Form F-1/A Medlab Clinical Ltd.

As filed with the U.S. Securities and Exchange Commission on November 22, 2022.

Registration No. 333-267873

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Amendment No. 2

to

FORM F-1


REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

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Medlab Clinical Ltd.

(Exact name of registrant as specified in its charter)

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Medlab Clinical Ltd.
Units 5 and 6, 11-13 Lord Street

Botany, New South Wales 2019

+ 61 2 8188 0311

(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

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Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware
(302) 738-6680

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act. Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 7(a)(2)(B) of the Securities Act. ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to completion, dated November 22, 2022

[•] Ordinary Shares

Pre-Funded Warrants to Purchase



 [•] Ordinary Shares and Warrants to Purchase

[•] Ordinary Shares

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Medlab Clinical Ltd. (“we,” “the Company,” “Medlab,” “us,” or “our”) is offering [•] ordinary shares, no par value (the “Shares” and each a “Share”), and warrants (“Share Purchase Warrants”) to purchase [•] Shares pursuant to this prospectus. Each whole Share Purchase Warrant is exercisable to purchase one Share at an assumed exercise price of US$ [•], will be exercisable upon issuance and will expire five years from the date of issuance. The Shares and Share Purchase Warrants will be issued and sold to purchasers in the ratio of one-to-one. This prospectus also relates to the offering of the Shares issuable upon exercise of Share Purchase Warrants.

We are also offering to certain purchasers whose purchase of Shares in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or 9.99% at the election of the purchaser) of our outstanding Shares immediately following the consummation of this offering, the opportunity to purchase, if any such purchaser so chooses, pre-funded warrants (“Pre-Funded Warrants”) in lieu of Shares that would otherwise result in such purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Shares. Each Pre-Funded Warrant will be exercisable for one Share. The exercise price of each Pre-Funded Warrant will be US$0.0001 per Share. The Pre-Funded Warrants will be immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. This offering also relates to the Shares issuable upon exercise of any Pre-Funded Warrants sold in this offering.

The Shares and the accompanying Share Purchase Warrants will be sold in units (each, a “Share Unit”) and the Pre-Funded Warrants and the accompanying Share Purchase Warrants will be sold in units (each, a “Pre-Funded Warrant Unit” and, together with the Share Units, the “Units”), with each Share Unit consisting of one Share and one Share Purchase Warrant to purchase one Share and each Pre-Funded Warrant Unit consisting of one Pre-Funded Warrant and one Share Purchase Warrant to purchase one Share. For each Pre-Funded Warrant Unit we sell, the number of Share Units we are offering will be decreased on a one-for-one basis. The Shares and Share Purchase Warrants and the Pre-Funded Warrants and Share Purchase Warrants constituting the Share Units and the Pre-Funded Warrant Units, respectively, will be immediately separable on issuance. Each Share Unit will be sold at a price of US$[•] per Share Unit. The purchase price of each Pre-Funded Warrant Unit will be equal to the price at which each Share Unit is sold to the public in this offering, minus US$0.0001, and the exercise price of each Pre-Funded Warrant will be US$0.0001 per Share.

On July 28, 2022, our shareholders approved our board of directors to effect a share consolidation of our outstanding Shares at a specific ratio within a range from 1-for-1 to 1-for-150, and also granted authorization to our board of directors to determine, in its sole discretion, the specific ratio and timing of such share consolidation. Effective September 1, 2022, our board of directors has effected such share consolidation at a ratio of 149.846889 (the “Share Consolidation”) in connection with this offering and intended listing of our common shares on the Nasdaq Capital Market (“Nasdaq”).

The offering is being underwritten on a firm commitment basis. We have granted the underwriter the right to purchase up to an additional [•] Shares and/or Share Purchase Warrants to cover over-allotments, if any, assuming an initial public offering price of US$[•] per Unit. The underwriter can exercise this right at any time within 45 days after the date of this prospectus. In addition, we will issue to the underwriter warrants to purchase a number of Shares equal to an aggregate of [•]% of the Shares and/or Pre-Funded Warrants sold in the offering. The exercise price of the underwriter’s warrants is equal to [•]% of the offering price of the Shares and/or Pre-Funded Warrants offered hereby. The underwriter’s warrants are exercisable beginning [•] months from the date of issuance, from time to time, in whole or in part, within five years commencing from the date of issuance.

Our Shares are listed on the Australian Securities Exchange (“ASX”) under the symbol “MDC.” We have applied to list the Shares on Nasdaq under the symbol “MDLB”. On           , 2022, the last reported sale price of our Shares on the ASX was A$[•] per Share, equivalent to a price of US$[•] per Share, after giving effect to the Australian dollar/U.S. dollar exchange rate of          as of           , 2022.

The final offering price per Share in U.S. dollars will be determined through negotiations between us and the underwriter and will be based, in part, on prevailing market prices of our Shares on the ASX, after taking into account market conditions and other factors. For a discussion of the other factors considered in determining the final offering price per Share, see “Underwriting.”

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Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors” appearing on page 15 of this prospectus and elsewhere in this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriter expects to deliver the Shares to purchasers on or about           , 2022 through the book-entry facilities of The Depository Trust Company.

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Sole Book-Running Manager

A.G.P.

The date of this prospectus is           , 2022.

ABOUT THIS PROSPECTUS

We are responsible for the information contained in this prospectus and any free writing prospectus we prepare or authorize. We and the underwriter have not authorized anyone to provide you with different information. We and the underwriter take no responsibility for, and can provide no assurance as to the reliability of, any other information others may give you. We are not, and the underwriter are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

For investors outside the United States: neither we nor the underwriter has done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the Shares and the distribution of this prospectus and any free writing prospectus outside the United States.

We are incorporated under the laws of Australia, and a majority of our outstanding Shares are owned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission (“SEC”), we are eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Our reporting and functional currency is the Australian dollar, and our financial statements included elsewhere in this prospectus are presented in Australian dollars. The consolidated financial statements and related notes included elsewhere in this prospectus have been prepared under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

All references in this prospectus to “US$” and “U.S. dollars” mean U.S. dollars and all references to “A$” mean Australian dollars, unless otherwise noted.

This prospectus contains conversions of some Australian dollar amounts into U.S. dollars. Except as otherwise stated in this prospectus, all conversions from Australian dollars to U.S. dollars are based on the exchange rate of US$     to A$1.00 published by the Reserve Bank of Australia as of         , 2022. No representation is made that the Australian dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars at such rate.

“Medlab”, the Medlab logo and other trademarks or service marks of Medlab appearing in this prospectus are the property of Medlab or its subsidiaries. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are listed without the ^® and ^™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their right thereto. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

Market and Industry Data

This prospectus contains estimates and information concerning our industry and our business, including estimated market size and projected growth rates of the markets for our drug candidates. Unless otherwise expressly stated, we obtained this industry, business, market, medical and other information from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources.

This information involves a number of assumptions and limitations. We are responsible for all of the disclosure contained in this prospectus.  We have relied on third-party market position, market opportunity and market size data included in this prospectus that we believe are reliable.  In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports.

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in the Shares. You should read this entire prospectus, and the registration statement of which this prospectus is a part, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise indicated or the context otherwise requires, “Medlab,” the “Company,” “our company,” “we,” “us” and “our” refer to Medlab Clinical Ltd. and its consolidated subsidiaries, taken as a whole.

Overview

Our legal name is Medlab Clinical Ltd.  We are an Australian biotechnology company that formulates innovative solutions and innovative consumer health care products to provide integrative patient care. Our aim is to disrupt the multi-billion-dollar market of delivery platform technologies for pharmaceutical products that are designed to treat pain and mental health. We were incorporated in Australia in April 2014, and in 2015 listed on the ASX under the symbol “MDC.” Our corporate headquarters are located in Australia, and we maintain offices in the United States and Europe.

Our mission is to create premier pharmaceutical drugs, therapies and delivery platforms for patients dealing with unmet medical needs, each of which will comply with applicable regulatory requirements, including the United States Food and Drug Administration (“FDA”), the European Medicines Association (“EMA”) and the Therapeutic Goods Administration of Australia (“TGA”), the medicine and therapeutic regulatory agency of the Australian Government. We aim to be recognized as a leading specialty drug development company, committed to restoring health and transforming the lives of patients through the development of novel pharmaceutical products and treatments.

We develop targeted fixed-dose combinations of the NanoCelle® delivery platform and various active pharmaceutical ingredients (“APIs”), applying proprietary insights to create long-term products that we believe will better meet the medical needs of our patients compared to what is currently available and that we believe will create value for our shareholders. Our focus is on clinical indications that we believe represent unmet or inadequately addressed medical needs and represent compelling commercial opportunities.

We strongly believe there are considerable unmet needs of patients in our target markets, and that the current drug intervention therapies that are available can be significantly improved.  We believe that we are able to provide these improvements to patients through products that we have and are developing.  These products are discussed below.

Though we do have sales from our products, we are primarily in a research and product development phase and do not generate significant revenue, except from research and development Australian federal grants and pharmaceutical products that we sell through special access pre-registration schemes.  Accordingly, we have incurred recurring losses from operations.  Our operations have been funded substantially through capital equity raising. Our focus is on raising capital through equity financings to fund future clinical trials.

We believe the net proceeds of this offering, together with the Australian Research and Development Tax Incentive and our current cash, will be sufficient to meet our working capital and capital expenditure requirements at least through June 2023.

Our Lead Product Candidate: NanoCelle®

NanoCelle®, our core product offering, is a pharmaceutical-delivery platform which is designed to administer pharmaceutical products using nanoparticles, or small particles ranging between 1 to 100 nanometres in size and undetectable by the human eye.  NanoCelle® is an alternative, and, we believe, more effective method of consuming medical products compared to the traditional methods. NanoCelle® delivery may include oromucosal (oro-buccal/sublingual) sprays, intranasal sprays, dermal and transdermal formulations, topical lotions, oral gel capsules and liquids, and adsorption from solid carriers.  NanoCelle® is designed to allow for vast improvements in patient care, quality of life and side effect reduction. Our primary and commercially available delivery platform, NanoCelle® is now patented in several countries, including Australia, Canada, the European Union Countries⁽¹⁾, Hong Kong, New Zealand, the United States, the United Kingdom and  with a pending patent application in Singapore, until 2036. In developing NanoCelle®^, we have placed a high research priority on tolerability, and without the use of harmful toxic products such as heavy metals or gases. To date, NanoCelle® has administered over 350,000 doses of pharmaceutical products to patients through its delivery platform through compassionate use programs in the United Kingdom and Australia or clinical trials and/or sales of medicines approved by such governments or applicable pharmaceutical regulatory agents. The term “compassionate use” refers to a governmentally-sanctioned expedited pathway for a patient with an immediately life-threatening condition or serious disease or condition to gain access to an investigational medical product for treatment outside of clinical trials when no comparable or satisfactory alternative therapy options are available.

(1) “European Union Countries” include Albania, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Iceland, Italy, Lithuania, Luxembourg, Latvia, Malta, Monaco, Netherlands, North Macedonia, Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland and Turkey.

Our Other Drug Product Candidates, both in-market and in-development

In addition to developing the NanoCelle® delivery method, we have also developed several drug development programs that are specifically designed to be administered through the NanoCelle® technology. Our NanoCelle® delivery method has produced additional drug candidates which share design and chemistry, manufacturing and controls (“CMC”) processes with our lead candidate, resulting in tolerability profiles that may be similar to our lead product candidate, as well as regulatory agency familiarity, and a consistent multi-target therapeutic approach.

Several of our products are listed, in contrast to being registered, with the Australian Register of Therapeutic Goods (the “ARTG”). All medicines registered with the ARTG generally are evaluated for efficacy (that the medicine can do what it says it will) before they may be sold in Australia. However, not all listed medicines are evaluated for efficacy. Our registered medicines, such as NanaBis^™, are higher risk, and because of this, the ARTG fully assesses all registered medicines for safety, quality and efficacy before they go on sale. Registered medicines, which are intended to treat, manage and/or cure one or more conditions, require investment in clinical evidence with no guarantee of success at TGA.  Listed medicines, such as NanoCelle® D3 and NanoCelle® B12, are lower risk and can be purchased off the shelf from pharmacies, health shops, and supermarkets. Listed products, such as complementary medicines and food supplements, are not exposed to the same risks and do not have to undergo the same rigorous regulatory assessments as registered products but are subject to a random audit after listing. 

As such, since our in-market drug products, are lower risk and do not go through pre-market assessment, they are considered ARTG-listed. Both ARTG-listed and ARTG-registered medicines must be manufactured in a licensed or approved facility in accordance with the principles of good manufacturing practice. There is no requirement under the ARTG for our products to be registered in their present form.

Most therapeutic goods are required to undergo an evaluation for quality, safety and efficacy and be included in the ARTG before they can be supplied in Australia. In recognition that there are circumstances where patients need access to therapeutic goods that are not included in the ARTG, the TGA manages the Australian Special Access Scheme (the “Special Access Scheme”). The Special Access Scheme allows registered health practitioners to access therapeutic goods (such as medicines, medical devices or biologicals) that are not included in ARTG for a single patient via approval by the TGA on a named patient basis. Therapeutic goods that are not included in the ARTG (and are not otherwise exempt from being in the ARTG) are described by us as “unapproved”.

