The Endocannabinoid System

Nimacimab: Peripheral CB1 Inhibitor

The exploration of the CB1 pathway as a therapeutic target has seen a resurgence of scientific interest, particularly for its role in modulating key physiological functions such as appetite regulation, weight loss and related metabolic processes. Interest in CB1 inhibition has grown in part due to the unprecedented efficacy and commercial success but also the limitations of glucagon-like peptide-1 receptor (GLP-1) agonists for the treatment of obesity due to its distinct mechanisms and poor tolerability. While Novo Nordisk's Wegovy® (semaglutide) once-weekly GLP-1 agonist injection for obesity had sales grow 442% to $4.7 billion in 2023, at the same time Novo Nordisk purchased Inversago, a clinical-stage company developing a peripherally-restricted CB1 inverse agonist therapy for weight loss. We believe this is in part because CB1 inhibition holds significant potential in obesity, and other metabolic diseases, as either a stand-alone drug or in combination with Novo Nordisk's GLP-1 agonist therapy, Wegovy®. The history of CB1 inhibition for the treatment of weight loss in obesity is long and well documented. It started with the clinical validation of an approved drug, Accomplia®, along with it's ultimate demise due to serious side effects. This was followed by a period of deep research into better understanding the mechanisms of weight loss, as well as, the corresponding side effects from CB1 inhibition - ultimately leading to a new class of "peripherally restricted" CB1 inhibitors. As a result, we now understand that inhibiting the CB1 receptor in peripheral tissues has the potential to not only cause weight loss, but may also, provide additional benefits such as improving insulin and leptin sensitivity, while specifically targeting fat loss and preserving lean muscle.

In 2006, Accomplia® (rimonabant) was approved for the treatment of obesity by the European Medicines Agency. Rimonabant was a CB1 inverse agonist that inhibited signaling both in the central nervous system and peripherally. Rimonabant consistently induced weight loss of 4-6 kg over 6-12 months vs. placebo, with accompanying improvements in metabolic control and hyperlipidemia (Van Gaal et al. Lancet, 2016, Astrup et al., Lancet, 2007). Subsequent meta-analyses showed that rimonabant increased risk of serious psychiatric adverse events such as anxiety, depression and suicidal ideation. It is believed that rimonabant's accumulation in the brain is the primary reason for the increased risk of serious psychiatric events. However, an increasing body of research suggests that the weight loss benefits of rimonabant may be achieved by targeting CB1 inhibition solely in the periphery and not in the brain, thereby avoiding risk of psychiatric adverse events. Although nimacimab is not in direct competition with GLP-1 agonists, a comparative analysis of rimonabant and semaglutide highlights significant differences in their gastrointestinal (GI) adverse event (AE) profiles. By evaluating rimonabant's GI tolerability and addressing the potential reduced risk of neuropsychiatric AEs with nimacimab—a peripherally acting antibody—nimacimab may emerge as an important next generation mechanisms beyond GLP-1 agonists for healthier, more sustainable weight loss and precision obesity including preserving muscle mass. (Van Gaal et al., Diabetes Care 2008 and Wilding et al., New England J Medicine 2021).

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Several mouse model studies support the hypothesis that selectively targeting CB1 inhibition exclusively in the periphery results in weight loss as well as other potential benefits. For example, Jenrin Discovery developed JD5037 a CB1 antagonist from ibipinabant with limited brain penetrance. Preclinical studies in the diet-induced obese mouse demonstrated that treatment with 3mg/kg daily of JD5037 over a 28-day period reduced body weight to normal levels. (Tam et al., Cell Metabolism 2012) Mice treated with JD5037 reduced body fat without loss of lean muscle mass. Treated mice experienced restoration of leptin sensitivity by decreasing leptin excretion by fat tissue, which resulted in increased fat loss. When these data are taken together with data from rimonabant, we can conclude that peripheral inhibition of CB1 is sufficient to induce weight loss, while preserving lean muscle mass and avoiding risks associated with inhibiting CB1 in the brain and central nervous system. Additional preclinical evidence also suggests that targeting both GLP-1 and inhibiting CB1 in the periphery with JD-5037 results in restoration of insulin sensitivity that is not seen with GLP-1 agonist therapy alone. (Liu et al., ACS Pharmacol. Transl. Sci. 2021 and Tam et al., Molecular Metabolism 2017)

We are currently developing nimacimab, a patented peripherally-acting negative allosteric modulating CB1 inhibitor, initially for treatment of obesity. As a monoclonal antibody, nimacimab may offer a wider therapeutic window compared to competitive small-molecule peripheral CB1 inhibitors. Animal data generated positive safety data over 26 weeks and showed that, following dosing, nimacimab primarily remained in peripheral tissue outside the brain/central nervous system ("CNS") and the product candidate had a positive PK/PD supportive of once-monthly dosing.

SBI-100 Ophthalmic Emulsion: CB1 Agonist (Activator)

We are also developing a CB1 agonist for treatment of glaucoma and ocular hypertension. Approximately 7 million people in the United States and 60 million people worldwide suffer from glaucoma and ocular hypertension ("OH"), which is caused by slow drainage of the eye and leads to increases in intraocular pressure ("IOP"). Ultimately, increased IOP is believed to be a main cause of optic nerve damage in glaucoma. Currently, only IOP lowering has been proven to be a modifiable risk factor for glaucoma onset and progression, and thus is the only acceptable endpoint for marketing approval by the FDA (De Moraes et al., Sci. Rep. 2023 and Leske et al., Arch Ophthalmol 2003). We believe that the unmet need for treatments in glaucoma is high. Approximately 40% of patients fail first line therapy and approximately 50% of patients require more than one therapy.

SBI-100 OE is a CB1 agonist (activator) and is a patented prodrug of tetrahydrocannabinol ("THC") focused on lowering IOP related to glaucoma and ocular hypertension. Ophthalmology opinion leaders have described the unmet need for a new alternate class of medicine to lower intraocular pressure and ideally provide protection against detrimental neurodegenerative effects on the optic nerve. Third party research has demonstrated the utility of THC to lower intraocular pressure and also indicated its neuroprotective capabilities. In October 2023, Skye announced Phase 1 data indicating this differentiated eyedrop was safe and well tolerated, with a low rate of hyperaemia (red eyes) and no signs of intoxication from exposure to THC. Encouraging signs of reduction in IOP were also observed in the subset of healthy volunteers who had an elevated baseline IOP, indicating the potential utility of SBI-100 OE in reducing IOP in patients with glaucoma or ocular hypertension. We launched a Phase 2a clinical trial of SBI-100 OE in Q4 2023. Enrollment was completed in Q1 2024, with data expected in Q2 2024.

Strategy

Our aim is to be a leader in research and product development focused on the EC system. Our goal is to develop first-in-class products to treat significant unmet medical need in global markets. Our operating strategy emphasizes:

Advancing Our Differentiated CB1 Inhibitor, Nimacimab, with a Focus on Obesity as a Stand Alone and Adjunct Therapy to GLP-1 by:

•Continuing to build on Phase 1 clinical data supporting evidence demonstrating safety and evidence of weight loss through restoring leptin sensitivity and enhancing fat metabolism

•Developing clinical data in Phase 2 supporting our hypothesis that nimacimab may cause weight loss while preserving muscle mass, which is not possible with current GLP-1 and GIP (glucose-dependent insulinotropic peptide) agonist therapies where reduction of muscle mass is a known side effect.

•Showing through clinical data the potential for nimacimab to preserve muscle mass, and induce further reduction in weight loss when used in conjunction with GLP-1 and GIP agonist therapies

•Exploring strategic collaborations for further development and deployment of nimacimab by expanding the clinical trial pipeline

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Advance Our First of Kind Eye Drop Formulation of CB1 Agonist SBI-100 OE as a New Treatment for Ocular Hypertension and Glaucoma by:

•Continuing our Phase 2a proof-of-concept study to develop evidence supporting our hypothesis that SBI-100 OE will lower IOP in patients with ocular hypertension and glaucoma as it did in healthy patients during our Phase 1 clinical trial

•Initiating a Phase 2b study evaluating SBI-100 OE against a current standard of care

By adhering to this strategy, Skye aims to create medicines that significantly improve the lives of patients around the world. Our focus on the ECS and CB1 modulation reflects our commitment to developing innovative treatments for chronic diseases with large unmet needs characterized by neuropathic, inflammatory, and metabolic processes.

Our Product Candidates

Nimacimab: Peripheral CB1 Inhibitor

Unmet Need & Market Opportunity

Global obesity rates have been rising dramatically, affecting more than one billion people worldwide (approximately 650 million adults). For example, approximately 42.4% of adults living in the United States are obese. This translates to more than 112.5 million American adults with a BMI of >30kg/m2, although it is likely that current rates and patient numbers are higher given obesity prevalence has increased 30.5% since 2000. Obesity is a complex disease characterized by excess and chronic inflammation of adipose tissues, and it results from a chronic energy surplus in which the body’s energy intake exceeds its energy expenditure. Other stressors and environmental factors contribute to this chronic imbalance. Today, obesity is the fifth-leading risk factor cited by the World Health Organization ("WHO") for contributing as a primary cause of death globally. Current estimates by the World Obesity Atlas suggest that over half the global population will be overweight or obese by 2035, compared to 38% in 2020.

Early-generation therapies for obesity offered only modest help in weight reduction, with some drugs being removed from the market due to safety concerns. More recently, a new class of drugs have proven very effective at achieving weight loss. These incretin mimetics, including GLP-1 agonists such as semaglutide and GLP-1/GIP combinations such as tirzepatide, have changed the paradigm for anti-obesity treatments. Products derived from these compounds suppress appetite and induce satiety, reduce gastric emptying, and thus reduce calorie intake, achieving weight-loss of up to 20% within one year. However, these drugs come with some potentially significant gastrointestinal side effects that may arise, including diarrhea, nausea, abdominal pain and bloating, and in some cases patients may suffer from a condition known as gastroparesis, or paralyzed stomach. Additional side effects, although infrequent, include instances of acute pancreatitis, gallbladder disease, hypoglycemia, acute kidney injury and diabetic retinopathy (in diabetics). Beyond these potential side effects, it has been observed that muscle mass loss accounts for up to 40% of the weight lost in patients using these drugs, which is higher than the typical loss of approximately 25% muscle mass loss in normal weight loss settings. As a result of these side effects many patients are intolerant to these incretin-mimetic drugs. In most cases, even when therapy is tolerated, patients are unable to get to a healthy weight. When taken off therapy, patients can gain a majority of their weight back within the first year. Nevertheless, the market for this class of drugs is projected to grow to $20 billion in sales by 2030. Despite this unprecedented efficacy and commercial success, we believe there remains room for improvement over these new therapies.

Potential of the Body's Endocannabinoid System for Pharmaceutical Drug Development in the Treatment of Obesity

The cloning of CB1, along with the discovery of its endogenous ligands, the endocannabinoids ("ECs"), anandamide ("AEA") and arachidonoylglycerol ("2- AG"), has illuminated some of the biological intricacies and mechanisms involved in fat storage and development of obesity. ECs, CB1, and closely related cannabinoid type-2 receptors constitute the endocannabinoid system ("ECS"). The ECS primarily functions to regulate energy storage and balance within the body, facilitated by CB1's activity in the brain and peripheral tissues. The ECS helps maintain many physiological processes by enabling different cellular functions, all with a role in achieving a global homeostasis despite fluctuations in the external environment. ECs are produced in the body, where their synthesis and degradation is regulated by different enzymes. These endocannabinoids act as agonists that can bind to and signal via specific endocannabinoid receptors expressed on various cell types and tissues.

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The CB1 receptor is one of the most abundant ECS receptors in the body. It is predominantly found in the CNS, where its role is associated with motor control, cognition, and emotional processing, and including modulation of processes of the eye. CB1 receptors are also found in peripheral tissues, or outside of the CNS, such as the liver, kidney, adipose tissue (fat cells), pancreas, and the gastrointestinal tract. One notable role of CB1 receptors in peripheral tissues is their involvement in metabolic regulation. In adipose tissue, activation of CB1 receptors has been linked to the promotion of fat storage, suggesting their role in the balance of energy storage and utilization. In the kidney, CB1 signaling helps modulate blood flow vital for the filtration of waste products and excess fluids, a process essential for maintaining proper electrolyte balance and blood pressure. CB1 in the liver is involved in the regulation of lipid metabolism and glucose homeostasis. Activation of CB1 receptors in the gastrointestinal tract can modulate the release of neurotransmitters and hormones that influence appetite, gastric motility, and nutrient absorption.

The distribution and function of the CB1 axis provides a strong rationale to target this critical physiological system as a therapeutic to treat different pathological states. Moreover, dysregulation of the CB1 axis in peripheral tissues has been associated with metabolic disorders such as obesity and kidney disease. Operating as a G-protein coupled receptor, CB1 typically associates with inhibitory Gi/o proteins to reduce cellular activity by inhibiting adenylyl cyclase and cAMP activity. Additionally, CB1 interaction with ß-arrestin can initiate a distinct signaling cascade, the full implications of which are not yet completely understood. This ß-arrestin pathway is known to affect receptor sensitivity and expression levels. Recent research highlights that inhibiting CB1 outside the brain can influence leptin sensitivity and adipocyte signaling, directly impacting fat cell physiology. Activation of CB1 promotes fat accumulation and disrupts mitochondrial function in obesity models, whereas inhibiting CB1 enhances mitochondrial biogenesis. This metabolic adjustment results in weight loss primarily through heightened energy expenditure, increased lipolysis, and fatty acid oxidation processes, particularly in brown adipose tissue, which serves as an energy source, contrasting white adipose tissue's role in long-term fat storage.

It has been previously demonstrated that inhibiting the CB1 receptor can significantly reduce weight in obese patients. In 2006, Sanofi developed a CB1 inverse agonist called rimonabant, which demonstrated 8-10% weight loss after one year. Despite being approved by the European Medicines Agency, the drug was soon taken off the market because it was shown to result in a higher risk of adverse psychiatric side effects. As a result, rimonabant was taken off the market in Europe and Sanofi, along with other large pharmaceutical companies like Merck and Pfizer, stopped all development of CB1 inhibitors.

Since the demise of rimonabant, a significant amount of research was conducted to better understand the CB1 blockade and why drugs like rimonabant failed. Ultimately it was determined that rimonabant readily entered the brain, resulting in significant psychiatric side effects. However, it was also discovered that blockade of CB1 receptors outside of the brain (i.e. peripheral CB1 receptors), could also result in meaningful weight loss and also improvement in other metabolic parameters. These studies have led to the development of "peripherally restricted" CB1 inhibitors that have significantly less penetration into the brain, resulting in a potentially safer drug while maintaining potentially similar weight loss characteristics. Moreover, researchers have shown that peripheral blockade of the CB1 receptors can also result in weight loss with less muscle mass loss (i.e. muscle wasting), while also improving metabolic parameters important in changing the course of the disease in obesity, such as improving insulin sensitivity.

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We believe incretin mimetics, like GLP-1 agonists, have established themselves as a potential foundation for the therapeutic treatment of weight loss. However, with their potentially challenging safety profile and marked incidence of muscle wasting associated with weight loss, we believe it is imperative to develop new drugs that can be complimentary to GLP-1 agonists, such as in combination with, as a follow-on to standard-of-care GLP-1 therapies, or even as an alternative therapy for obese patients who can not tolerate the side effects of GLP-1 agonists. Peripheral CB1 inhibition represents an important new mechanism with potential to help reduce these challenges and create improved therapeutic outcomes.

Technology

In 2023, Skye acquired BRB along with its lead asset, nimacimab, a humanized IgG4 negative allosteric modulating (NAM) antibody that specifically binds to CB1 receptor and does not cross-react with other GPCRs including CB2. CB1 binding characteristics including specificity and affinity have been confirmed with both ELISA and flow cytometry-based assays. Assessing functional inhibition including demonstration of noncompetitive binding CB1 has been confirmed with both b-arrestin-based and GPCR-based endpoints. This functional and specific CB1 inhibiting antibody has also been characterized in multiple biodistribution assays, which collectively demonstrated a high degree of peripheral restriction with minimal detection in the CNS and brain in early time points as well as no accumulation in the brain over 28 days, despite nimacimab's 18-20 day half-life. This lack of blood-brain barrier (BBB) penetration, while not uncommon for a larger biologic such as an antibody therapeutic, is an important feature that helps underpin nimacimab's excellent safety profile.

While different strategies have been developed to limit CB1 signaling, nimacimab's negative allosteric approach is differentiated relative to an inverse agonist inhibitor in a few notable ways. A fundamental functional difference relates to the ability of nimacimab to inhibit in a non-competitive fashion. Since nimacimab limits the receptor activity by binding away (allosterically) from the agonist (endocannabinoid) receptor binding pocket, it is able to inhibit the CB1 signal independently of receptor engagement. In contrast, an inverse agonist competes with the endocannabinoid for receptor binding and thus inhibition of CB1 signaling.