Our currently available products include the following:

NanaBis™ is pursuing FDA approval first and, if approved by the FDA, then will seek approval by the TGA and the European Medicines Agency (“EMA”).  The NanaBis™ product is currently in Phase II trial studies conducted at an Australian Hospital and met all primary and secondary endpoints. During COVID, the company focused on the CMC and pivoted to 100% synthetics in accordance with prior FDA guidance.

NanaBis™, to date, has only conducted pharmacokinetic studies on advanced cancer patients and not healthy participants. However, the Company is expected to include pharmacokinetic studies on a small number of healthy participants in mid-2023. A Phase III trial for NanaBis™, which is expected to include approximately 360 participants from the United States of America, Australia and the United Kingdom, will plan to use a randomized withdrawal method to demonstrate the analgesic tolerability and exploratory endpoints of NanaBis™ as a monotherapy in cancer patients. The Company expects to complete the Phase III clinical trials for NanaBis™ in the United States using the net proceeds from this offering, together with the Australian Research and Development Tax Incentive and existing cash.

In addition to developing the NanoCelle® delivery method, we have also spearheaded several drug developmental programs that are specifically designed to be administered through the NanoCelle® technology. Our NanoCelle® delivery method has produced additional drug candidates which share design and CMC processes with our lead candidate, resulting in tolerability profiles that may be similar to our lead product candidate, as well as regulatory agency familiarity, and a consistent multi-target therapeutic approach. Our products that are currently in the earlier drug development stages include:

Our Strategy

Our strategy is to expand our market opportunity by gaining United States, United Kingdom, Australian and/or other regulatory approval for our products. Furthermore, the superior performance that we believe we can achieve through our patented drug delivery platform, NanoCelle®, will be a key differentiator for us in the pharmaceutical space. We are seeking to develop a body of clinical and real-world evidence and findings to support the benefits of our products.

We intend to take several steps to achieve our goals, including:

Our revenue strategy is premised around licensing our intellectual property and assets with large established companies that offer market expertise. We are seeking to benefit from the health care industry’s search for delivery platforms across all molecules in the pursuit of better patient outlines.

For example, over the past year, we have made several key strategic achievements and milestones, including:

The Company has currently licensed its commercial IP to the following entities:

NanoCelle® Technology Transfer Licenses for Manufacturing:

Corporate Information

Our registered office is located at Units 5 and 6, 11-13 Lord Street, Botany, New South Wales, 2019, Australia and our telephone number is +61 2 8188 0311. Our website address is www.medlab.co. The information on, or accessible through, our website is not part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference. All information we file with the SEC is available through the SEC’s Electronic Data Gathering, Analysis and Retrieval system, which may be accessed through the SEC’s website at www.sec.gov.

Implications of Being an Emerging Growth Company

As a company with less than US$1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

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an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements.

We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information that we provide shareholders and holders of the Shares may be different than you might obtain from other public companies. We will cease to be an emerging growth company upon the earliest to occur of (i) the last day of the fiscal year in which we have more than US$1.235 billion in annual revenue; (ii) the last day of the fiscal year in which we qualify as a “large accelerated filer”; (iii) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year in which the fifth anniversary of this offering occurs.

Implications of Being a Foreign Private Issuer

We also qualify as a “foreign private issuer” under U.S. securities laws. In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our senior management, the members of our board of directors and our principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. Unless we elect to terminate our status as a foreign private issuer, we will remain a foreign private issuer until such time that 50% or more of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of the members of board of directors or our senior management are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.

Risk Factors Summary

Our business is subject to a number of risks of which you should be aware prior to making a decision to invest in our Shares. You should carefully consider all of the information set forth in this prospectus and, in particular, you should evaluate the specific factors set forth in the section titled “Risk Factors” before deciding whether to invest in our Shares. Among these important risks are, but not limited to, the following:

Special Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations, financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, other factors and assumptions, including the risks described in “Risk Factors” and elsewhere in this prospectus, regarding, among other things:

These risks are not exhaustive. Other sections of this prospectus may include additional factors that could harm our business and financial performance. New risk factors may emerge from time to time and it is not possible for our management to predict all risk factors, 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, or implied by, any forward-looking statements.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

THE OFFERING

The number of Shares that will be outstanding after this offering is based on 2,283,502 Shares outstanding as of November 18, 2022 and excludes 17,223 Shares issuable upon the exercise of outstanding options as of November 18, 2022, with a weighted-average exercise price of A$     per Share.

RISK FACTORS

Investing in the Units involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus, including our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. If any of the following risks actually occur, it could harm our business, prospects, results of operations and financial condition. In such event, the trading price of the Units could decline and you might lose all or part of your investment.

Risks Related to Our Business

We have a history of operating losses and may not achieve or maintain profitability in the future.

We have experienced significant recurring operating losses and negative cash flows from operating activities since inception. For example, for the years ended June 30, 2022 and 2021, we had net losses of approximately A$7.2 million and approximately A$12.4 million.

We are a clinical stage pharmaceutical development company and the success of our drug candidates is therefore uncertain. We focus on pharmaceutical solutions for large patient groups with clear, unmet needs, inclusive of non-opioid pain management and mental health. In addition, in efforts to improve patient compliance and associated medication risk profiles, we utilize proprietary delivery platforms that we believe are more effective for medication offerings.

We expect to continue to incur losses from operations for the foreseeable future and expect the costs of drug development to increase in the future as more patients are recruited to the clinical trials. In particular, we expect to continue to incur significant losses in the development of our clinical trials and drug candidates. Because of the numerous risks and uncertainties associated with the development, manufacturing, sales and marketing of our drug candidates, we may experience larger than expected future losses and may never become profitable.

Moreover, there is a substantial risk that we, or our development partners, may not be able to complete the development of our current drug candidates or develop other pharmaceutical products. It is possible that none of them will be successfully commercialized, which would prevent us from ever achieving profitability.

We are subject to going concern risks.

The Company’s consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. Our future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. While we believe that the completion of this offering and the application of the net proceeds as described under “Use of Proceeds” in this prospectus will result in the elimination of the going concern qualification included in the Company’s consolidated financial statements following this offering, there cannot be any assurances that such qualification will be removed or that the Company will be successful in obtaining necessary financing in the future to continue as a going concern or achieve profitability. We expect that the Company will need raise additional capital following the completion of this equity offering in order to complete the necessary trials to achieve commercial viability of some or all of its drug products.

Escalating global trade tensions, the conflict between Russia and Ukraine, and the adoption or expansion of economic sanctions or trade restrictions could negatively impact us.

On February 24, 2022, Russian troops began a full-scale military invasion of Ukraine. This conflict between Russia and Ukraine has led to disruption, instability and volatility in global markets and industries that could negatively impact our business, results of operations and financial condition. The conflict has resulted in significant volatility in certain equity, debt and currency markets, material increases in certain commodity prices, and economic uncertainty. The conflict may escalate and its resolution is unclear. The U.S. government and other governments have imposed severe sanctions against Russia and Russian interests and Belarus and has threatened additional sanctions and controls. Sanctions and export control laws and regulations are complex, frequently changing, and increasing in number, and they may impose additional legal compliance costs or business risks associated with our operations. Although the Company does not conduct business directly with companies based in Ukraine, Russia or Belarus, the impact of these measures, as well as potential responses to them by Russia, is currently unknown and they could adversely affect our business, results of operations and financial condition.  Furthermore, this conflict could affect our business by preventing us from entering into agreements with certain counterparties, customers or vendors.

The increase in expenses may adversely impact our business if our sources of funding and revenue are insufficient.

We anticipate that as the costs related to the development of our clinical trials will increase, we will require additional funds to achieve our long-term goals of commercialization and further development of our drug candidates. In addition, we will require funds to pursue regulatory applications, defend intellectual property rights, contract manufacturing capacity, potentially develop marketing and sales capability and fund operating expenses. We intend to seek such additional funding through public or private financings and/or through licensing of our assets or other arrangements with corporate partners. However, such financing, licensing opportunities or other arrangements may not be available from any sources on acceptable terms, or at all. Any shortfall in funding could result in us having to curtail or cease our research and development activities, thereby harming our business, financial condition and results of operations.

In addition, because of the numerous risks and uncertainties associated with the development of our drug candidates, we are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. Our expenses could significantly increase beyond current expectations if the applicable regulatory authorities require further studies in addition to those currently anticipated. In any case, even if our drug candidates are approved for commercial sale, we anticipate incurring significant costs associated with the commercial launch of such drug candidates and there can be no guarantee that we will ever generate significant revenues.

We will require additional financing and may be unable to raise sufficient capital, which could have a material adverse impact on our research and development programs or commercialization of our drug candidates.

We have historically devoted most of our financial resources to research and development, including pre-clinical and clinical development activities. To date, we have financed a significant amount of our operations through equity financings. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings or strategic collaborations. The amount of such future net losses, as well as the possibility of future profitability, will also depend on our success in developing and commercializing products that generate significant revenue. Our failure to become and remain profitable would depress the value of our Shares and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations.

We anticipate that our expenses will increase substantially for the foreseeable future if, and as, we:

Until we are profitable, we will need to obtain additional funding in connection with the further development of our drug candidates. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. As such, additional financing may not be available to us when needed, on acceptable terms, or at all. 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 or obtain funds by entering agreements on unattractive terms.

Furthermore, any additional equity fundraising in the capital markets may be dilutive for shareholders and any debt-based funding may bind us to restrictive covenants and curb our operating activities and ability to pay potential future dividends even when profitable. We cannot guarantee that future financing will be available in sufficient amounts or on acceptable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we will be prevented from pursuing research and development efforts. This could harm our business, operating results and financial condition and cause the price of our Shares to fall.

If we are unable to secure sufficient capital to fund our operations, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to third parties to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. For example, additional strategic collaborations could require us to share commercial rights to our drug candidates with third parties in ways that we do not intend currently or on terms that may not be favorable to us. Moreover, we may also have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us.

We do not own full rights to the intellectual property developed pursuant to our Collaborative Research Agreement with the University of New South Wales and Macquarie University.

On April 4, 2022, we entered into a Collaborative Research Agreement with the University of New South Wales and Macquarie University to conduct testing during the pre-clinical stages for our NanoCelle®-Nucleic Acid, a nasal vaccine delivery utilizing nucleic acid to develop a new vaccine and/or anti-viral technologies. Pursuant to the Collaborative Research Agreement, all intellectual property created or developed under such agreement is owned collectively by all parties to such agreement. Accordingly, we will not have full ownership over the intellectual property developed under the Collaborative Research Agreement, and any of our products incorporating such intellectual property will be subject to the joint ownership rights under the agreement.  All new intellectual property and commercial returns from the Collaborative Research Agreement will result in a one-third return for each of the three parties. In addition, any revenues and expenses derived from or allocable to products incorporating the intellectual property developed under the Collaborative Research Agreement may be shared with the other parties to the Collaborative Research Agreement.  We do not believe that our future growth strategy is dependent on the intellectual property developed under the Collaborative Research Agreement, however, we cannot assure you that the Collaborative Research Agreement will not reduce our potential future revenue or profitability.

We may find it difficult to enroll patients in our current and any future clinical trials, and patients could discontinue their participation in our current and any future clinical trials, which could delay or prevent our current and any future clinical trials of our drug candidates and make those trials more expensive to undertake.

Identifying and qualifying patients to participate in current and any future clinical trials of our drug candidates is critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing our drug candidates. Patients may be unwilling to participate in any future clinical trials because of negative publicity from adverse events in the biotechnology industry. Patients may be unavailable for other reasons, including competitive clinical trials for similar patient populations, and the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products may be delayed. If we have difficulty enrolling a sufficient number of patients to conduct any future clinical trials as planned, we may need to delay, limit or discontinue those clinical trials. Clinical trial delays could result in increased costs, slower product development, setbacks in testing the safety and effectiveness of our technology or discontinuation of the clinical trials altogether.

Any failure to implement our business strategy could negatively impact our business, financial condition and results of operations.

The development and commercialization of our drug candidates is subject to many risks, including:

If any of these risks materializes, we could experience significant delays or an inability to successfully develop and commercialize our drug candidates we or our partners may develop, which would have a material adverse effect on our business, financial condition and results of operations.

Positive results from preclinical studies of our drug candidates are not necessarily predictive of the results of our planned clinical trials of our drug candidates.

Positive results in preclinical proof of concept and animal studies of our drug candidates may not result in positive results in clinical trials in humans. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after achieving positive results in preclinical development or early-stage clinical trials, and we cannot be certain that we will not face similar setbacks. These setbacks can be caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their drug candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or other regulatory authority approval. If we fail to produce positive results in our clinical trials of our drug candidates, the development timeline and regulatory approval and commercialization prospects for our drug candidates, and, correspondingly, our business and financial prospects, would be negatively impacted.

Ongoing and future clinical trials of drug candidates may not show sufficient safety and efficacy to obtain requisite regulatory approvals for commercial sale.

Phase I and Phase II clinical trials are not primarily designed to test the efficacy of a drug candidate but rather to test safety and to understand the drug candidate’s side effects at various doses and schedules. Furthermore, success in preclinical and early clinical trials does not ensure that later large-scale trials will be successful nor does it predict final results. Acceptable results in early trials may not be repeated in later trials. Further, Phase III clinical trials may not show sufficient safety or efficacy to obtain regulatory approval for marketing. In addition, clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Negative or inconclusive results or adverse medical events during a clinical trial could require that the clinical trial be redone or terminated. The length of time necessary to complete clinical trials and to submit an application for marketing approval by applicable regulatory authorities may also vary significantly based on the type, complexity and novelty of the drug candidate involved, as well as other factors. If we suffer any significant delays, quality issues, setbacks or negative results in, or termination of, our clinical trials, we may be unable to continue the development of our drug candidates or generate revenue and our business may be severely harmed.

If we do not obtain the necessary regulatory approvals, we may be unable to commercialize our drug candidates.

The clinical development, manufacturing, sales and marketing of our drug candidates are subject to extensive regulation by regulatory authorities in the United States, the United Kingdom, the European Union, Australia and elsewhere. Despite the substantial time and expense invested in preparation and submission of an application  or equivalents in other jurisdictions, regulatory approval is never guaranteed. The number, size and design of preclinical studies and clinical trials that will be required will vary depending on the product, the disease or condition for which the product is intended to be used and the regulations and guidance documents applicable to any particular product. Additionally, during the review process and prior to approval, the FDA and/or other regulatory bodies may require additional data, including with respect to whether our products have abuse potential, which may delay approval and any potential controlled substance scheduling processes. The FDA or other regulators can delay, limit or deny approval of a product for many reasons, including, but not limited to, the fact that regulators may not approve our or a third-party manufacturer’s processes or facilities or that new laws may be enacted or regulators may change their approval policies or adopt new regulations requiring new or different evidence of safety and efficacy for the intended use of a product.

Successful results in clinical trials and in the subsequent application for marketing approval are not guaranteed. If we are unable to obtain regulatory approvals, we will not be able to generate revenue from our drug candidates. Even if we receive regulatory approval for any of our drug candidates, our profitability will depend on our ability to generate revenues from their sale or the licensing of our technology.

Even if our drug candidates receive regulatory approval, it may still face development and regulatory difficulties that may delay or impair future sales of drug candidates.

Even if we or our licensing partners receive regulatory approval to sell any drug candidates, the relevant regulatory authorities may, nevertheless, impose significant restrictions on the indicated uses, manufacturing, labelling, packaging, adverse event reporting, storage, advertising, promotion and record keeping or impose ongoing requirements for post-approval studies. In addition, regulatory agencies subject a marketed product, its manufacturer and the manufacturer’s facilities to continual review and periodic inspections. Previously unknown problems with the drug candidate, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, and could include withdrawal of the product from the market. In addition, new statutory requirements may be enacted or additional regulations may be enacted that could prevent or delay regulatory approval of one or more of our drug candidates.

Risks Relating to the Development and Regulatory Approval of Our Product Candidates

We have a limited number of product candidates, all which are still in early clinical or pre-clinical development. If we do not obtain regulatory approval of one or more of our product candidates, or experience significant delays in doing so, our business will be materially adversely affected.

 Many of these factors are wholly or partially beyond our control, including clinical advancement, the regulatory submission process and changes in the competitive landscape. If we do not achieve one or more of these targets in a timely manner, we could experience significant delays or may be unable to develop our product candidates at all, which may have a material adverse effect on our business and results of operations.

Clinical trials are expensive, time consuming, difficult to design and implement, and involve uncertain outcomes. Results of previous pre-clinical studies and clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or other regulatory authorities.

 

Positive or timely results from pre-clinical or early-stage trials do not ensure positive or timely results in late-stage clinical trials or product approval by the FDA or comparable foreign regulatory authorities. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercialization. Our planned clinical trials may produce negative or inconclusive results, and we or any of our current and future strategic partners may decide, or regulators may require us, to conduct additional clinical or pre-clinical testing.

 

Success in pre-clinical studies or early-stage clinical trials does not mean that future clinical trials or registration clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and foreign regulatory authorities, despite having progressed through pre-clinical studies and initial clinical trials. Product candidates that have shown promising results in early clinical trials may still suffer significant setbacks in subsequent clinical trials or registration clinical trials. For example, a number of companies in the biopharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials. Similarly, pre-clinical interim results of a clinical trial are not necessarily predictive of final results.

If clinical trials for our product candidates are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize our product candidates on a timely basis, or at all, which would require us to incur additional costs and delay our receipt of any product revenue.

Changes in regulatory requirements, policies and guidelines may also occur and we may need to significantly amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. These changes may require us to renegotiate terms with CROs or resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or us. Any failure or significant delay in commencing or completing clinical trials for our product candidates may adversely affect our ability to obtain regulatory approval and our commercial prospects and our ability to generate product revenue will be diminished.

Cannabis continues to be a controlled substance under the United States Federal Controlled Substances Act (“CSA”) and our business may result in federal civil or criminal prosecution.

Though we are not directly engaged in the medical and adult-use cannabis industry, some of our products involve cannabinoids. In the U.S.  local state law may permit such activities however all such activities remain illegal under federal law in the U.S. Investors are cautioned that in the U.S., cannabis is highly regulated at the state level. To our knowledge, there are to date 38 states, the District of Columbia, and four U.S. territories that have legalized medical cannabis in some form, although not all states have fully implemented their legalization programs. To our knowledge, 18 states and the District of Columbia have legalized cannabis for adult use. Additional states have legalized high-cannabidiol CBD, low THC oils for a limited class of patients. Notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis continues to be categorized as a Schedule I controlled substance under the CSA. Under United States federal law, a Schedule I drug is considered to have a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the substance under medical supervision. Federal law prohibits commercial production and sale of all Schedule I controlled substances, and as such, cannabis-related activities, including without limitation, the importation, cultivation, manufacture, distribution, sale and possession of cannabis remain illegal under U.S. federal law. It is also illegal to aid or abet such activities or to conspire or attempt to engage in such activities. Strict compliance with state and local laws with respect to cannabis may neither absolve us of liability under U.S. federal law, nor provide a defense to any federal proceeding brought against us. An investor’s contribution to and involvement in such activities may result in federal civil and/or criminal prosecution, including, but not limited to, forfeiture of his, her or its entire investment, fines and/or imprisonment.

An appropriations rider contained in the fiscal year 2015, 2016, 2017, 2018, 2019, 2020 and 2021 Consolidated Appropriations Acts (formerly known as the “Rohrabacher-Farr Amendment”; now known as the “Rohrabacher-Blumenauer Amendment” and currently proposed for the next appropriations rider as the “Joyce Amendment”, referred to herein as the “Amendment”) provides budgetary constraints on the federal government’s ability to interfere with the implementation of state-based medical cannabis laws. The Ninth Circuit Court of Appeals and other courts have interpreted the language to mean that the U.S. Department of Justice (the “DOJ”) cannot expend funds to prosecute state-law-abiding medical cannabis operators complying strictly with state medical cannabis laws. The Amendment prohibits the federal government from using congressionally appropriated funds to prevent states from implementing their own medical cannabis laws. The Rohrabacher Amendment was renewed for fiscal year 2021 and again through various spending bills and is effective until September 2022. Continued reauthorization of the Amendment is predicated on future political developments and cannot be guaranteed. If the Amendment expires, federal prosecutors could prosecute even state-compliant medical cannabis operators for conduct within the five-year statute of limitations. The Amendment does not protect state legal adult-use cannabis businesses and the DOJ may spend funds to prosecute persons that are operating in accordance with state adult use cannabis laws.

Violations of any federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges and penalties, including, but not limited to, disgorgement of profits, cessation of business activities, divestiture, or prison time. This could have a material adverse effect on us, including our reputation and ability to conduct business, our holding (directly or indirectly) of medical and adult-use cannabis licenses in the U.S., the listing of our securities on Nasdaq, our financial position, operating results, profitability or liquidity or the market price of our publicly traded shares. In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation or defense of any such matters or our final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial.

We may be in violation of anti-money laundering laws and regulations which could impact our ability to obtain banking services, result in the forfeiture or seizure of our assets and could require us to suspend or cease operations.

We are subject to a variety of laws and regulations in Australia and in the U.S. that involve money laundering, financial recordkeeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended and the rules and regulations thereunder, any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the U.S. and Canada. Since the cultivation, manufacture, distribution and sale of cannabis remains illegal under the CSA, banks and other financial institutions providing services to cannabis-related businesses risk violation of federal anti-money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money-remitter statute (18 U.S.C. § 1960) and the Bank Secrecy Act, among other applicable federal statutes. Banks or other financial institutions that provide cannabis businesses with financial services such as a checking account or credit card in violation of the Bank Secrecy Act could be criminally prosecuted for willful violations of money laundering statutes, in addition to being subject to other criminal, civil, and regulatory enforcement actions. Banks often refuse to provide banking services to businesses involved in the cannabis industry due to the present state of the laws and regulations governing financial institutions in the U.S. The lack of banking and financial services presents unique and significant challenges to businesses in the cannabis industry. The potential lack of a secure place in which to deposit and store cash, the inability to pay creditors through the issuance of checks and the inability to secure traditional forms of operational financing, such as lines of credit, are some of the many challenges presented by the unavailability of traditional banking and financial services. These statutes can impose criminal liability for engaging in certain financial and monetary transactions with the proceeds of a “specified unlawful activity” such as distributing controlled substances which are illegal under federal law, including cannabis, and for failing to identify or report financial transactions that involve the proceeds of cannabis-related violations of the CSA. We may also be exposed to the foregoing risks.

As previously introduced, in February 2014, the Financial Crimes Enforcement Network (“FinCEN”) issued a memorandum (the “FinCEN Memorandum”) providing instructions to banks seeking to provide services to cannabis-related businesses. The FinCEN Memorandum states that in some circumstances, it is permissible for banks to provide services to cannabis-related businesses without risking prosecution for violation of the Bank Secrecy Act. It refers to supplementary guidance that former Deputy Attorney General James M. Cole issued to federal prosecutors relating to the prosecution of money laundering offenses predicated on cannabis-related violations of the CSA. Although the FinCEN Memorandum remains in effect today, it is unclear at this time whether the current administration will follow the guidelines of the FinCEN Memorandum. Overall, the DOJ continues to have the right and power to prosecute crimes committed by banks and financial institutions, such as money laundering and violations of the Bank Secrecy Act, that occur in any state, including in states that have legalized the applicable conduct and the DOJ’s current enforcement priorities could change for any number of reasons. A change in the DOJ’s enforcement priorities could result in the DOJ prosecuting banks and financial institutions for crimes that previously were not prosecuted. If we do not have access to a U.S. banking system, its business and operations could be adversely affected.

Other potential violations of federal law resulting from cannabis-related activities include the Racketeer Influenced Corrupt Organizations Act (“RICO”). RICO is a federal statute providing criminal penalties in addition to a civil cause of action for acts performed as part of an ongoing criminal organization. Under RICO, it is unlawful for any person who has received income derived from a pattern of racketeering activity to use or invest any of that income in the acquisition of any interest, or the establishment or operation of, any enterprise which is engaged in interstate commerce. RICO also authorizes private parties whose properties or businesses are harmed by such patterns of racketeering activity to initiate a civil action against the individuals involved. Although RICO suits against the cannabis industry are rare, a few cannabis businesses have been subject to a civil RICO action. Defending such a case has proven extremely costly, and potentially fatal to a business’ operations.

In the event that any of our operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends, effect other distributions and subject us to civil and/or criminal penalties. Furthermore, while there are no current intentions to declare or pay dividends on our Shares in the foreseeable future, in the event that a determination was made that our proceeds from operations (or any future operations or investments in the United States) could reasonably be shown to constitute proceeds of crime, we may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time. We could likewise be required to suspend or cease operations entirely.

Uncertainty surrounding existing protection from U.S. federal prosecution may adversely affect our operations and financial performance.

Pursuant to the Amendment, until such time as it is not renewed or expires of its own accord, the DOJ is prohibited from expending any funds to prevent states from implementing their own medical cannabis laws. If the Amendment or an equivalent thereof is not successfully included in the next or any subsequent federal omnibus spending bill, the protection which has been afforded thereby to U.S. medical cannabis businesses in the past would lapse, and such businesses would be subject to a higher risk of prosecution under federal law. Although unlikely, there is a possibility that all amendments may be banned from federal omnibus spending bills, and if this occurs and the substantive provisions of the Amendment are not included in the base federal omnibus spending bill or other law, these protections will lapse. To the extent the Amendment is included in a continuing resolution, the protections of the Amendment would lapse if Congress does not reauthorize the resolution or pass another funding measure that includes the Amendment.

The regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

If we are not eligible to receive or do not seek approvals of our products through the FDA Expanded Access pathway, or a compassionate use program or a similar medium, we are not permitted to market our product candidates in the United States or the European Union until we receive approval of a NDA from the FDA or a marketing authorization application (“MAA”) from the EMA, respectively, or in any foreign countries until we receive the requisite approval from such countries. Prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our product candidates, we will need to complete our ongoing preclinical studies, as well as Phase I, Phase II and Phase III clinical trials. Our drug candidates are in various stages, including some that are still conducting preclinical studies and have not yet commenced our clinical program or human tests.  For approval with regulatory bodies, such as the FDA or TGA, we plan to conduct Phase I, and possibly Phase II, clinical trials in the U.S. or Australia, subject to applicable regulatory approval. Successfully initiating and completing our clinical program and obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain process, and the FDA or EMA may delay, limit or deny approval of our product candidates for many reasons, including, among others, because:

Clinical trials conducted in Australia are subject to various regulatory controls to ensure the safety of clinical trial participants. The TGA regulates the use of therapeutic goods supplied in clinical trials in Australia under the therapeutic goods legislation. Clinical trial sponsors must comply with various import, export, manufacture and supply requirements promulgated by the TGA, the compliance with which are not always clear and require a significant amount of subjective interpretation on the part of the Australian clinical trial sponsor.