While this distinction may not be as impactful in healthier patients with minimal pathology, this mechanistic distinction becomes more relevant in patients with notable disease progression where the CB1 axis (both receptor but importantly endocannabinoid density) can be significantly overactive in local tissues, enabling competition with an inverse agonist for receptor occupancy. This difference can be exaggerated when the bioavailability of an inverse agonist is limited, which highlights a second key distinction between nimacimab, an antibody therapeutic, and inverse agonists, which are currently all small molecule therapeutics.

Small molecule-based CB1 inverse agonists have been modified to discourage distribution in the CNS and brain by increasing the polarity of surface residues, which also impacts membranous trafficking and bioavailability. While this altered small molecule yields a notable improvement in CNS distribution relative to non-biased small molecules such as rimonabant, its presence and significant CB1 occupancy in the brain has still been noted in a chronic preclinical setting. Coupled with an impact on bioavailability, this may limit the therapeutic index and thus its relative density in local tissues.

In contrast, nimacimab has an excellent clinical safety profile with a large NOAEL (no observed adverse effect level) and an 18-20 day half-life which collectively supports a favorable pharmacologic profile capable of safely inhibiting CB1 signaling in relevant disease settings.

Nonclinical Data

Nonclinical studies were designed to characterize various pharmacodynamic aspects of nimacimab, including specificity and in vitro affinity binding, functional cell-based inhibition, as well as other mechanistic details. Key findings from these studies demonstrated that nimacimab is selective and does not bind to other GPCR targets while binding with low nM affinity to human CB1. The antibody was able to block CB1 activation by the natural endocannabinoid ligands AEA and 2-AG and demonstrated dose-dependent antagonist activity measured by both cAMP and b-arrestin signaling pathways. Pre-treatment with nimacimab blocked CB1 agonist-induced CB1 internalization and nimacimab did not induce internalization in the absence of agonist. Additionally, nimacimab had no effect on antibody-dependent cellular cytotoxicity (ADCC) or complement-dependent cytotoxicity (CDC), suggesting that nimacimab's mechanism of action is focused on blocking CB1 signaling and not any direct immune-mediated effects. Lastly, antibody blockade of CB1 on matured adipocytes from obese subjects significantly increased adiponectin production compared to vehicle control. These findings are of importance as adiponectin, an adipokine secreted by adipocytes, play a critical role in regulating glucose levels, lipid metabolism, and insulin sensitivity, which collectively support positive metabolomic regulation.

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Clinical Data

In a Phase 1b entitled "Safety, Tolerability and Pharmacokinetics of Nimacimab after Repeat Dosing in Subjects with Non-Alcoholic Fatty Liver Disease (NAFLD)," the purpose was to evaluate the safety and tolerabilty of multiple doses of nimacimab after four weeks of dosing in subjects with NAFLD. Secondary objectives included determination of pharmacokinetics of nimacimab for multiple doses, and to determine levels of anti-drug antibodies (ADA) after dosing with nimacimab. In Part A of this study, 24 healthy volunteers were randomized to receive a single dose of either placebo or single ascending doses of nimacimab (0.6, 1.2 or 2.5 mg/kg). In Part B, 82 patients with pre-diabetes or diabetes and NAFLD were randomized to receive either placebo or multiple escalating doses of nimacimab (0.6, 1.2 or 2.5 mg/kg) once a week for four weeks.

There were no deaths, serious adverse events (SAEs) or treatment-emergent adverse events (TEAEs) that lead to discontinuation. All TEAEs were graded as mild to moderate in intensity except for 1 severe TEAE (dizziness) in the nimacimab 0.6 mg/kg dose group determined to have not been related to study drug. The majority of TEAEs were not related to study drug and there was no apparent relationship between the dose level and the type, severity, or incidence of the TEAEs.

For all subjects at all doses, concentrations of nimacimab were quantifiable in serum by 0.5 hours after the first dose and remained quantifiable in most subjects through the last time point (Day 67). Exposure to nimacimab as measured by AUC and Cmax increased with increasing doses of nimacimab. At all dose levels, median Tmax ranged from 0.5 to 2 hours and mean t1/2 ranged from 18 to 22 days.

Immunogenicity was assessed in all subjects throughout the study. Only two subjects had consistently elevated titers over multiple time points of ADA. These data suggest that nimacimab has overall low immunogenicity.

Decreases in mean alanine transaminase (ALT) and aspartate aminotransferase (AST) were observed during the study in the active treatment groups, but not in the placebo group. Numeric decreases in ELF score and statistically significant reduction in hyaluronic acid (HA) was observed in the 1.2 mg/kg dose group compared to placebo (p=0.02). Assessment of serum lipids indicated a dose-dependent trend towards reduction of low-density lipoprotein cholesterol (LDL-c) starting from Day 29; on Day 67 there was a mean 8.9 mg/dL decrease in LDL-c in the 2.5 mg/kg dose group compared with a mean 8.3 mg/dL increase in the placebo group (p=0.0073). No effect was observed in total cholesterol, high-density lipoprotein cholesterol (HDL-c), and triglycerides. No significant treatment effect was observed on liver fat percentage, DNL, inflammatory biomarkers and OGTT test.

Development Plan

IND-enabling studies of nimacimab in non-human primates demonstrated a strong safety profile with a NOAEL of 75 mg/kg. Our Phase 2 study in obesity is designed to evaluate nimacimab's weight loss potential either as a single agent or in combination with a GLP-1 agonist like semaglutide. We believe the complementary mechanism of action of CB1 inhibition with nimacimab in combination with a GLP-1 agonist has the potential to provide more meaningful weight loss, and potentially more durable weight loss, than a GLP-1 agonist alone.

Our Phase 2 clinical trial design will treat non-diabetic individuals with obesity (BMI≥30) or those overweight (BMI≥27) with at least one weight-related health issue. Participants will be treated with either nimacaimb, a GLP-1 agonist such as semaglutide, a combination of nimacimab plus a GLP-1 agonist, or placebo. This 26-week study will be followed by a 12-week observation period. The main goal is to measure the percentage of weight loss by week 26, with secondary goals assessing changes in waist size, body composition, fasting triglyceride levels, cholesterol, and A1c. The study will help us evaluate the effectiveness of nimacimab alone versus placebo, as well as compare the difference between nimcacimab and semaglutide and the potential enhanced effects of their combination. A key focus is the impact on body composition across different groups, especially since nimacimab is expected to better preserve muscle mass by promoting fat browning, a benefit observed in preclinical studies where CB1 inhibition led to significant weight reduction without muscle loss over 28 days. We plan to finalize the trial design and start the Phase 2 study in approximately mid-2024.

SBI-100 Ophthalmic Emulsion: CB1 Agonist (Activator)

Unmet Need & Market Opportunity

Glaucoma is characterized by progressive ocular neuropathy associated with the initiation of apoptosis of retinal ganglion cells ("RGCs") in the optic nerve, which can progress and cause irreversible loss of vision. While the pathology of glaucoma is in the back of the eye, a key driver of this disease is often found in the front of the eye. Specifically, elevated intraocular pressure ("IOP") resulting from dysregulated outflow, and to a lesser extent production of aqueous humor ("AH") in the anterior/posterior chambers in the front of the eye, readily promotes damage to RGC axons through vascular ischemia and physical crush injury as the elevated ocular pressure compresses these critical cells. IOP is currently the only modifiable risk factor and lowering IOP results in reduced risk of progression of damage to the optic nerve. Moreover, IOP has been identified as an important risk factor in the pathogenesis of this disease.

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To reduce IOP, the current classes of glaucoma therapeutics target pathways that shift the balance of production or outflow of AH. This therapeutic landscape is made up of five drug classes focused on lowering IOP toward a target level whereby the rate of disease progression will be slowed sufficiently to avoid functional impairment from the disease. Prostaglandin analogues and β-blockers are the first-line therapies and the most commonly used medications for the management of glaucoma. There are other therapeutic agents less commonly used to reduce IOP, like cholinergic agonists, alpha agonists and ROCK inhibitors. While these treatments can be effective in some patients, side effects and lack of durable responses often lead to many patients progressing through multiple therapies in an effort to control IOP. Current treatments are legacy classes of drugs thus there is an unmet need for combinations and innovation in this therapeutic landscape. This unmet need is a potential opportunity for Skye's SBI-100 OE to have a positive impact in patients with glaucoma.