In 2014, the Australian Advisory Council on Medicines Scheduling recommended rescheduling CBD from a prohibited substance to being a prescription medicine because, according to the Advisory Council on Medicines Scheduling, “there is a low risk of misuse or abuse as CBD does not possess psychoactive properties.” The TGA accepted this recommendation and the decision took effect in July 2015. From June 2015, CBD has been included under Schedule 4 (S4) Prescription Only Medicine of the Poisons Standard when preparations for therapeutic use contain 2% or less of other cannabinoids found in cannabis.

In February 2016, the Australian Federal Government passed legislation that amended the Narcotic Drugs Act, allowing the supply of suitable medicinal cannabis products for the management of painful and chronic conditions. This legislation does not relate to the decriminalization of cannabis for general cultivation or recreational use and it does not include the provision of medicinal grade herbal cannabis, only processed, non-smokable medicinal grade products. Much of the detail remains unclear. For example, the legislation does not specify which products will be covered under the amendment, and it does not specify which particular conditions or symptoms will be eligible for treatment with cannabis-based products. Before products can be prescribed, they must be registered with the TGA or, in rare circumstances, receive special approval from the TGA. The registration process requires evidence of testing and efficacy, and it is therefore unlikely Australia will see an TGA registered medicinal cannabis product that GPs can prescribe any time soon.

There are currently few cannabis-based products that are lawfully produced in Australia. The medicinal use of pharmaceutical products containing cannabinoids is not prohibited, as long as authorization for prescribing is granted from the TGA.

Despite the 2016 legislation discussed above, there are many factors, a significant number of which are beyond our control, that could jeopardize our ability to obtain regulatory approval to commence our clinical trials in Australia. If we are unable to obtain the necessary regulatory approvals in Australia, we will have to consider alternative locations for our clinical trials, including the United States, which may be more costly or have stringent regulatory requirements of their own, and which would likely delay aspects of our development plan.

We depend on, and will continue to depend on, collaboration and strategic alliances with third partners. To the extent we are able to enter into collaborative arrangements or strategic alliances, we will be exposed to risks related to those collaborations and alliances.

An important element of our strategy for developing, manufacturing and commercializing our drug candidates is entering into partnerships and strategic alliances with other pharmaceutical companies or other industry participants.

Any partnerships or alliance we have or may have in the future may be terminated for reasons beyond our control or we may not be able to negotiate future alliances on acceptable terms, if at all. These arrangements may result in us receiving less revenue than if we sold our products directly, may place the development, sales and marketing of our products outside of our control, may require us to relinquish important rights or may otherwise be on unfavorable terms. Collaborative arrangements or strategic alliances will also subject us to a number of risks, including the risk that:

Because we rely on third-party manufacturing and supply partners, our supply of research and development, preclinical and clinical development materials may become limited or interrupted or may not be of satisfactory quantity or quality.

We rely on third-party supply and manufacturing partners to manufacture and supply the materials for our research and development and preclinical and clinical study supplies. Additionally, we have no “in-house” manufacturing capabilities and are dependent on third parties to manufacture our drug candidates in a cost effective manner.  Problems with third-party manufacturers or the manufacturing process, or inability to scale up manufacturing activities, may result in delayed clinical trials and commercialization of our drug candidates.

There can be no assurance that our supply of research and development, preclinical and clinical development biologics and other materials will not be limited, interrupted or restricted in certain geographic regions, be of satisfactory quality or continue to be available at acceptable prices. Replacement of a third-party manufacturer could require significant effort, cost and expertise because there may be a limited number of qualified replacements.

The manufacturing process for a drug candidate is subject to FDA and foreign regulatory authority review. Suppliers and manufacturers must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards. In the event that any of our suppliers or manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves or enter into an agreement with another third party, which would be costly and delay any future clinical trials.

Further, if any third-party provider fails to meet its obligations to manufacture our products, or fails to maintain or achieve satisfactory regulatory compliance, the development of such substances and the commercialization of any therapies, if approved, could be stopped, delayed or made commercially unviable, less profitable or may result in enforcement actions against us.

Our research and development efforts may be jeopardized if we are unable to retain key personnel and cultivate key academic and scientific collaborations.

Changes in our senior management may be disruptive to our business and may adversely affect our operations. For example, when we have changes in senior management positions, we may elect to adopt different business strategies or plans. Any new strategies or plans, if adopted, may not be successful and if any new strategies or plans do not produce the desired results, our business may suffer.

Moreover, competition among biotechnology and pharmaceutical companies for qualified employees is intense and as such we may not be able to attract and retain personnel critical to our success. Our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel, manufacturing personnel, sales and marketing personnel and on our ability to develop and maintain important relationships with clinicians, scientists and leading academic and health institutions. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our product development and commercialization activities.

In addition, biotechnology and pharmaceutical industries are subject to rapid and significant technological change. Our drug candidates may be or become uncompetitive. To remain competitive, we must employ and retain suitably qualified staff that are continuously educated to keep pace with changing technology but may not be in a position to do so.

We may encounter difficulties in managing our growth, which could negatively impact our operations.

As we advance our clinical development programs for drug candidates, seek regulatory approval in the United States, Europe and elsewhere and increase the number of ongoing product development programs, we anticipate that we will need to increase our product development, scientific and administrative headcount. We will also need to establish commercial capabilities in order to commercialize any drug candidates that may be approved. Such an evolution may impact our strategic focus and our deployment and allocation of resources.

Our ability to manage our operations and growth effectively depends upon the continual improvement of our procedures, reporting systems and operational, financial and management controls. We may not be able to implement administrative and operational improvements in an efficient or timely manner and may discover deficiencies in existing systems and controls. If we do not meet these challenges, we may be unable to execute our business strategies and may be forced to expend more resources than anticipated addressing these issues.

We may acquire additional technology and complementary businesses in the future. Acquisitions involve many risks, any of which could materially harm our business, including the diversion of management’s attention from core business concerns, failure to effectively exploit acquired technologies, failure to successfully integrate the acquired business or realize expected synergies or the loss of key employees from either our business or the acquired businesses.

In addition, in order to continue to meet our obligations as a publicly listed company in both Australia and the United States and to support our anticipated long-term growth, we will need to increase our general and administrative capabilities. Our management, personnel and systems may not be adequate to support this future growth.

If we are unable to successfully manage our growth and the increased complexity of our operations, our business, financial position, results of operations and prospects may be harmed.

Future potential sales of our drug candidates may suffer if they are not accepted in the marketplace by physicians, patients and the medical community.

There is a risk that our drug candidates may not gain market acceptance among physicians, patients and the medical community, even if they are approved by the regulatory authorities. The degree of market acceptance of any of our approved drug candidates will depend on a variety of factors, including:

As controlled substances, the products may generate public controversy. Physicians, patients, payers or the medical community may be unwilling to accept, use or recommend our drug candidates which would adversely affect our potential revenues and future profitability. Adverse publicity or public perception regarding cannabis to our current or future investigational therapies using these substances may negatively influence the success of these therapies.

We face competition from entities that may develop drug candidates for our target disease indications, including companies developing novel treatments and technology platforms based on modalities and technology similar to ours.

The development and commercialization of drug candidates is highly competitive. Multinational pharmaceutical companies and specialized biotechnology companies could develop drug candidates and processes competitive with our drug candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community, patients and third-party payers, and any new treatments that enter the market.

There may be a significant number of products that are currently under development, and may become commercially available in the future, for the treatment of conditions for which we are developing, and may in the future try to develop, drug candidates.

Multinational pharmaceutical companies and specialized biotechnology companies could have significantly greater financial, technical, manufacturing, marketing, sales and supply resources and experience than we have. If we successfully obtain approval for any drug candidate, we could face competition based on many different factors, including the safety and effectiveness of our drug candidates, the ease with which our drug candidates can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these drug candidates, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position.

Competing products could present superior treatment alternatives, including by being more effective, safer, less expensive or marketed and sold more effectively than any products we may develop. Competitive products may make any products we develop obsolete or non-competitive before we recover the expense of developing and commercializing our drug candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan.

If healthcare insurers and other organizations do not pay for our drug candidates or impose limits on reimbursement, our future business may suffer.

Our drug candidates may be rejected by the market due to many factors, including cost. The continuing efforts of governments, insurance companies and other payers of healthcare costs to contain or reduce healthcare costs may affect our future revenues and profitability. In Australia and certain foreign markets, the pricing of some pharmaceutical products is subject to government control. We expect initiatives for similar government control to continue in the United States and elsewhere. The adoption of any such legislative or regulatory proposals could harm our business and prospects.

Successful commercialization of our drug candidates will depend in part on the extent to which reimbursement for the cost of our products and related treatment will be available from government health administration authorities, private health insurers and other organizations. Our drug candidates may not be considered cost-effective and reimbursement may not be available to consumers or may not be sufficient to allow our products to be marketed on a competitive basis. Third-party payers are increasingly challenging the price of medical products and treatment.

If third-party coverage is not available for our drug candidates the market acceptance of these drug candidates will be reduced. Cost-control initiatives could decrease the price we might establish for drug candidates, which could result in product revenues lower than anticipated. If the price for our drug candidates decreases or if governmental and other third-party payers do not provide adequate coverage and reimbursement levels our potential revenue and prospects for profitability will suffer.

We may be exposed to product liability claims which could harm our business.

The testing, marketing and sale of therapeutic products entails an inherent risk of product liability. We rely on a number of third-party researchers and contractors to produce, collect, and analyze data regarding the safety and efficacy of our drug candidates. We also have quality control and quality assurance in place to mitigate these risks, as well as professional liability and clinical trial insurance to cover financial damages in the event that human testing is done incorrectly or the data is analyzed incorrectly.

Notwithstanding our control procedures, we may face product liability exposure related to the testing of our drug candidates in human clinical trials. If any of our drug candidates are approved for sale, we may face exposure to claims by an even greater number of persons than were involved in the clinical trials once marketing, distribution and sales of our drug candidates begin. Regardless of merit or eventual outcome, liability claims may result in:

With respect to product liability claims, we could face additional liability beyond insurance limits if testing mistakes were to endanger any human subjects. In addition, if a claim is made against us in conjunction with these research testing activities, the market price of our Shares may be negatively affected.

Our ability to generate revenues from product sales and achieve profitability will depend on our ability to successfully commercialize products.

Our ability to generate revenues from product sales and achieve profitability will depend on our ability to successfully commercialize products, including our current product candidates and other product candidates that we may develop, in-license or acquire in the future. Our ability to generate revenues and achieve profitability also depends on a number of additional factors, including our ability to:

Our revenues for any product candidates for which regulatory approval is obtained will be dependent, in part, upon the size of the markets in the territories for which it gains regulatory approval, the accepted price for the products, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable disease patients is not as significant as our estimates, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenues from sales of such products, even if approved. In addition, we anticipate incurring significant costs associated with commercializing any approved product candidates. As a result, even if we generate revenues, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.

The continuing COVID-19 pandemic could adversely impact our business, including our non-clinical studies and clinical trials.

The outbreak of COVID-19 severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak continues to evolve and many countries, including the United States, have, and may in the future, institute quarantines or travel restrictions. The COVID-19 pandemic may continue to have an adverse impact on global economic growth.  COVID-19 or another pandemic could have material and adverse effects on our ability to successfully operate due to, among other factors:

Product shipment delays could have a material adverse effect on our business, results of operations and financial condition.

The shipment, import and export of our drug candidates will require import and export licenses. In the United States, the FDA, U.S. Customs and Border Protection, and the DEA; in Canada, the Canada Border Services Agency, Health Canada; in Europe, the EMA and the European Commission; in Australia and New Zealand, the Australian Customs and Border Protection Service, the TGA, the New Zealand Medicines and Medical Device Safety Authority and the New Zealand Customs Service; and in other countries, similar regulatory authorities, regulate the import and export of pharmaceutical products that contain controlled substances. Specifically, the import and export processes require the issuance of import and export licenses by the relevant controlled substance authority in both the importing and exporting country.

We may not be granted, or if granted, maintain, such licenses from the authorities in certain countries. Even if we obtain the relevant licenses, and our drug candidates may be held up or lost in transit, which could cause significant delays and may lead to product batches being stored outside required temperature ranges. Inappropriate storage may damage the product shipment resulting in delays in clinical trials or, upon commercialization, a partial or total loss of revenue from one or more shipments of API or our drug candidates. A delay in a clinical trial or, upon commercialization, a partial or total loss of revenue from one or more shipments of API or our drug candidates could have a material adverse effect on our business, results of operations and financial condition.

The success of our prospective product candidates and future approved products, if any, especially those containing cannabinoids, are subject to a number of constantly evolving state and federal laws, regulations, and enforcement policies pertaining to cannabis and/or cannabis derivatives.

The Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) was signed into law on December 20, 2018. This 2018 Farm Bill expressly excluded “hemp” from the CSA and the Controlled Substances Import and Export Act’s, as amended, definition of marijuana and, accordingly, declassified substances derived from or containing any part(s) of the cannabis plant containing not more than 0.3% THC on a dry-weight basis from Schedule I. In effect, the 2018 Farm Bill legalized the cultivation and commercial sale of hemp in the United States, subject to applicable state laws and regulations and applicable Federal Food, Drug, and Cosmetic Act (“FDCA”) provisions, including any implementing regulations, as interpreted, and enforced by the FDA.

Local, state, federal, and international hemp and CBD laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance requirements. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business regarding cannabinoid production. It is also possible that the federal government will begin strictly enforcing existing laws, which may limit the legal uses of the hemp plant and its derivatives and extracts, such as cannabinoids. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our activities in the cannabis industry.

The 2018 Farm Bill did not alter the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds, including cannabinoids, under the FDCA. Hemp products, including cannabinoids, that qualify as drugs, food, dietary supplements, veterinary products, and cosmetics, for example, are subject to regulation by the FDA. Following passage of the 2018 Farm Bill, the FDA reaffirmed its enforcement authority and reiterated the requirement that a product containing CBD or other cannabinoid(s) (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit implicitly or explicitly attributed to, or based on, the presence of the cannabinoid as an ingredient, or any other health/medical claim, must be approved by the FDA for its intended use(s) before it may be introduced into interstate commerce. Our prospective product candidates are currently intended for development under an IND and, eventually, approval under an NDA, which will mean that, if approved, we can market such products with claims about their proven medical benefits for the applicable indications for use to the extent consistent with the product’s NDA.

While we believe that the 2018 Farm Bill and analogous state legislation has reduced the amount of DEA oversight of hemp-derived cannabinoids, this is a rapidly evolving area of U.S. law and substantial uncertainty remains as to the future of federal and state regulation of cannabinoid products. In addition, the FDA has approved only one natural cannabis-based drug product, which contains only hemp-derived CBD. There can be no assurance that our product candidates containing cannabinoids (as the active drug ingredient(s)) will be similarly approved for commercialization in the United States at any time in the near or distant future. Any regulations the FDA issues relating to the sale, marketing, and/or other activities involving cannabinoid or certain cannabinoid-containing products could have a material adverse effect on our business, financial condition, and results of operations.

Given the uncertainty surrounding future state regulations and the continuing barriers that still exist for cannabinoids in certain product categories due to FDA regulation, it is unknown what impact the removal of hemp from the CSA, and any resulting commercialization of hemp products, may have on our business.

We will be subject to extensive ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Any regulatory approvals that we may receive for our products will require the submission of reports to regulatory authorities and surveillance to monitor the safety and efficacy of our products, may contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, and may include burdensome post-approval study or risk management requirements. In addition, if the FDA, EMA, or comparable foreign regulatory authorities approve our products and the activities associated with their development and commercialization, including its design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export will be subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the EMA in the E.U. and comparable foreign regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as on-going compliance with current good manufacturing practices (cGMPs) and GCPs for any clinical trials that we conduct following approval. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA, EMA, and other regulatory authorities for compliance with cGMPs.

If we or a regulatory authority discover previously unknown problems with our products, such as adverse events of unanticipated severity or frequency, or problems with the facilities where our products are manufactured, a regulatory authority may impose restrictions on our products, the manufacturing facility or us, including requiring recall or withdrawal of our products from the market or suspension of manufacturing, restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials, restrictions on the manufacturing process, warning or untitled letters, civil and criminal penalties, injunctions, product seizures, detentions or import bans, voluntary or mandatory publicity requirements and imposition of restrictions on operations, including costly new manufacturing requirements. The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue and could require us to expend significant time and resources in response and could generate negative publicity.

The FDA’s, EMA’s and other regulatory comparable authorities’ policies may change and additional government regulations may be enacted that could prevent, limit, delay, increase the cost or risks of obtaining regulatory approval of our product candidates, including if as a result new or more costly or difficult to achieve clinical trial or manufacturing quality requirements are imposed. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

The approach to the enforcement of cannabis laws may be subject to change, which may create uncertainty for our business.

As a result of the conflicting views between state legislatures and the federal government regarding cannabis, investments in, and the operations of, cannabis businesses in the United States are subject to inconsistent laws and regulations. The so-called “Cole Memo” issued by former Deputy Attorney General James Cole on August 29, 2013 and other Obama-era cannabis policy guidance, discussed below, provided the framework for managing the tension between federal and state cannabis laws. Subsequently, as discussed below, former Attorney General Jeff Sessions rescinded the Cole Memo and related policy guidance. Although no longer in effect, these policies, and the enforcement priorities established within, appear to continue to be followed during the Biden Administration and remain critical factors that inform the past and future trend of state-based legalization.

The Cole Memo directed U.S. Attorneys not to prioritize the enforcement of federal cannabis laws against individuals and businesses that comply with state medical or adult-use cannabis regulatory programs, provided certain enumerated enforcement priorities (such as diversion or sale of cannabis to minors) were not implicated. In addition to general prosecutorial guidance issued by the DOJ, FinCEN issued the FinCEN Memorandum on February 14, 2014 outlining Bank Secrecy Act-compliant pathways for financial institutions to service state-sanctioned cannabis businesses, which echoed the enforcement priorities outlined in the Cole Memorandum. On the same day the FinCEN Memorandum was published, the DOJ issued complementary policy guidance directing prosecutors to apply the enforcement priorities of the Cole Memo when determining whether to prosecute individuals or institutions with crimes related to financial transactions involving the proceeds of cannabis-related activities.

On January 4, 2018, then-Attorney General Jeff Sessions rescinded the Cole Memo and all other related Obama-era DOJ cannabis enforcement guidance. While the rescission did not change federal law, as the Cole Memo and other DOJ guidance documents were not themselves laws, the rescission removed the DOJ’s formal policy that state-regulated cannabis businesses in compliance with the Cole Memo guidelines should not be a prosecutorial priority. Notably, former Attorney General Sessions’ rescission of the Cole Memo and the Cole Banking Memorandum has not affected the status of the FinCEN Memorandum issued by the Department of Treasury, which remains in effect. In addition to his rescission of the Cole Memo, former Attorney General Sessions issued a one-page memorandum known as the “Sessions Memorandum.” The Sessions Memorandum explains the DOJ’s rationale for rescinding all past DOJ cannabis enforcement guidance, claiming that Obama-era enforcement policies are “unnecessary” due to existing general enforcement guidance adopted in the 1980s, in chapter 9.27.230 of the U.S. Attorney’s Manual (the “USAM”). The USAM enforcement priorities, like those of the Cole Memo, are based on the use of the federal government’s limited resources and include “law enforcement priorities set by the Attorney General,” the “seriousness” of the alleged crimes, the “deterrent effect of criminal prosecution,” and “the cumulative impact of particular crimes on the community.” Although the Sessions Memorandum emphasizes that cannabis is a federally illegal Schedule I controlled substance, it does not otherwise instruct U.S. Attorneys to consider the prosecution of cannabis-related offenses a DOJ priority, and in practice, most U.S. Attorneys have not changed their prosecutorial approach to date. However, due to the lack of specific direction in the Sessions Memorandum as to the priority federal prosecutors should ascribe to such cannabis activities and the lack of additional guidance since the resignation of former Attorney General Sessions, there can be no assurance that the federal government will not seek to prosecute cases involving cannabis businesses that are otherwise compliant with state law.

William Barr served as United States Attorney General from February 14, 2019 to December 23, 2020. The DOJ under Mr. Barr did not take a formal position on federal enforcement of laws relating to cannabis. United States President Biden appointed Merrick Garland to succeed Mr. Barr as the U.S. Attorney General. Though Attorney General Garland has not yet formally reissued the Cole Memo, he has stated that prosecuting marijuana use is not a priority for the DOJ. Thus, it is still unclear what impact, if any, the Biden administration will have on U.S. federal government enforcement policy on cannabis.

Such potential proceedings could involve significant restrictions being imposed upon us or third parties, while diverting the attention of key executives. Such proceedings could have a material adverse effect on our business, revenues, operating results and financial condition as well as our reputation and prospects, even if such proceedings were concluded successfully in our favor. In the extreme case, such proceedings could ultimately involve the criminal prosecution of our key executives, the seizure of our corporate assets, and consequently, our inability to continue our business operations. Strict compliance with state and local laws with respect to cannabis does not absolve us of potential liability under federal law, nor provide a defense to any federal proceeding which may be brought against us. Any such proceedings brought against us may adversely affect our operations and financial performance.

A demand for cannabis and derivate products may never develop.

The global sale of cannabis and hemp products is a new industry resulting from recent legal and regulatory changes. Although we expect the demand for licensed cannabis to be in excess of the supply being produced by the licensed producers, there is a risk that such demand does not develop as anticipated. Further, there is a risk that the adoption rate by pharmacies to sell medical cannabis is lower than expected or that such adoption rate may take longer than anticipated. There is also a risk that the international export market for medicinal cannabis and extracts, such as CBD, Cannabigerol and cannabichromene, will not materialize as projected or not be commercially viable. Should any of such events materialize, they may have a material adverse effect on our business, results of operations and financial condition.

Research regarding the medical benefits, viability, safety, efficacy, use and social acceptance of cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages.

There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC). Although we believe that the articles, reports and studies support our beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles and reports. Future research studies and clinical trials may draw opposing conclusions to those stated herein or reach negative conclusions related to medical cannabis, which could have a material adverse effect on the demand for our products and could result in a material adverse effect on our business, financial condition and results of operations or prospects.

Our NanaBis^™ and NanoCBD^™ use of CBD and THC individually and/or in combination, are subject to U.S. and international controlled substance laws and regulations; our ability to commercialize any product containing these substances will depend, in part, on the ultimate classification of the product under these laws and regulations.

Our cannabinoids product candidates for treatment of various pain indications use pharmaceutically pure CBD, and THC, which is synthetically derived. These products are quite distinct from crude herbal “medical marijuana,” and we intend to seek FDA approval for these products in accordance with the customary FDA approval process and based on adequate and well-controlled clinical studies. However, the active ingredients in our products are defined as controlled substances under the federal CSA. Under the CSA, the DEA may place each drug that has abuse potential into one of five categories. The five categories, referred to as Schedules I-V, carry different degrees of restriction. Each schedule is associated with a distinct set of controls that affect manufacturers, researchers, healthcare providers, and patients. The controls include registration with the DEA, labelling and packaging, production quotas, security, recordkeeping, and dispensing. Schedule I is the most restrictive, covering drugs that have “no accepted medical use” in the United States and that have high abuse potential.

If and when any of our product candidates receive FDA approval, the DEA will make a scheduling determination and place the product in a schedule other than Schedule I in order for it to be prescribed to patients in the United States. Accordingly, our ability to ultimately commercialize the product will depend in part on the ultimate scheduling classification determination by DEA for our product.

The FDA has stated that it will continue to facilitate the work of companies interested in bringing safe, effective, and quality products to market, including scientifically based research concerning the medical uses of products derived from marijuana and the FDA has approved synthetic compositions of the active ingredients found in marijuana. However, the use and abuse of controlled substances is currently subject to political and social pressures from certain constituencies related to their usage which could result in additional difficulty with respect to the approval of cannabinoids as a prescription pharmaceutical. For example, the FDA or DEA may require us to generate more clinical data about the potential for abuse than that which is currently anticipated, which could increase the cost and/or delay the launch of our product. In addition, DEA scheduling may limit our ability to achieve market share in the United States due to restricted access and the disinclination of some physicians to prescribe more restrictive scheduled controlled substances. For example, Schedule II drugs may not be refilled without a new prescription. These factors may limit the commercial viability of cannabinoids in the United States.

Our drug candidates may be subject to controlled substance laws and regulations. Failure to receive necessary approvals may delay the launch of our drug candidates and failure to comply with these laws and regulations may adversely affect the results of our business operations.

Some of our drug candidates contain controlled substances as defined in the CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, have not currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription.

As one of our drug candidates classifies as a synthetic cannabinoids pharmaceutical product with psychedelic agents, our drug candidates are likely to be scheduled as Schedule II or III controlled substance. We will need to identify wholesale distributors with the appropriate DEA registrations and authority to distribute the products to pharmacies and other healthcare providers, and these distributors would need to obtain Schedule II or III distribution registrations. The failure to obtain, or delay in obtaining, or the loss of any of those registrations could result in increased costs to us. If any of our drug candidates is a Schedule II drug, pharmacies would have to maintain enhanced security with alarms and monitoring systems, and they must adhere to additional recordkeeping and inventory requirements. This may discourage some pharmacies from carrying the product. Furthermore, state and federal enforcement actions, regulatory requirements, and legislation intended to reduce prescription drug abuse, such as the requirement that physicians consult a state prescription drug monitoring program, may make physicians less willing to prescribe, and pharmacies to dispense, Schedule II products.

Individual states in the United States have also established controlled substance laws and regulations. Though state-controlled substance laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule our drug candidates as well. While some states automatically schedule a drug based on federal action, other states schedule drugs through rulemaking or a legislative action. State scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions by the states in addition to those from the DEA or otherwise arising under federal law.

We intend to contract manufacturers in the United States to produce the drug product for our clinical trials and the API for our drug candidates. In addition, we may decide to develop, manufacture or commercialize our drug candidates in additional countries. As a result, we will also be subject to controlled substance laws and regulations from the TGA and from other regulatory agencies in other countries where we develop, manufacture or commercialize our drug candidates in the future. We plan to submit NDAs for our drug candidates to the FDA upon completion of all requisite clinical trials and may require additional DEA scheduling decisions at such time as well.

Risks Related to Intellectual Property

Our success depends on our ability to protect our intellectual property and our proprietary technology.

Our success is to a certain degree also dependent on our ability to obtain and maintain patent protection or where applicable, to receive/maintain orphan drug designation/status and resulting marketing exclusivity for our drug candidates.