Technology

Cannabinoid receptors are highly concentrated in the eye, especially in the anterior compartment that helps regulate IOP, and in the posterior compartment in the area of the retina and optic nerve. Activation of CB1 has previously been shown to lower IOP in both animal and human studies. SBI-100 OE represents a novel treatment option for glaucoma. The active pharmaceutical ingredient ("API"), SBI-100, is synthetically created using rational drug design and biochemical engineering to increase the hydrophilic properties of Δ9-tetrahydrocannabinol. This increased solubility coupled with a proprietary formulation to increase stability and residency time on the ocular surface allows for increased ocular tissue penetration. Once inside the eye, abundant esterases release the prodrug moiety, allowing for an active THC molecule to bind to abundant CB1 receptors throughout key ocular tissues such as the trabecular meshwork and ciliary body. Engagement of these receptors has been demonstrated to promote AH outflow via the trabecular meshwork as well as limit production via the ciliary body. Importantly, the active component of SBI-100 OE has been shown to have neuroprotective effects in both in vitro and in vivo studies. Since SBI-100 OE has been detected in retinal tissues in biodistribution studies, we are investigating if SBI-100 OE may additionally demonstrate a neuroprotective aspect in its treatment of glaucoma, providing further differentiation from the current therapies on the market.

We licensed SBI-100, the active pharmaceutical ingredient in SBI-100 OE, from the University of Mississippi ("UM"). SBI-100 OE is initially being developed to treat glaucoma and ocular hypertension. SBI-100 is Δ9-tetrahydrocannabinol-valine-hemisuccinate (Δ9-THCVHS), a synthetically manufactured amide ester prodrug of Δ9-tetrahydrocannabinol molecule formulated in a proprietary nanoemulsion formulation. In contrast to the parental Δ9-tetrahydrocannabinol molecule, which has very poor bioavailability, this novel synthetic molecule has been shown to penetrate into ocular tissue, where the prodrug moiety is quickly removed, allowing for the delivery of measurable amounts of active drug (Δ9-tetrahydrocannabinol) to the cornea, AH, iris-ciliary body, and retina choroid (RC), permitting interaction with cannabinoid receptors involved in regulating IOP.

Preclinical Data

In 2019, UM completed experiments showing that SBI-100 was statistically superior in lowering IOP compared to the prostaglandin-based therapy latanoprost, the current standard-of-care for treating glaucoma. Statistical significance was reached across multiple time points during a seven-day course of dosing using a validated rabbit normotensive ocular model and SBI-100 exerted pharmacologic activity consistent with once-daily to twice-daily dosing. Skye subsequently developed a proprietary nanoemulsion formulation to optimize the amount of SBI-100 that can be delivered to the eye in a single drop while also improving the duration of activity. Importantly, this formulation can be sterilized by filtration without impacting the attributes of SBI-100. This final formulation of the API, known as SBI-100 Ophthalmic Emulsion, significantly reduced IOP compared to other commercially available ophthalmic solutions and is now being evaluated in clinical trials.

We evaluated the mechanism of action and IOP-lowering ability of the active moiety of SBI-100 when administered into an ex vivo model of a 3D-human trabecular meshwork using both healthy and glaucomatous-induced tissues. The trabecular meshwork plays a key role in removing a vital functional liquid in the eye, called aqueous humor, in order to maintain a healthy balance of pressure in the eye (an imbalance can lead to a detrimental increase in IOP). This study validated the mechanism of action of SBI-100 in lowering IOP, a defining disease process of hypertensive glaucoma. Moreover, biomarkers associated with inflammation and fibrosis in both normal tissue and tissues affected by glaucoma were significantly decreased, pointing to anti-inflammatory and anti-fibrotic activities often associated with cannabinoids in other disease states. Data also revealed that biomarkers associated with neovascularization, a disease process of new blood vessel formation that can damage the retina in a variety of ocular diseases, was also inhibited by the active moiety, prompting further study for the utility of this drug in diseases of the retina.

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Clinical Data

We commenced dosing of the Phase 1 clinical study in December 2022 and in November 2023 we reported that our Phase 1 data demonstrated that SBI-100 OE was safe and well-tolerated. Importantly, we determined that there was minimal systemic exposure of the active metabolite of SBI-100 OE, THC, thus resulting in little to no side effects related to THC intoxication. Moreover, it was determined that after multiple days of dosing we saw minimal hyperaemia (i.e. redness of the eyes) following administration of SBI-100 OE.

In December 2022, we obtained FDA clearance of our Investigational New Drug application to conduct clinical studies in the US and in January 2023, our Phase 2 clinical trial protocol received study level approval from a central institutional review board (“IRB”). In February 2024, we announced that we completed enrollment of our Phase 2a clinical study for glaucoma and ocular hypertension. Due to the early completion of enrollment of our Phase 2a study, topline data will be available in Q2 2024.

Development Plan

As a novel agent for the potential treatment of glaucoma and ocular hypertension, SBI-100 OE may represent a new treatment opportunity for physicians and patients and we are leading the field in this area of research.

We are currently advancing a Phase 2a trial of SBI-100 targeting primary open-angle glaucoma (POAG) and OH. This study enrolled 56 patients with POAG and OH, presenting intraocular pressures (IOP) between 21-34mmHg, and with no history of surgical interventions. Participants were randomized to receive either 0.5% SBI-100, 1% SBI-100, or a placebo, administered twice daily over a 14-day period. The study's main goal is to assess changes in diurnal IOP compared to placebo. Secondary objectives are to evaluate safety, tolerability, any psychotropic effects, changes in diurnal IOP from the study's start, and to explore potential biomarkers.

Following the data release of our proof-of-concept Phase 2a study, we expect to initiate a Phase 2b study evaluating SBI-100 OE against a current standard of care such as timolol. Successful completion of this Phase 2b study by the end of 2025 may present an opportunity to hold an end-of-Phase 2 meeting with the US FDA to discuss our plan for Phase 3 studies for marketing authorization in glaucoma.

Competition

Our industry is characterized by rapidly advancing technologies, intense competition, rapid pace of new innovation, and a strong emphasis on proprietary products and defense of intellectual property. We face competition from pharmaceutical companies, including generic drug companies, biotechnology companies, drug delivery companies, and academic and research institutions, among others.

Competitors to nimacimab that are targeting peripheral inhibition of CB1 for the treatment of obesity and metabolic conditions include Inversago (acquired by Novo Nordisk in 2023) and Corbus Pharmaceuticals. We are not aware of any competitor attempting to inhibit CB1 in the periphery via a monoclonal antibody. There is also significant interest in and competitive activity targeting obesity and metabolic disorders from companies including Novo Nordisk, Eli Lilly, Boehringer Ingelheim, Zealand Pharma, Pfizer, AstraZeneca, Regeneron, Carmot Therapeutics (acquired by Roche), Amgen, Viking Therapeutics, Structure Therapeutics, Versanis (acquired by Eli Lilly), Biohaven, Keros Therapeutics, Scholar Rock, Terns Pharmaceuticals, Altimmune, Omega Therapeutics, Kallyope, Rivus and others including several privately financed companies whose information is not regularly disclosed to the public.

We are not currently aware of any competitors to SBI-100 Ophthalmic Emulsion that are developing a CB1 agonist for the treatment of glaucoma and OH. Merck, Novartis, Abbvie, Bausch + Lomb, and Alcon are generally known competitors currently offering treatments for glaucoma and ocular hypertension.

Manufacturing

We do not own or operate manufacturing facilities and we rely on third-party contract manufacturing organizations to supply Skye with drugs for pre-clinical and clinical studies.

Nimacimab

Nimacimab is a monoclonal antibody and we have developed a manufacturing process under current good manufacturing practice ("cGMP") to produce batches of drug substance and drug product for pre-clinical and clinical studies. Drug substance for nimacimab will be produced by a contract manufacturer through recombinant DNA technology utilizing genetically engineered host cells, upstream cell culture processes and downstream purification methods as required to manufacture the drug substance. Drug product will be produced by a contract manufacturer whereby nimacimab drug substance will be formulated and filled in to pre-filled syringes.

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SBI-100 Ophthalmic Emulsion

Manufacturing of SBI-100 OE's active pharmaceutical ingredient, SBI-100, has been conducted in the United States by contract manufacturers under cGMP. Formulation and packaging of SBI-100 OE for nonclinical and clinical use is manufactured by contract manufacturers with necessary controlled substance licenses with appropriate local, state and federal government agencies to conduct research, manufacture and distribute controlled substances like THC.

Intellectual Property

The success of most of our product candidates will depend in large part on our ability to:

•Obtain and maintain patent and other legal protection for the proprietary technology, inventions and improvements we consider important to our business

•Prosecute our patent applications and defend any issued patents we obtain

•Preserve the confidentiality of our trade secrets

•Operate without infringing the patents and proprietary rights of third parties.