We may be materially adversely affected by our failure or inability to protect our intellectual property rights. Without the granting of these rights, the ability to pursue damages for infringement would be limited. Similarly, any know-how that is proprietary or particular to our technologies may be subject to risk of disclosure by employees or consultants despite having confidentiality agreements in place.

Any future success will depend in part on whether we can obtain and maintain patents to protect our own products and technologies; obtain licenses to the patented technologies of third parties; and operate without infringing on the proprietary rights of third parties. Biotechnology patent matters can involve complex legal and scientific questions, and it is impossible to predict the outcome of biotechnology and pharmaceutical patent claims. Any of our future patent applications may not be approved, or we may not develop additional products or processes that are patentable. Some countries in which we may sell our drug candidate or license our intellectual property may fail to protect our intellectual property rights to the same extent as the protection that may be afforded in the United States or Australia. Some legal principles remain unresolved and there has not been a consistent policy regarding the breadth or interpretation of claims allowed in patents in the United States, the United Kingdom, the European Union, Australia or elsewhere. In addition, the specific content of patents and patent applications that are necessary to support and interpret patent claims is highly uncertain due to the complex nature of the relevant legal, scientific and factual issues. Changes in either patent laws or in interpretations of patent laws in the United States, the United Kingdom, the European Union or elsewhere may diminish the value of our intellectual property or narrow the scope of our patent protection. Even if we are able to obtain patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. We may also fail to take the required actions or pay the necessary fees to maintain our patents.

Moreover, any of our pending applications may be subject to a third party pre-issuance submission of prior art to the U.S. Patent and Trademark Office (“USPTO”), the European Patent Office , the Intellectual Property Office in the United Kingdom (“IPO”), IP Australia, the Australian Government agency that administers intellectual property rights and legislation in Australia, and/or any patents issuing thereon may become involved in opposition, derivation, reexamination, inter parties review, post grant review, interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, and allow third parties to commercialize our technology or products and compete directly with us, without payment to us. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to exploit our intellectual property or develop or commercialize current or future drug candidates.

The issuance of a patent is not conclusive as to the inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States, the European Union, Australia and elsewhere. Such challenges may result in loss of ownership or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit the duration of the patent protection of our technology and products. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

In addition, other companies may attempt to circumvent any regulatory data protection or market exclusivity that we obtain under applicable legislation, which may require us to allocate significant resources to preventing such circumvention. Such developments could enable other companies to circumvent our intellectual property rights and use our clinical trial data to obtain marketing authorizations in the European Union, Australia and in other jurisdictions. Such developments may also require us to allocate significant resources to prevent other companies from circumventing or violating our intellectual property rights.

Intellectual property rights of third parties could adversely affect our ability to commercialize our drug candidates, such that we could be required to litigate with or obtain licenses from third parties in order to develop or market our drug candidates.

Our commercial success may depend upon our future ability and the ability of our potential collaborators to develop, manufacture, market and sell our drug candidates without infringing valid intellectual property rights of third parties.

If a third-party intellectual property right exists it may require the pursuit of litigation or administrative proceedings to nullify or invalidate the third-party intellectual property right concerned, or entry into a license agreement with the intellectual property right holder, which may not be available on commercially reasonable terms, if at all.

Third-party intellectual property right holders, including our competitors, may bring infringement claims against us. We may not be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims or otherwise resolve such claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from, or experience substantial delays in, marketing our drug candidate.

If we fail to settle or otherwise resolve any such dispute, in addition to being forced to pay damages, we or our potential collaborators may be prohibited from commercializing any drug candidates we may develop that are held to be infringing, for the duration of the patent term. We might, if possible, also be forced to redesign our formulations so that we no longer infringe such third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we collaborate with various organizations and academic institutions on the advancement of our technology and drug candidates, we may, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite these contractual provisions, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by potential competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, discovery by a third party of our trade secrets or other unauthorized use or disclosure would impair our intellectual property rights and protections in our drug candidates.

In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us. In other cases, we may share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the USPTO and other governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The USPTO and various corresponding governmental patent agencies outside of the United States require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.

We may become involved in lawsuits to protect and defend our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents or other intellectual property and we may inadvertently infringe the patent or intellectual property of others. To counter infringement or unauthorized use, we may be required to file claims, and any related litigation and/or prosecution of such claims can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid in whole or in part, unenforceable, or construe the patent’s claims narrowly allowing the other party to commercialize competing products on the grounds that our patents do not cover such products.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. The effects of patent litigation or other proceedings could therefore have a material adverse effect on our ability to compete in the marketplace.

Confidentiality and invention assignment agreements with our employees, advisors and consultants may not adequately prevent disclosure of trade secrets and protect other proprietary information.

We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and/or confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and/or confidential know-how can be difficult to maintain as confidential.

To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, advisors and consultants to enter into confidentiality and invention assignment agreements with us. However, current or former employees, advisors and consultants may unintentionally or willfully disclose our confidential information to competitors, and confidentiality and invention assignment agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality and invention assignment agreements may vary from jurisdiction to jurisdiction.

Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how.

Intellectual property rights do not address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

We may face difficulties with protecting our intellectual property in certain jurisdictions, which may diminish the value of our intellectual property rights in those jurisdictions.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and the European Union, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our collaboration partners encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in those jurisdictions.

Some countries in Europe and China have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are, or any of our licensors is, forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position or commercial advantage may be impaired and our business and results of operations may be adversely affected.

Price controls may be imposed in markets in which we operate, which may negatively affect our future profitability.

In some countries, particularly EU member states, Japan, Australia and Canada, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we or our collaborators may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our drug candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our drug candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, revenues or profitability could be harmed.

Risks Relating to this Offering

The trading price of the Shares may be volatile, and purchasers of the Shares could incur substantial losses.

The market price of our Shares may be subject to significant fluctuations due to factors specific to us, to changes in analysts’ recommendations and earnings estimates, to potential arbitrage between our Australian-listed Shares and Nasdaq-listed Shares, to changes in exchange rates, or to factors affecting the biopharmaceutical industry or the securities markets in general. Market fluctuations, as well as general political and economic conditions, such as a recession, interest rate or currency fluctuations, could adversely affect the market price of our securities.

We may experience a material decline in the market price of our shares, regardless of our operating performance. Therefore, a holder of our Shares may not be able to sell those Shares at or above the price paid by such holder for such Shares. Price declines in our Shares could result from a variety of factors, including many outside our control. These factors include:

In addition, volatility and low market price of our Shares may adversely impact investors’ interest in our securities. A decline in investors’ interest may prompt further volatility and decrease in market price.

There has been no prior active market for the Shares in the United States and an active and liquid market for our securities may fail to develop.

While our Shares have been listed on the ASX prior to this offering, there has been no active public market on a U.S. national securities exchange for our Shares. Although we have applied for the listing of the Shares on Nasdaq, an active trading market for the Shares may never develop or be sustained following this offering. The initial offering price of the Shares will be determined through negotiations between us and the underwriter and will be based, in part, on prevailing market prices of our Shares on the ASX, after taking into account market conditions and other factors. This offering price may not be indicative of the market price of the Shares after this offering. In the absence of an active trading market for the Shares, investors may not be able to sell their Shares at or above the offering price or at the time that they would like to sell.

If we are or become a passive foreign investment company (“PFIC” ), then that would subject our U.S. investors to adverse tax rules.

Holders of our Shares who are U.S. taxpayers (a U.S. Holder) will be subject to particular income tax rules if we are a passive foreign investment company (“PFIC”). These rules could result in a reduction in the after-tax return to a U.S. Holder of our Shares and reduce the value of our Shares. For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable year in which (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, cash is considered to be an asset that produces passive income.

If we are classified as a PFIC in any year that a U.S. Holder owns Shares, the U.S. Holder will generally continue to be treated as holding Shares of a PFIC in all subsequent years, notwithstanding that we are not classified as a PFIC in a subsequent year. Dividends received by the U.S. Holder and gains realized from the sale of our Shares would be taxed as ordinary income and subject to an interest charge. We urge U.S. investors to consult their own tax advisors about the application of the PFIC rules and certain elections that may help to minimize adverse U.S. federal income tax consequences in their particular circumstances.

The requirements of being a public company may strain our resources and divert management’s attention and if we are unable to maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.

As a U.S. publicly traded company, we will be subject to the reporting requirements of the the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of Nasdaq and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file certain reports with respect to our business and results of operations. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight are required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and results of operations.

The Sarbanes-Oxley Act requires that we assess the effectiveness of our internal control over financial reporting annually and disclosure controls and procedures quarterly. If we identify material weaknesses in future periods or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be restated, we could be subject to investigations or sanctions by regulatory authorities, which would require additional financial and management resources, and the market price of our Shares could decline.

We are eligible to be treated as an “emerging growth company” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Shares less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, (ii) reduced disclosure obligations regarding executive compensation in this registration statement and periodic reports and proxy statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Shares held by non-affiliates exceeds US$700 million as of July 31, 2022, or if we have total annual gross revenue of US$1.235 billion or more during any fiscal year before that time, in which case we would no longer be an emerging growth company as of the following October 31. Additionally, if we issue more than US$1.0 billion in non-convertible debt during any three-year period before July 31, 2022, we would cease to be an emerging growth company immediately. We cannot predict if investors will find our Shares less attractive because we may rely on these exemptions. If some investors find our Shares less attractive as a result, there may be a less active trading market for our Shares, and the stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the extended transition period allowed for emerging growth companies for complying with new or revised accounting guidance as allowed by Section 107 of the JOBS Act and Section 7(a)(2)(B) of the Securities Act.

There is no public market for the Pre-Funded Warrants or the Share Purchase Warrants being offered by us in this offering.

There is no established public trading market for the Pre-Funded Warrants or the Share Purchase Warrants and we do not expect a market to develop. In addition, we do not intend to apply to list the Pre-Funded Warrants or the Share Purchase Warrants on any national securities exchange or other nationally recognized trading system, including Nasdaq. Without an active market, the liquidity of the Pre-Funded Warrants and the Share Purchase Warrants will be limited, which may adversely affect their value.

Holders of Pre-Funded Warrants or Share Purchase Warrants purchased in this offering will have no rights as shareholders until such holders exercise their Pre-Funded Warrants or Share Purchase Warrants and acquire our Shares.

Until holders of Pre-Funded Warrants or Share Purchase Warrants acquire our Shares upon exercise thereof, such holders will have no rights with respect to our Shares underlying the Pre-Funded Warrants and Share Purchase Warrants. Upon exercise of the Pre-Funded Warrants or Share Purchase Warrants, the holders will be entitled to exercise the rights of a shareholder only as to matters for which the record date occurs after the exercise date.

The Share Purchase Warrants and Pre-Funded Warrants are speculative in nature.

The Share Purchase Warrants and Pre-Funded Warrants do not confer any rights of Share ownership on its holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire Shares at a fixed price for a limited period of time. Following this offering, the market value of the Share Purchase Warrants and Pre-Funded Warrants, if any, is uncertain and there can be no assurance that the market value of the Share Purchase Warrants and Pre-Funded Warrants will equal or exceed their imputed offering price. The Share Purchase Warrants and Pre-Funded Warrants will not be listed or quoted for trading on any market or exchange. There can be no assurance that the market price of the Shares will ever equal or exceed the exercise price of the Share Purchase Warrants and Pre-Funded Warrants, and consequently, it may not ever be profitable for holders of the Share Purchase Warrants and Pre-Funded Warrants to exercise the Share Purchase Warrants or the Pre-Funded Warrants.

You will experience immediate and substantial dilution in the net tangible book value of the Shares you purchase in this offering.

The initial public offering price of the Shares is substantially higher than the net tangible book value per Share immediately after this offering. If you purchase Shares in this offering, you will suffer immediate dilution of US$            per Share, or US$            per Share if the underwriter exercises its option to purchase additional shares in full, representing the difference between our as adjusted net tangible book value per Share or per Share after giving effect to the sale of Shares in this offering and the initial public offering price of US$            per Share. See “Dilution.”

Our issuance of additional Shares in connection with financings, acquisitions, investments, or otherwise will dilute all other Shareholders.

We expect to issue additional Shares in the future that may result in dilution to all other Shareholders. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. While we will be subject to the constraints of the ASX Listing Rules regarding the percentage of our capital that we are able to issue within a 12-month period (subject to applicable exceptions), any such issuances of additional Shares may cause Shareholders to experience significant dilution of their ownership interests and the per Share value of our Shares to decline.

As long as we remain subject to the rules of the ASX and Nasdaq, we will be unable to access equity capital without shareholder approval if such equity capital sales would result in an equity issuance above regulatory thresholds and, consequently, we could be unable to obtain financing sufficient to sustain our business if we are unsuccessful in soliciting requisite shareholder approvals.

Our ability to access equity capital is currently limited by ASX Listing Rule 7.1, which provides that a company must not, subject to specified exceptions, issue or agree to issue during any consecutive 12-month period any equity securities, or other securities with rights to conversion to equity, if the number of those securities in aggregate would exceed 15% of the number of ordinary securities on issue at the commencement of that 12-month period, without first obtaining approval from the holders of its ordinary securities. Therefore, if the equity we seek to issue is greater than 15% of the number of Shares on issue at the time of issuance, we will require shareholder approval via an extraordinary general meeting or annual general meeting prior to the new capital issue, unless an exception applies.

Our equity issuances will be limited by ASX Listing Rule 7.1 as long as we continue to be listed on the ASX and this constraint may prevent us from raising the full amount of equity capital needed for operations without prior shareholder approval.

Our ability to access equity capital is also limited by Nasdaq rule 5625(d), which provides that shareholder approval is required prior to a 20% issuance at a price that is less than the minimum price.  Nasdaq defines “20% issuance” for purposes of Rule 5635(d) as a private placement transaction involving the sale, issuance, or potential issuance by the issuer of Shares (or securities convertible into or exercisable for Shares), which, alone or together with sales by officers, directors, or substantial shareholders (persons with more than 5% of the number of securities or voting power outstanding) of the issuer, equals 20% or more of the Shares or 20% or more of the voting power outstanding before the issuance. To the extent we remain a foreign private issuer at the time of such issuance, this rule may not apply to us.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds that we receive from this offering as well as of our existing cash, and we may spend or invest these funds in a way with which our shareholders or holders of the Shares disagree. Our failure to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from the offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

The dual listing of our Shares following this offering may negatively impact the liquidity and value of the Shares.

Following this offering and after the Shares are listed on Nasdaq, our Shares will continue to be listed on the ASX. We cannot predict the effect of this dual listing on the value of our Shares. However, the dual listing of our Shares may dilute the liquidity of these securities in one or both markets and may negatively impact the development of an active trading market for the Shares in the United States. The price of the Shares could also be negatively impacted by trading in our Shares on the ASX.

We are subject to risks associated with currency fluctuations, and changes in foreign currency exchange rates could impact our results of operations.

Our Shares are quoted in Australian dollars on the ASX and the Shares listed on Nasdaq will be quoted in U.S. dollars. In the past year, the Australian dollar has generally weakened against the U.S. dollar; however, this trend may not continue and may be reversed. As such, any significant change in the value of the Australian dollar may have a negative effect on the value of the Shares in U.S. dollars. In addition, if the Australian dollar weakens against the U.S. dollar, then, if we decide to convert our Australian dollars into U.S. dollars for any business purpose, appreciation of the U.S. dollar against the Australian dollar would have a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert U.S. dollars we receive from this offering into Australian dollars for our operations, appreciation of the Australian dollar against the U.S. dollar would have a negative effect on the Australian dollar amount we would receive from the conversion.

Risks Relating to Our Location in Australia

Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our shares.

We are incorporated in Australia and are subject to the takeover laws of Australia. Amongst other things, we are subject to the Australian Corporations Act 2001 (the “Corporations Act”). Subject to a range of exceptions, the Corporations Act prohibits the acquisition of a direct or indirect interest in our issued voting shares if the acquisition of that interest will lead to a person’s or someone else’s voting power in us increasing from 20% or below to more than 20% or increasing from a starting point that is above 20% and below 90%. Exceptions to the general prohibition include circumstances where the person makes a formal takeover bid for us, if the person obtains shareholder approval for the acquisition or if the person acquires no more than 3% of the voting power of us in any rolling six-month period. Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our Shares.

Holders of our Shares may have difficulty in effecting service of process in the United States or enforcing judgments obtained in the United States.

Holders of our Shares may have difficulties enforcing, in actions brought in courts in jurisdictions located outside the U.S., liabilities under U.S. securities laws. In particular, if such a holder sought to bring proceedings in Australia based on U.S. securities laws, the Australian court might consider:

Holders of our Shares may also have difficulties enforcing in courts outside the U.S. judgments obtained in the U.S. courts against any of our directors and executive officers or us, including actions under the civil liability provisions of the U.S. securities laws.

As a foreign private issuer whose shares are listed on Nasdaq, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.

As a foreign private issuer whose shares are listed on Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the Nasdaq Marketplace Rules. As an Australian company listed on Nasdaq, we may follow home country practice with regard to, among other things, the composition of the board of directors, director nomination process, compensation of officers and quorum at shareholders’ meetings. In addition, we may follow Australian law instead of the Nasdaq Marketplace Rules that require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the shares or assets of another company. As a foreign private issuer that has elected to follow a home country practice instead of Nasdaq requirements. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance rules that are applicable to U.S. companies.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company.

We are a foreign private issuer (as defined in the SEC’s rules) and, consequently, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies under the Exchange Act. In addition, our senior management and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently make periodic filings with respect to our listing on the ASX and expect to file financial reports on an annual and semi-annual basis, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year. Accordingly, there may be less publicly available information concerning our company than there would be if we were not a foreign private issuer.

Any loss of our foreign private issuer status in the future could result in significant additional cost.

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. For example, if 50% or more of our securities are held by U.S. residents and the majority of our the executive offices or directors are United States citizens or residents, we could lose our foreign private issuer status.

U.S. investors may have difficulty enforcing civil liabilities against our company, our directors or members of senior management and the experts named in this prospectus.

Certain members of our senior management and board of directors named in this prospectus are non-residents of the United States, and a substantial portion of the assets of such persons are located outside the United States. As a result, it may be impracticable to serve process on such persons in the United States or to enforce judgments obtained in U.S. courts against them based on civil liability provisions of the securities laws of the United States. Even if you are successful in bringing such an action, there is doubt as to whether Australian courts would enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Australia or elsewhere outside the United States. An award for monetary damages under U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in Australia will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and Australia do not currently have a treaty or statute providing for recognition and enforcement of the judgments of the other country (other than arbitration awards) in civil and commercial matters.

As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management or our directors than would shareholders of a corporation incorporated in a jurisdiction in the United States. In addition, as a company incorporated in Australia, the provisions of the  Corporations Act  regulate the circumstances in which shareholder derivative actions may be commenced which may be different, and in many ways less permissive, than for companies incorporated in the United States.

USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately US$    million, based upon an assumed initial public offering price of US$     per Share Unit (or US$    per Pre-Funded Warrant Unit), without deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming none of the Warrants issued in this offering are exercised. If the underwriter exercises its over-allotment option to purchase additional Shares and/or Pre-Funded Warrants from us in full, we estimate that the gross proceeds will be approximately US$    million without deducting underwriting discounts and commissions and estimated offering expenses payable by us.

However, due to the uncertainties inherent in the product development process, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering that may be used for the above purposes. Our management will have broad discretion over the use of the net proceeds from this offering. The amounts and timing of our expenditures will depend upon numerous factors including the results of our research and development efforts, the timing and success of preclinical studies and any ongoing clinical trials or clinical trials we may commence in the future, the timing of regulatory submissions and the amount of cash obtained through future collaborations, if any.

We believe opportunities may exist from time to time to expand our current business through acquisitions or in-licensing of complementary companies, medicines or technologies. While we have no current agreements, commitments or understandings for any specific acquisitions or in-licensing at this time, we may use a portion of the net proceeds for these purposes.

DIVIDEND POLICY

We have never declared or paid any dividends on our Shares or any of our securities. We intend to retain any earnings for use in our business and do not currently intend to pay cash dividends on our Shares. Dividends, if any, on our outstanding Shares will be declared by and subject to the discretion of our board of directors, and subject to Australian law.

Any dividend we declare will be paid to the holders of our Shares, to the extent permitted by applicable law and regulations, less the fees and expenses payable under the deposit agreement.

CAPITALIZATION

The following table sets forth our cash and our capitalization as of           , 2022, after giving effect to the Share Consolidation:

You should read this information in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus, the information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained elsewhere in this prospectus.

DILUTION

Investors purchasing Share Units and/or Pre-Funded Warrant Units in this offering will experience immediate and substantial dilution in the as adjusted net tangible book value of their Shares. Dilution in as adjusted net tangible book value represents the difference between the assumed public offering price per Share and the as adjusted net tangible book value per Share immediately after the offering.

The historical net tangible book value of our Shares as of June 30, 2022 was US$     or  US$     per Share after giving effect to the Share Consolidation. Historical net tangible book value per Share represents our total tangible assets (total assets less intangible assets) less total liabilities divided by the number of Shares outstanding as of that date after giving effect to the Share Consolidation.

After giving effect to the sale of Share Units or Pre-Funded Warrant Units in this offering and excluding the Shares issuable upon the exercise of the Share Purchase Warrants being offered in this offering at the assumed offering price of US$     per Share Unit (US$   per Pre-Funded Warrant Unit), and without deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of June 30, 2022 would have been US$     , or US$      per Share. The assumed offering price may not be the final price of this offering and will be adjusted based on the actual offering price and other terms of the offering determined at pricing. This amount represents an immediate increase in net tangible book value of US$     per share to our existing shareholders and an immediate dilution in net tangible book value of approximately US$     per share to new investors purchasing our Shares in this offering.

The following table illustrates this dilution on a per Share basis, assuming all Shares outstanding as of           , 2022, and after giving effect to the Share Consolidation:

If the underwriter exercises its option to purchase      additional Shares and/or Share Purchase Warrants, the as adjusted net tangible book value of our Shares after this offering would be US$      or US$     per share representing an immediate increase in net tangible book value of approximately US$     per share to existing shareholders and an immediate dilution of US$     per share to the investors in this offering, in each case assuming an initial public offering price of US$       per Share, without deducting the underwriting discount and estimated offering expenses payable by us.

The dilution information above is for illustration purposes only. Our as adjusted net tangible book value following the closing of this offering will depend on the actual offering price and other terms of this offering determined at pricing. To the extent that outstanding options or warrants are exercised, you may experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our shareholders.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read together with the section titled “Selected Consolidated Financial Data” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. This discussion includes both historical information and forward-looking information based upon current expectations that involve risk, uncertainties, and assumptions. Our actual results may differ materially from management’s expectations as a result of various factors, including, but not limited to, those discussed in “Risk Factors” and elsewhere in this prospectus.

Overview

We are an Australian biotechnology company that formulates innovative solutions and consumer health care products to provide integrative patient care. We develop targeted fixed-dose combinations of the NanoCelle® delivery platform and various active pharmaceutical ingredients, applying proprietary insights to create long-term value for our shareholders. Our strategy is to expand our market opportunity by gaining United States, United Kingdom, Australian and/or other regulatory approval for our products.  NanoCelle®, our core product offering, is a pharmaceutical-delivery platform which is designed to administer pharmaceutical products using nanoparticles, or small particles ranging between 1 to 100 nanometres in size and undetectable by the human eye.  NanoCelle® is an alternative, and we believe, more effective method of consuming medical products, compared to the traditional methods, which include intravenous, intramuscular, subcutaneous, oral (ingested, and sublingual), rectal, inhalation and transdermal. In addition to developing the NanoCelle® delivery method, we have also developed several drug programs that are specifically designed to be administered through the NanoCelle® technology. Our NanoCelle® delivery method has produced additional drug candidates which share design and CMC processes with our lead candidate, resulting in tolerability profiles that may be similar to our lead product candidate, as well as regulatory agency familiarity, and a consistent multi-target therapeutic approach.

We have experienced net losses in every period since our inception in 2012.  We incurred net losses of A$(7,228,814) and A$(12,402,829) for the years ended June 30, 2022, and 2021, respectively.  As of June 30, 2022, we had accumulated losses of A$(59,529,093).  We anticipate that we will continue to incur significant losses for the foreseeable future as our operating expenses and capital expenditures increase substantially due to our continued investment in research and development as well as in sales and marketing activities and as we hire additional employees over the coming years.  Furthermore, upon closing of this offering, we expect to incur additional expenses associated with operating as a U.S. public company, including significant legal, accounting, investor relations and other expenses.

For more information regarding our business and operations, see the section entitled “Business” below.

Components of Operating Results

Sales

Our revenues from continuing operations were A$1,536,366 and A$732,727 for the years ended June 30, 2022, and 2021, respectively.

Currently, the vast majority of our business activity is in Australia.  As a result, our revenues are derived mainly from our patient special access and compassionate use programs for our NanaBis^™ and NanoCBD^™ products.  This is a significant change, as in comparative year sales, a larger proportion was attributed to nutraceuticals.  The other revenue we report in our accounts is the cash rebate from the Australian Federal Government for research and development spend pursuant to the Australian Research and Development Tax Incentive.

Cost of Sales

Our cost of sales was A$336,292 and A$16,425 for the years ended June 30, 2022, and 2021, respectively.  Most of the cost of sales expenses consists of the cost of materials and cost of shipments of the materials.

For the year ended June 30, 2022, cost of sales included costs of inventory for nutraceuticals up until November 2021, including any write-offs and sale of inventory to PharmaCare in connection with the Nutraceutical License.

Research and development expenses

Our research and development expenses were A$1,503,443 and A$2,102,751 for the years ended June 30, 2022, and 2021, respectively.

We recognize research and development expenses as we incur them.

Our research and development efforts relating to our products have been financed in part through research and development grants in an aggregate amount of A$3,688,000 received from the Australian Federal Government, as of June 30, 2022, which provides us with a cash grant each year in an amount based on the total amounts expensed to research and development related costs.  Currently, the annual grants are in an amount equal to approximately 43.5% of qualifying research and development expenses. 

Personnel expenses

Our sales and personnel expenses were A$7,877,497 and A$6,016,686 for the years ended June 30, 2022, and 2021, respectively.

Sales and personnel expenses include the following:

General and administrative expenses

Our general and administrative expenses were A$3,952,633 and A$3,217,213 for the years ended June 30, 2022, and 2021, respectively.

General and administrative expenses consist primarily of personnel costs, including share-based compensation related to directors and employees, facility costs, patent application and maintenance expenses, and external professional service costs, including legal, accounting, audit, finance, business development, investor relations and human resource services, and other consulting fees.