We intend to continue to seek patent protection for certain of our product candidates, drug delivery systems, molecular modifications, as well as other proprietary technologies and their uses by filing patent applications in the United States and other selected global territories. We intend for these patent applications to cover, where possible, claims for composition of matter, medical uses, processes for isolation and preparation, processes for delivery and formulations.

We also rely upon trade secrets and know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position. We seek to protect our proprietary information in part using confidentiality agreements with our collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our employees and selected consultants, scientific advisors and collaborators. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of technologies that are developed through a relationship with a third party.

Nimacimab

The Company owns three granted U.S. patents, 32 granted foreign patents, and 25 pending US and foreign patent applications directed to the compositions of matter for the nimacimab antibody and molecular variants, and to methods of treatment and uses of nimacimab and its variants for treating a number of diseases responsive to the modulation of the CB1. The patents and applications, once granted, will expire between 2035 and 2036 and may be eligible for up to five years of extension (Hatch-Waxman).

SBI-100 and SBI-100 OE

As of the date of this Annual Report, we have licensed an invention from UM which include U.S. patents as well as a number of foreign counterparts, including the European Union, Japan, Canada and Australia. The patents that we license cover composition of matter and preparation of SBI-100, and their methods of use. The US patent for SBI-100 is expected to expire in 2029. Under our license agreement, UM retains ownership over the licensed patents and control over the maintenance and prosecution of the licensed patents and patent applications.

Licensing and Other Agreements

Nimacimab

Skye wholly owns nimacimab. There are no in- or out-licensing arrangements, no contingent value rights and no royalties payable or due to Skye relating to this molecule.

Under the terms of the securities purchase agreement (the "January PIPE SPA") entered into in connection with the January PIPE Financing, so long as the investors in the January PIPE Financing continue to beneficially own in the aggregate at least 40% of the securities issued in the January PIPE Financing (such securities, the "Closing Securities"), the Company may not transfer, license (other than in the ordinary course of business), encumber, or sell a royalty interest in any intellectual property relating to nimacimab unless Skye obtains the written consent of Qualified Investors that, together with their respective affiliates, beneficially own at least a majority of the then outstanding Closing Securities owned by the Qualified Investors and their respective affiliates. The term "Qualified Investors" means any investor that, together with its affiliates, continues to own at least 80% of the securities originally purchased by it under the January PIPE SPA.

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SBI-100

University of Mississippi granted Skye an exclusive license for all fields of use related to UM 5050 (referred to by Skye as SBI-100) and including, with the prior written consent of UM, the right to sublicense the intellectual property for UM 5050. All fields of use means no restrictions on use of the underlying inventions, including developing UM 5050 to treat any disease through any form of delivery under the license agreement.

The license for SBI-100, a CB1 agonist, is expected to allow us to explore related uses for the active moiety of SBI-100.

In 2022, after notifying the Australian Therapeutics Goods Administration through the Clinical Trial Notification scheme of our intent to initiate our Phase 1 clinical trial for SBI-100 OE, we triggered and paid the first milestone payment under our License Agreement for UM 5050 with UM.

In 2023, we granted to Tautomer Bioscience an exclusive license to develop and commercialize SBI-100 as a novel suppository formulation for chronic intractable pain and other indications in South Africa and the rest of Africa. We have retained certain rights and options to obtain rights to the future use of new jointly developed intellectual property and other intellectual property owned or controlled by Tautomer Bioscience related to SBI-100.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries, extensively regulate, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, import and export of pharmaceutical products such as those we are developing. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources. A failure to comply with such laws and regulations or prevail in any enforcement action or litigation related to noncompliance could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

U.S. Food and Drug Administration (FDA)

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The FDA regulates drugs under the Federal Food, Drug and Cosmetic Act ("FDCA") and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject us to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.

The process required by the FDA before a drug may be legally marketed in the United States, generally involves the following:

•conduct of laboratory tests, animal studies and formulation studies in compliance with GLP regulations;

•submission of an Investigational New Drug application ("IND") to the FDA , which must be found acceptable to proceed before clinical trials may begin;

•approval and oversight of each study by an IRB before each clinical site may initiate the trial(s);

•conduct of adequate and well-controlled clinical trials in accordance with good clinical practice ("GCP") requirements to establish the safety and efficacy of the proposed drug for each indication;

•submission of an NDA to the FDA;

•satisfactory development and completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

•satisfactory development and completion of an FDA BioResearch Monitoring (BIMO) inspection of the clinical study sites which participated in the studies supporting the NDA application; and

•FDA review and approval of marketing authorization application (NDA, BLA, etc).

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Nonclinical Studies

Nonclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. An IND generally becomes effective 30 days after receipt by the FDA unless, before that time, the FDA raises concerns or questions related to nonclinical or manufacturing documentation or one or more proposed clinical trials and places the IND on clinical hold. In such a case, the IND sponsor and the FDA work to resolve any outstanding concerns before the hold can be lifted and the clinical trial(s) can begin. As a result, submission of an IND does not always result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug candidate to humans under the supervision of qualified investigators in accordance with GCP requirements. This includes the requirement that all research subjects/patients provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB, either central or at each institution participating in the clinical trial must review and approve the plan for any clinical trial before the study commences at a site. Information about certain clinical trials must be submitted within specific timeframes to the NIH for public dissemination on the www.clinicaltrials.gov website.

Before marketing authorization, human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

•Phase 1: The drug is initially introduced into a small number of healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.

•Phase 2: The drug is administered to a specific patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy and safety of the product for specific diseases and to determine dosage tolerance and optimal dosage.

•Phase 3: The drug is administered to the established patient population expected to benefit based upon the risk/benefit profile. Generally, this phase of studies are conducted at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.

Reports detailing the results of the clinical trials must be submitted at least annually to the FDA and IND safety reports are submitted more frequently if serious adverse events possibly related to the investigational product occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the Sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk or due to a business decision. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the nonclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an marketing authorization application requesting approval to market the product for one or more indications. For drug products, or biologic products under the review of Center for Drug Evaluation and Research (CDER), the marketing authorization application is an NDA or a BLA, and submission is subject to a substantial application user fee. Under the Prescription Drug User Fee Act ("PDUFA") commitments that are currently in effect, the FDA has a goal of reviewing and responding to a submission within ten months from the date of “filing” of a standard NDA for a new molecular entity. This review typically takes at least twelve months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision. However, if issues arise during the review, the FDA may request additional information and the review period may be extended to permit the applicant to provide and the FDA to review that information, which may significantly extend this time period. The process for review and issuance of a license for a BLA is similar to the NDA review path..

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In addition, under the Pediatric Research Equity Act of 2003 ("PREA"), as amended and reauthorized, certain marketing authorizations or supplements to marketing authorizations must contain data that is adequate to assess the safety and effectiveness of the approved product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.

The FDA also may require submission of a Risk Evaluation and Mitigation Strategy (REMS) plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA conducts a preliminary review of all pending marketing authorizations within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may refuse to file the application and request additional information rather than accept marketing authorization application for filing. In this event, the application must be resubmitted with the additional information requested. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel product and/or first-in-class product to an advisory committee. The FDA may also refer to the advisory committee certain scientific questions raised by an application. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving a marketing authorization application, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, within the review period and before approving a marketing authorization application, the FDA will likely inspect one or more clinical trial sites to assure compliance with GCP requirements.

The testing and approval process for an NDA/BLA requires substantial time, effort and financial resources, and each may take several years to complete. Data obtained from nonclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all.

After evaluating the NDA/BLA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met to secure final approval of the NDA/BLA and may require additional clinical or nonclinical testing in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter for the NDA/BLA. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. For some products, such as our product candidates where abuse potential is a possibility, an additional step of Drug Enforcement Administration (DEA) review and scheduling is required.

Post-Approval Requirements

Products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion, and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to FDA review and approval prior to implementation. There also are continuing annual product fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA/BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

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In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program.

Other potential consequences include, among other things:

•restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

•fines, warning letters or holds on post-approval clinical trials;

•refusal of the FDA to approve pending NDAs/BLAs or supplements to approved NDAs/BLAs, or suspension or revocation of product licenses or approvals;

•product seizure or detention, or refusal to permit the import or export of products; or

•injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act ("PDMA"), which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Exclusivity and Approval of Competing Products

Hatch Waxman Act

Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy but where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for an existing product, or published literature, in support of its application. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an Abbreviated New Drug Application ("ANDA"). An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics and intended use, among other things, to a previously approved product. ANDAs are termed “abbreviated” because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic version must deliver the same amount of active ingredients into a subject’s bloodstream in the same amount of time as the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.

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Hatch Waxman Patent Exclusivity

In seeking approval for a drug through a NDA, applicants are required to list with the FDA each patent with claims that cover the applicant’s product or a method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an ANDA or 505(b)(2) NDA.

The ANDA or 505(b)(2) NDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. Specifically, the applicant must certify with respect to each patent that:

•the required patent information has not been filed;

•the listed patent has expired;

•the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or

•the listed patent is invalid, unenforceable or will not be infringed by the new product.

Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except when the ANDA or 505(b)(2) NDA applicant challenges a listed drug. A certification that the proposed product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not be approved until all the listed patents claiming the referenced product have expired.

If the ANDA or 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of notice of the Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.

Hatch Waxman Non-Patent Exclusivity

In addition to patent issues, market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain applications for competing products. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of a NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the activity of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company that references the previously approved drug. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a Paragraph IV certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for a NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of the application or supplement. Three-year exclusivity may be awarded for changes to a previously approved drug product, such as new indications, dosages, strengths or dosage forms of an existing drug.

This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for other versions of a drug. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a disease or condition that affects populations of fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting a NDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

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If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. Competitors, however, may receive approval of different products for the same indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication than that for which the orphan product has exclusivity.

Regulation of Controlled Substances: Drug Enforcement Administration (DEA) Regulation

Certain cannabinoids are regulated as “controlled substances” as defined in the Controlled Substances Act (the “CSA”), which establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered by the DEA. The DEA is concerned with the control of handlers of controlled substances (and with the equipment and raw materials used in their manufacture and packaging) of controlled substances in order to prevent loss and diversion into illicit channels of commerce.

The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Certain cannabinoids are listed by the DEA as Schedule I controlled substances under the CSA. Consequently, their manufacture, shipment, storage, sale and use are subject to a high degree of regulation. Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized.

The DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventory reconciliations. The registered entity must maintain records for the handling of all controlled substances and must make periodic reports to the DEA. These include, for example, distribution reports for Schedule I and II controlled substances, Schedule III substances that are narcotics, and other designated substances. The registered entity must also report thefts or losses of any controlled substance and obtain authorization to destroy any controlled substance. In addition, special authorization and notification requirements apply to imports and exports.

In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copies provided to the DEA. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. To meet its responsibilities, the DEA conducts periodic inspections of registered establishments that handle controlled substances. In the event of non-compliance, the DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.

SBI-100 remains a Schedule I controlled substance, pending a request to re-schedule SBI-100 after marketing authorization by the FDA or execution of the August 23, 2023 request by the Assistant HHS secretary to DEA reschedule cannabis to Schedule 3.

Federal and State Fraud and Abuse, Data Privacy and Security Laws and Regulations

In addition to FDA restrictions on marketing of pharmaceutical products, federal and state fraud and abuse laws restrict business practices in the pharmaceutical industry. These laws include anti-kickback and false claims laws and regulations as well as data privacy and security laws and regulations.

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The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exemptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. A violation of the federal Anti-Kickback Statute also constitutes a false or fraudulent claim for purposes of the civil False Claims Act.

Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-covered, uses. In addition, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

The federal False Claims Act also created federal criminal statutes that prohibit knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Pharmaceutical companies are also subject to the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other health care providers. The Patient Protection and Affordable Care Act, as amended by the ACA, signed into law on March 2010, created new federal requirements for reporting, by applicable manufacturers of covered drugs, payments and other transfers of value to physicians and teaching hospitals. Applicable manufacturers are also required to report annually to the government certain ownership and investment interests held by physicians and their immediate family members. In addition, certain states require implementation of commercial compliance programs and compliance with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices, and/or tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other health care professionals and entities.

We may also be subject to data privacy and security obligations, including federal and state laws related to the privacy and security of personal information. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations (the “HIPAA Rules”) imposes specified requirements relating to the privacy, security and transmission of protected health information (“PHI”) and may apply to certain of the information we process. Among other things, HITECH makes HIPAA’s security and certain of its privacy requirements directly applicable to “business associates,” defined as independent contractors or agents of covered entities, or other business associates, that create, receive, maintain, obtain, or transmit PHI in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.

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To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals.

The shifting commercial compliance environment and the need to build and maintain robust systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and reimbursement from third party payors. Third party payors include government authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the reimbursement rate that the payor will pay for the drug product. Third party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third party payor not to cover our products, if approved, could reduce physician utilization of our products once approved and have a material adverse effect on our sales, results of operations and financial condition. Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. By way of example, in the United States, the ACA contains provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, reform government program reimbursement methodologies. For example, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated. Additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.

Foreign Regulation

In order to market any product outside of the United States, we must comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales and distribution of our products. While our management and many of our consultants are familiar with and have been responsible for gaining marketing approval in many countries, we have not reviewed the specific regulations in countries outside of the United States, as it pertains to cannabinoids.

Additional Regulation

We are a reporting company with the Securities and Exchange Commission (the "SEC"), and, therefore, subject to the information and reporting requirements of the Exchange Act of 1934, as amended (the "Exchange Act") and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"). In addition, our financial reporting is subject to United States Generally Accepted Accounting Principles ("GAAP"), and GAAP is subject to change over time.

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We are also subject to federal, state and local laws and regulations applied to businesses generally. We believe that we are in conformity with all applicable laws in all relevant jurisdictions.

Employees & Human Capital Resources

As of the date of this Annual Report, we have a total of eleven full-time employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement. The majority of our employees work remotely, which we believe has provided us with greater access to qualified personnel around the United States. At the Company, we strive to foster collaborative, communicative and flexible environment so that our employees feel supported in the workplace.

We anticipate that we will need to hire additional employees or independent contractors for our continued development efforts. We also intend to utilize independent contractors and outsourced services, such as CROs and third party manufacturers, where possible and appropriate.

Corporate Information

We were incorporated in the State of Nevada on March 16, 2011.

Our principal executive office is located at 11250 El Camino Real, Suite 100, San Diego, CA 92130. Our telephone number is (858) 410-0266.

Our Internet website, which is located at http://www.skyebioscience.com, describes our company and our management and provides information about our technology and products. Information contained on our website is not incorporated by reference into, and should not be considered a part of, this Annual Report.

Available Information

Our filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments submitted under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are accessible at no cost on our company website promptly after submission to the Securities and Exchange Commission ("SEC"). Additionally, these documents are retrievable from the SEC's website (www.sec.gov).

Corporate governance materials, such as our guidelines and committee charters, are also accessible on our investor relations webpage under "Corporate Governance." It's important to note that the content of our websites is not intended for inclusion by reference in our filings with the SEC, and any website references serve as inactive textual mentions only.

RISK FACTORS

Item1A. Risk Factors.

Investing in our common stock, involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Annual Report, including our consolidated financial statements and their related notes included elsewhere in this Annual Report and Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may materially and adversely affect our business, prospects, operating results and financial condition.

Risk Factor Summary

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission, or the SEC, before making an investment decision regarding our common stock.

•We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.

•We are heavily dependent on the success of our early-stage product candidates, SBI-100 and nimacimab, which will require significant additional efforts to develop and may prove not to be viable for commercialization.

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•Serious adverse events or undesirable side effects or other unexpected properties of any of our product candidates may be identified during development or after approval that could delay, prevent or cause the withdrawal of marketing approval, limit the commercial potential, or result in significant negative consequences following marketing approval.

•We expect to rely on third parties, such as CROs, to conduct some or all of our nonclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our product candidates.

•We rely on, and expect to continue relying on, third party contract manufacturing organizations to manufacture and supply product candidates for us, as well as certain raw materials used in the production thereof. If one of our suppliers or manufacturers fails to perform adequately, we may be required to incur significant delays and costs to find new suppliers or manufacturers.

•If we fail to enter and maintain successful collaborative arrangements or strategic alliances for our product candidates, we may have to reduce or delay our product candidate development or increase our expenditures.

•We expect to face intense competition, often from companies with greater resources and experience than we have.

•UM is the owner of intellectual property underlying SBI-100 OE

•Our product candidate, SBI-100 OE, will be subject to U.S. controlled substance laws and regulations, and failure to comply with or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, and our financial condition.

Risks Related to Our Limited Operating History, Financial Position and Capital Requirements

We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.

Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a clinical-stage pharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We commenced operations in 2011, and to date, we have focused primarily on organizing and staffing our company, business planning, raising capital, discovering potential product candidates, and conducting preclinical studies and clinical trials. Our approach to the discovery and development of product candidates is unproven, and we do not know whether we will be able to develop any products of commercial value. In addition, we have only two product candidates, SBI-100 and nimacimab, in clinical development. We have not yet demonstrated an ability to obtain marketing approval for any of our product candidates, manufacture a commercial scale product, or arrange for athird party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

We have incurred significant operating losses since our inception. If our product candidates are not successfully developed and approved, we may never generate any revenue. We have incurred cumulative net losses since our inception and, as of December 31, 2023, we had an accumulated deficit of $104,382,549. Our losses have primarily resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. All of our product candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially as we continue our development of, seek regulatory approval for and potentially commercialize any approved products.

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To become and remain profitable, we must succeed in developing and eventually commercializing or licensing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including clinical trials of our product candidates, discovering additional product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which we may obtain regulatory approval. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. In addition, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product candidates or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

The development of biopharmaceutical product candidates and conducting preclinical studies and clinical trials are time-consuming and capital-intensive. We expect our expenses to increase in connection with our ongoing activities, particularly as we conduct our ongoing and planned Phase 2 clinical trials of SBI-100 and nimacimab and continue our research and development activities. Furthermore, we incur, and expect to continue to incur, additional costs associated with operating as a public company. At the same time, our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

We believe that our existing cash, cash equivalents and investment securities will enable us to fund our operations for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on our cash resources may change as a result of many factors currently unknown to us. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates. Our future capital requirements will depend on many factors, including:

•the type, number, scope, progress, expansions, results, costs and timing of our preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future;

•the costs and timing of manufacturing and laboratory testing for our product candidates, including clinical supplies and commercial manufacturing if any product candidate is approved;

•the costs, timing and outcome of regulatory review of our product candidates;

•the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;

•our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;

•the costs associated with hiring additional and retaining existing personnel and consultants as our preclinical and clinical activities increase;

•the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;

•our ability to achieve sufficient market acceptance, adequate coverage and reimbursement from third-party payors and adequate market share and revenue for any approved products;

•the effect of competing technological and market developments;

•the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

•costs associated with any products or technologies that we may in-license or acquire; and

•the funding of any co-development arrangements we enter into.

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Accordingly, we may need to seek additional funds sooner than planned, including through public or private equity or debt financings or other sources or through strategic collaborations. Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop our product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. We do not currently have any active grants nor do we expect grant revenues to be a material source of future revenue. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs, including our clinical trial programs, or any future commercialization of any product candidates, or be unable to sustain or expand our operations or otherwise capitalize on our business opportunities, as desired, any of which could materially affect our business, financial condition and results of operations.

Our ability to raise capital may be limited by applicable laws and regulations.

Using a shelf registration statement on Form S-3 to raise additional capital generally takes less time and is less expensive than other means, such as conducting an offering under a Form S-1 registration statement. However, our ability to raise capital using a shelf registration statement may be limited by, among other things, SEC rules and regulations. Under SEC rules and regulations, if our public float (the market value of our common stock held by non-affiliates) is less than $75,000,000, then the aggregate market value of securities sold by us or on our behalf under our Form S-3 in any 12-month period is limited to an aggregate of one-third of our public float. While our public float is currently more than $75,000,000, we have been subject to this limitation in the past and we may be subject to it again in the future. If our ability to utilize a Form S-3 registration statement for a primary offering of our securities is limited to one-third of our public float, we may conduct such an offering pursuant to an exemption from registration under the Securities Act or under a Form S-1 registration statement, and we would expect either of those alternatives to increase the cost of raising additional capital relative to utilizing a Form S-3 registration statement.

The sale of additional shares or other equity securities could result in additional dilution to our stockholders.

We require additional capital for the development and commercialization of our product candidates and may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our cash requirements, we will seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our stockholders. If we incur additional indebtedness it would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates

We are heavily dependent on the success of our early-stage product candidates, SBI-100 and nimacimab, which will require significant additional efforts to develop and may prove not to be viable for commercialization.

We have no products approved for sale and all of our product candidates are in clinical development. Our business depends entirely on the successful development, clinical testing, and commercialization of these and any other product candidates we may seek to develop in the future, which may never occur.

The success of our product candidates will depend on several factors, any one of which we may not be able to successfully complete, such as:

•With respect to SBI-100, receipt of necessary controlled substance registrations from the DEA;

•successful completion of preclinical studies and clinical trials;

•approval from regulatory agencies, such as the FDA or an IRB, to conduct our clinical trials;

•receipt of marketing approvals from the FDA and other applicable regulatory authorities;

•obtaining, maintaining and protecting our intellectual property portfolio, including patents and trade secrets, and regulatory exclusivity for our product candidates;

•identifying, making arrangements and ensuring necessary registrations with third-party manufacturers, or establishing commercial manufacturing capabilities for applicable product candidates;

•launching commercial sales of the products, if and when approved, whether alone or in collaboration with others;

•acceptance of our products, if and when approved, by patients, the medical community and third-party payors;

•effectively competing with other therapies;

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•obtaining and maintaining healthcare coverage and adequate reimbursement of our products; and

•maintaining a continued acceptable safety profile of our products following approval.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.

Due to our limited resources, we may be forced to focus on a limited number of development candidates which may force us to pass on opportunities that could have a greater chance of clinical success.

Due to our limited resources and capabilities, we will have to decide to focus on developing a limited number of product candidates, currently SBI-100 and nimacimab. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial product candidates or profitable market opportunities. Our spending on research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

If we fail to demonstrate the safety and efficacy of any product candidate that we develop to the satisfaction of the regulatory authorities, we may incur additional costs or experience difficulty in completing, the development and commercialization of such product candidate.

We are not permitted to commercialize, market, promote, or sell any product candidate in the United States without obtaining marketing approval from the FDA or in other countries without obtaining approvals from comparable foreign regulatory authorities, such as the European Medicines Agency, and we may never receive such approvals. To gain approval to market a drug product, we must complete extensive nonclinical development and clinical trials that demonstrate the safety and efficacy of the product for the intended indication to the satisfaction of the FDA or other regulatory authority.

We have not previously submitted a NDA to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. If we do not receive regulatory approval for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approval to market our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights.

The FDA or any foreign regulatory bodies could delay, limit or deny approval of our product candidates for many reasons, including our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that the product candidate is safe and effective for the requested indication, the regulatory agency’s disagreement with the interpretation of data from preclinical studies or clinical trials, or our inability to demonstrate that the clinical and other benefits of the product candidate outweigh any safety or other perceived risks. The FDA or applicable regulatory body could also require additional preclinical or clinical studies, deny approval of the formulation, labeling or the specifications of the product candidate, or the manufacturing processes or facilities of third party manufacturers with which we contract. The policies of the applicable regulatory agencies could also significantly change in a manner rendering our clinical data insufficient for approval.

Even if we eventually complete clinical testing and receive approval of a NDA or foreign regulatory filing for a product candidate, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials. The FDA or the applicable foreign regulatory agency also may approve the product candidate for a more limited indication or a narrower patient population than we originally requested, and the FDA, or applicable foreign regulatory agency, may not approve the labeling that we believe is necessary or desirable for the successful commercialization of the product. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of the product candidate and would materially adversely impact our business and prospects.

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Nonclinical and clinical drug development involves a lengthy and expensive process with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Clinical testing is expensive and can take several years to complete, and its outcome is inherently uncertain. Moreover, obtaining sufficient quantities of certain product of SBI-100 for clinical testing is subject to regulation by DEA and, in some cases, NIDA (National Institute of Drug Abuse). It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical studies and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. A failure of one or more clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or subsequently to commercialize our product candidates, including:

•FDA, DEA or NIDA or other foreign equivalent authorities may not authorize the use and distribution of sufficient quantities of product for clinical testing;

•regulators or independent institutional review boards (IRBs) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

•we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

•regulators or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

•the cost of clinical trials of our product candidates may be greater than we anticipate;

•our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs to suspend or terminate the trials.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Patient enrollment is affected by other factors including the severity of the disease under investigation, the eligibility criteria for the study in question, the perceived risks and benefits of the product candidate, the patient referral practices of physicians, the ability to monitor patients adequately during and after treatment, and the proximity and availability of clinical trial sites for prospective patients.

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether, which could result in increased development costs and cause the value of our company to decline and limit our ability to obtain additional financing.

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Our development and commercialization strategy for SBI-100 OE, may depend, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of dronabinol, based on data not developed by us, but upon which the FDA may rely in reviewing our NDA.

The Hatch-Waxman Act added Section 505(b)(2) to the FDCA, Section 505(b)(2) permits the filing of a NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) of the FDCA, for purposes of approving a NDA, to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an approved product. The FDA may also require companies to perform additional clinical trials or measurements to support any deviation from the previously approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. The label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the listed product’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions. Depending on guidance from the FDA, we may decide to submit a NDA for SBI-100 under Section 505(b)(2) relying, in part, on the FDA’s previous findings of safety and efficacy from investigations for the approved drug product dronabinol for which we have not received a right of reference and published scientific literature. Even though we may be able to take advantage of Section 505(b)(2) to support potential U.S. approval, the FDA may require us to perform additional clinical trials or measurements to support approval. In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDAs that we submit. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of SBI-100 or future product candidates.

Serious adverse events or undesirable side effects or other unexpected properties of any of our product candidates may be identified during development or after approval that could delay, prevent or cause the withdrawal of marketing approval, limit the commercial potential, or result in significant negative consequences following marketing approval.

Serious adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, an IRB, or regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label, the imposition of distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If any of our product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In our completed Phase 1 study of nimacimab, reported treatment emergent adverse events were diarrhea, headache, dizziness, upper respiratory tract infection, nausea and vomiting. In our completed Phase 1 study of SBI-100, the following adverse events occurred and were considered probably or possibly related to the study drug, included discomfort and pain upon eye drop instillation and mild hyperaemia. However, further analysis may reveal adverse events inconsistent with the safety results observed. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.

Undesirable side effects or other unexpected adverse events or properties of any of our other product candidates could arise or become known either during clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of, or deny approval of, our product candidates. If such an event occurs after such product candidates are approved, a number of potentially significant negative consequences may result, including withdrawal of regulatory approval, requirements for additional warnings on the label, use or distribution restrictions, requirements to conduct post-market studies, requirements to create a medication guide outlining side effects, and liability for harm caused to patients.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate, if approved, or could substantially increase commercialization costs and expenses, which could delay or prevent us from generating revenue from the sale of our products and harm our business and results of operations.

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As an organization, we have never conducted later-stage clinical trials or submitted an NDA or BLA, and may be unable to do so for any of our product candidates.

We are early in our development efforts for our product candidates, and we will need to successfully complete pivotal clinical trials in order to seek FDA or applicable foreign authority approval to market SBI-100, nimacimab and any future product candidates we may develop. Carrying out clinical trials and the submission of NDAs and BLAs are complicated. Based on the stage of development of our product candidates, the Company has not conducted any later stage or pivotal clinical trials. We also plan to conduct a number of clinical trials for multiple product candidates in parallel over the next several years. This may be a difficult process to manage with our limited resources and may divert the attention of management. In addition, we cannot be certain how many clinical trials of our product candidates will be required or how such trials will have to be designed to obtain marketing authorization. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to regulatory submission and approval of any of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining marketing approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in submitting NDAs for and commercializing our product candidates.

We have conducted clinical trials for our product candidates outside of the United States and we may do so for our product candidates in the future. However, the FDA and other foreign equivalents may not accept data from such trials, in which case our development plans will be delayed, which could materially harm our business.

We have conducted our initial Phase 1 clinical trial for SBI-100 OE in Australia. The acceptance of study data from clinical trials conducted outside the U.S. or another jurisdiction by the FDA or a comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. For example, in cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the U.S., the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the study is adequately designed and well-controlled, conducted in accordance with GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted.

Conducting trials outside the United States also exposes us to additional risks, including risks associated with:

•additional foreign regulatory requirements;

•foreign exchange fluctuations;

•compliance with foreign manufacturing, customs, shipment and storage requirements;

•cultural differences in medical practice and clinical research;

•diminished protection of intellectual property in some countries; and

•interruptions or delays in our trials resulting from geopolitical events, such as war or terrorism.

Preliminary, topline and interim data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose interim, preliminary or topline data from our clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the topline or preliminary data we previously made public. As a result, topline and preliminary data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between topline, preliminary or interim data and final data could significantly harm our business prospects.

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Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business. If the topline or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA and applicable foreign authorities to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government shut down several times and certain regulatory agencies, such as the FDA, furloughed critical employees and ceased critical activities.

Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. Even though the FDA has since resumed standard inspection operations of domestic facilities where feasible, any resurgence of the virus or emergence of new variants may lead to further inspectional delays. Further, regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic or any other pandemic or outbreak of a contagious disease. If a prolonged government shutdown occurs, or if global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Third parties may obtain FDA regulatory exclusivity to our detriment.

We plan to seek to obtain market exclusivity for our drug candidates and any other drug candidates we develop in the future. To the extent that patent protection is not available or has expired, FDA marketing exclusivity may be the only available form of exclusivity available for these proposed products. Marketing exclusivity can delay the submission or the approval of certain marketing applications. Potentially competitive products may also seek marketing exclusivity and may be in various stages of development, including some more advanced than our drug candidates. We cannot predict with certainty the timing of FDA approval or whether FDA approval will be granted, nor can we predict with certainty the timing of FDA approval for competing products or whether such approval will be granted. It is possible that competing products may obtain FDA approval with marketing exclusivity before we do, which could delay our ability to submit a marketing application or obtain necessary regulatory approvals, result in lost market opportunities with respect to our drug candidates and materially adversely affect our business, financial condition and results of operations.

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Risks Related to Our Reliance on Third Parties

We expect to rely on third parties, such as CROs, to conduct some or all of our nonclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our product candidates.

We expect to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct our nonclinical and clinical studies on our product candidates in compliance with applicable regulatory requirements. For example, we are currently engaged with a CRO in the United States, to conduct our Phase 2 clinical study for SBI-100 OE . These third parties will not be our employees and, except for restrictions imposed by our contracts with such third parties, we will have limited ability to control the amount or timing of resources that they devote to our programs. Although we expect to rely on these third parties to conduct our preclinical studies and clinical trials, we will remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol and the applicable legal, regulatory, and scientific standards, and our reliance on these third parties will not relieve us of our regulatory responsibilities. In the case of our Phase 2 trial for SBI-100 OE, these entities must maintain and comply with valid DEA registrations and requirements. The FDA and regulatory authorities in other jurisdictions require us to comply with regulations and standards, commonly referred to as current good clinical practices, for conducting, monitoring, recording and reporting the results of clinical trials, in order to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. If we or any of our third party contractors fail to comply with applicable current good clinical practices, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, we are required to report certain financial interests of our third party investigators if these relationships exceed certain financial thresholds and meet other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical trials conducted by principal investigators who previously served or currently serve as scientific advisors or consultants to us from time to time and receive cash compensation in connection with such services. Our clinical trials must also generally be conducted with products produced under current good manufacturing practice regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

Some of the third parties with whom we contract may also have relationships with other commercial entities, some of which may compete with us. If the third parties conducting our preclinical studies or our clinical trials do not perform their contractual duties or obligations or comply with regulatory requirements, we may need to enter into new arrangements with alternative third parties. This could be costly, and our nonclinical studies or clinical trials may need to be extended, delayed, terminated or repeated, and we may not be able to obtain regulatory approval in a timely fashion, or at all, for the applicable product candidate, or to commercialize such product candidate being tested in such studies or trials. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third party contractors or to do so on commercially reasonable terms. Though we plan to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

We rely on, and expect to continue relying on, third party contract manufacturing organizations to manufacture and supply product candidates for us, as well as certain raw materials used in the production thereof. If one of our suppliers or manufacturers fails to perform adequately, we may be required to incur significant delays and costs to find new suppliers or manufacturers.

We do not own facilities for, manufacturing our product candidates. We rely on, and expect to continue relying upon, third party manufacturing organizations to manufacture and supply our product candidates and certain raw materials used in the production thereof. Some of our key components for the production of our product candidates may have a limited number of suppliers.

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The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA. We expect that we will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing partners for compliance with current good manufacturing practice requirements, for manufacture of our drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of, as applicable, the FDA, DEA or others, they will not be able to secure and/or maintain DEA registrations and regulatory approval for their manufacturing facilities. In addition, we expect that we will have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates, or, with respect to SBI-100, if DEA does not register these facilities for the manufacture of controlled substances, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

Although we have quality agreements governing our development of clinical supplies, we do not have any commercial supply agreements with our suppliers. In the event that we and our suppliers cannot agree to the terms and conditions for them to provide clinical and commercial supply needs, we would not be able to manufacture our product or candidates until a qualified alternative supplier is identified, which could also delay the development of, and impair our ability to commercialize, our product candidates. The failure of third party manufacturers or suppliers to perform adequately or the termination of our arrangements with any of them may adversely affect our business.

If we fail to enter and maintain successful collaborative arrangements or strategic alliances for our product candidates, we may have to reduce or delay our product candidate development or increase our expenditures.