We anticipate that our general and administrative expenses will increase in the future as we increase our administrative headcount and infrastructure to support our continued research and development programs and the potential commercialization of our products. We also anticipate that we will incur increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance premiums, director compensation, and other costs associated with being a public company.

Finance expenses

Our finance expenses were A$101,916 and A$139,065 for the years ended June 30, 2022, and 2021, respectively.

The finance expenses consist primarily of exchange rate differences expenses and interest costs.

Income Taxes

As of June 30, 2022, our net operating loss carry forwards for tax purposes was A$1.642 million.  We anticipate that we will continue to generate losses for the foreseeable future and that we will be able to carry forward these losses for tax purposes indefinitely to future taxable years, subject to meeting certain requirements in the tax loss integrity rules each year.  Accordingly, subject to meeting those requirements, we do not expect to pay taxes in Australia until we have taxable income after the full utilization of our carry forward tax losses.

Results of Operations

Our results of operations have varied in the past and can be expected to vary in the future due to numerous factors.  We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.

Below is a summary of our results of operations for the periods indicated:

Year Ended June 30, 2022, Compared to Year Ended June 30, 2021

Sales increased by A$803,639, or 109%, to A$1,536,366 for the year ended June 30, 2022, compared to A$737,727 for the year ended June 30, 2021. The increase resulted mainly from an improvement in sales of nutraceuticals prior to divestment to PharmaCare.

Cost of sales increased by A$319,867, or 1947%, to A$336,292 for the year ended June 30, 2022, compared to A$16,425 for the year ended June 30, 2021.  The increase resulted mainly from inventory adjustments at year end.  For the year ended June 30, 2022, cost of sales included a write-down of inventory and sale of remaining nutraceutical inventory to PharmaCare.

Research and development expenses decreased by A$599,308, or 29%, to A$1,503,443 for the year ended June 30, 2022, compared to A$2,102,751 for the year ended June 30, 2021.  The increase resulted mainly from reduced research and development and personnel costs, reduction in payments to third-party CROs and phasing of product development costs into 2023.

General and administrative expenses increased by A$735,420 or 23%, to A$3,952,633 for the year ended June 30, 2022, compared to A$3,217,213 for the year ended June 30, 2021.  The increase resulted mainly from corporate-related costs such as public relations and compliance. We expect these expenses to increase in the future due to global inflationary pressures and as a result of becoming a publicly listed company in the United States.

Other income (expenses) increased by A$1,003,500 or 28%, to A$4,595,792 for the year ended June 30, 2022, compared to A$3,592,292 for the year ended June 30, 2021.  The increase resulted mainly from insurance, post-COVID travel, contractors, and reversal of 2021 provisions, such as doubtful debts.

Total loss from operations of discontinued operations decreased by A$2,733,668 or 99%, to $36,178 for the year ended June 30, 2022, compared to A$2,769,846 for the year ended June 30, 2021.  The decrease resulted mainly from improvement in operational expenditure of nutraceuticals prior to divestment.

Net loss decreased by A$5,174,015, or 42%, to A$7,228,814 for the year ended June 30, 2022, compared to A$12,402,829 for the year ended June 30, 2021. The increase was mainly the result of improvement in operational expenditure outgoings, and reversal of provisions.

Impact of COVID-19

The global spread of COVID-19 led many countries to impose stringent limitations on movement, gatherings, transit of passengers and goods and to close the borders between countries. The responses of governments have notably impacted many economies as well as capital markets worldwide. Our company was able to maintain almost ordinary levels of operations during the period. We were affected by service providers lack of availability and extended times of delivery from suppliers abroad. Future possible impact of COVID-19 will depend on future developments with the pandemic which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions by governments around the world to contain COVID-19 or treat its impact, among others.

Going Concern

The Company’s consolidated financial statements are prepared using the U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  On June 30, 2022 and 2021, the Company had A$5,191,031 and A$13,434,762 in cash and A$6,748,692 and A$13,866,342 in working capital, respectively.  For the years ended June 30, 2022, and 2021, the Company had a net loss of A$7,228,814 and A$12,402,829, respectively.  Continued losses may adversely affect the liquidity of the Company in the future.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and in profitable future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Liquidity and Capital Resources

Overview

Though we do have sales from our products, we are primarily in research and product development phase and do not generate significant revenue, except from research and development Australian federal grants special access pre-registration schemes.  Accordingly, we have suffered recurring losses from operations.  Our operations have been funded substantially through capital equity raising. Our focus is on raising capital through equity financings to fund future clinical trials.

Until we can generate significant recurring revenues, profit and cash flow provided by operating activity, we expect to satisfy future cash needs through debt or equity financings as well as governmental grants and proceeds from exercises of options and warrants. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.

The table below shows a summary of our cash flows for the periods indicated:

Year Ended June 30, 2022, Compared to Year Ended June 30, 2021

Net cash provided by (used in) operating activities

Net cash used in operating activities decreased by A$938,132, or 9%, to A$(9,410,955) for the year ended June 30, 2022, compared to A$(10,349,087) for the year ended June 30, 2021. This increase was mainly due to the impact of the Nutraceutical License in October 2021.

Net cash used in investing activities

Net cash (used in) provided by investing activities increased by A$1,828,079, or 22%, to A$1,744,775 for the year ended June 30, 2022, compared to A$(83,304) for the year ended June 30, 2021.  This increase was mainly due to the Company receiving proceeds from the disposal of continued operations in the amount of $1,775,910.

Net cash used in financing activities

Net cash (used in) provided by financing activities increased by A$15,382,742, or 104%, to A$572,282 for the year ended June 30, 2022, compared to A$(14,810,460) for the year ended June 30, 2021.  This increase was due to a capital raise undertaken in Australia, with ASX, in 2021.

We have incurred losses and cash flow deficits from operations since our inception, resulting in accumulated losses as of June 30, 2022, of A$59,529,093.  We anticipate that we will continue to incur net losses for the foreseeable future. To meet future capital needs, we would need to raise additional capital through equity or debt financing or other strategic transactions.  We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate.

Our future capital requirements will depend on many factors, including, but not limited to:

Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensing and/or co-developing applications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available on favourable terms, or at all, we may be required to delay, reduce the scope of or eliminate research or development efforts or plans for commercialization with respect to our products and make necessary change to our operations to reduce the level of our expenditures in line with available resources.

We are a development early-stage biotechnology company, and it is not possible for us to predict with any degree of accuracy the outcome of our research and development efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are described herein.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of financial risks, which result from our financing, operating, and investing activities. The objective of financial risk management is to contain, where appropriate, exposures in these financial risks to limit any negative impact on our financial performance and position. Our main financial instruments are our cash and other receivables, trade, and other payables. The main purpose of these financial instruments is to raise finance for our operations. We actively measure, monitor, and manage our financial risk exposures by various functions pursuant to the segregation of duties and principals. The risks arising from our financial instruments are mainly credit risk and currency risk. The risk management policies employed by us to manage these risks are discussed below.

Interest Rates

We believe the impact of increased interest rates on our Company will be minimal as the Company does not carry financial debt. However, the increased interest rates may impact the USD, especially as compared to the AUD, thus having a potential impact on our consolidating expenditure. Further, the increase in interest rates may benefit our savings deposits that are held in AUD.

Inflation

The increase in inflation may have an impact on our supply chain, product manufacturing costs and staffing costs.  As the U.S. Federal Reserve interest rates increase at a faster pace than AU Reserve Bank, the Company may be impacted from an exchange rate perspective.

Credit risk

Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date.  We closely monitor the activities of our counterparties and control the access to our intellectual property which enables us to ensure the prompt collection.  Our main financial assets are cash as well as trade receivables and other receivables and represent our maximum exposure to credit risk in connection with our financial assets.  Wherever possible and commercially practical, we hold cash with major financial institutions in Australia.

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.  Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not our functional currency.  We are exposed to foreign exchange risk arising from currency exposure resulting primarily from the majority of our expenses being denominated in Australian dollars, although some of our expenses are U.S. dollar-derived.  Our policy is not to enter into any currency hedging transactions.

Concentration of Credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Liquidity risks

Liquidity risk is the risk that arises when the maturity of assets and the maturity of liabilities do not match. An unmatched position potentially enhances profitability, but it can also increase the risk of loss.  We have procedures to minimize such loss by maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.  As of June 30, 2022, we have a negative working capital.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Emerging Growth Company Status

We qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

Critical Accounting Estimates and Recent Accounting Pronouncements

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of equity issued for services, valuation of equity associated with convertible debt, the valuation of derivative liabilities, and the valuation of deferred tax assets. Actual results could differ from these estimates.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Update  2014-09, “Revenue from contracts with customers,” (Topic 606). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company’s main revenue stream is from product sales. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.

Sale of Nutraceuticals

Sale of goods revenue is recognized at the point of sale, which is at the time when the customer’s orders are shipped. Amounts disclosed as revenue are net of sales returns and trade discounts.

Discounts, promotional and other rebates

The sale of goods revenue is net of any discounts, rebates and any contributions to customers towards promotional activities.

Fair Value Measurements

Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements, clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3: Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The estimated fair value of certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

Fair Value of Financial Instruments

ASC subtopic 825-10, Financial Instruments requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Stock Based Compensation

The Company records stock-based compensation in accordance with the provisions of Financial Accounting Standards Board (“FASB”) ASC Topic 718, “Accounting for Stock Compensation,” which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. In accordance with guidance provided under ASC Topic 718, the Company recognizes an expense for the fair value of its stock awards at the time of grant and the fair value of its outstanding stock options as they vest, whether held by employees or others. During the twelve months ended June 30, 2022, and 2021, the Company recorded A$77,367 and A$619,836, respectively, in stock-based compensation expense.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Commitments and Contingencies

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of June 30, 2022, and 2021, the Company is not aware of any contingent liabilities that should be reflected in the consolidated financial statements.

BUSINESS

Overview

Medlab Clinical Ltd. is a company aiming to disrupt the multi-billion-dollar market of delivery platform technologies for pharmaceutical products that are designed to treat pain and mental health. We were incorporated in Australia in April 2014, and in 2015 listed on the ASX under the symbol “MDC.” Our corporate headquarters are located in Australia, and we maintain offices in the United States and Europe.

We strongly believe there are considerable unmet needs of patients in our target markets, and that the current drug intervention therapies that are available can be significantly improved.  We believe that we are able to provide these improvements to patients through product that we have and are developing.  These products are discussed below.

Our Lead Product Candidate: NanoCelle®

NanoCelle®, our core product offering, is a pharmaceutical-delivery platform which is designed to administer pharmaceutical products using nanoparticles, or small particles ranging between 1 to 100 nanometers, in size and undetectable by the human eye.  NanoCelle® is an alternative, and we believe more effective, method of consuming medical products, compared to traditional methods. NanoCelle® can administer pharmaceutical products in the form of either an oro-buccal spray, nasal spray, or a topical gel, cream, or spray.  NanoCelle® is designed to allow for significant improvements in patient care and quality of life and significantly reduced side effects. Our primary and only commercially available delivery platform, NanoCelle® is now patented until 2036 in several countries including Australia, Canada, the European Union Countries, Hong Kong, New Zealand, the United States, the United Kingdom and with a pending patent application in Singapore, until 2036. In developing NanoCelle®, we have placed a high research priority on tolerability, including not using harmful toxic products such as heavy metals or gases. To date, NanoCelle® has administered over 350,000 doses of pharmaceutical products to patients through its delivery platform through via compassionate use programs in the United Kingdom and Australia or clinical trials and/or sale of approved medicines, approved by such governments or applicable pharmaceutical regulatory agents. The term “compassionate use” refers to a governmentally-sanctioned expedited pathway for a patient with an immediately life-threatening condition or serious disease or condition to gain access to an investigational medical product for treatment outside of clinical trials when no comparable or satisfactory alternative therapy options are available.

Our Other Drug Product Candidates, both in-market and in-development

In addition to developing the NanoCelle® delivery method, we have also spearheaded several drug developmental programs that were specifically designed to be administered through the NanoCelle® technology. Our NanoCelle® delivery method has produced additional drug candidates which share design and CMC processes with our lead candidate, resulting in tolerability profiles that may be similar to our lead product candidate, as well as regulatory agency familiarity, and a consistent multi-target therapeutic approach. Several of our products are listed, in contrast to being registered, with the ARTG and all medicines that are sold in Australia must either be registered or listed with the ARTG. 

All medicines registered with the ARTG generally are evaluated for efficacy (that the medicine can do what it says it will) before they may be sold in Australia. However, not all listed medicines are evaluated for efficacy. Our registered medicines, such as NanaBis^™, are higher risk and because of this the ARTG fully assesses all registered medicines for safety, quality and efficacy before they go on sale. Registered medicines, which are intended to treat, manage and/or cure one or more conditions, require investment in clinical evidence with no guarantee of success at TGA.   Listed medicines, such as NanoCelle® D3 and NanoCelle® B12, are lower risk and can be purchased off the shelf from pharmacies, health shops, and supermarkets. Listed products, such as complementary medicines and food supplements, are not exposed to the same risks and do not have to undergo the same rigorous regulatory assessments as registered products, but are subject to a random audit after listing. 

As such, since our in-market drug products, are lower risk and do not go through pre-market assessment, they are considered ARTG-listed. Both ARTG-listed and ARTG-registered medicines must be manufactured in a licensed or approved facility in accordance with the principles of good manufacturing practice. There is no requirement under the ARTG for our products to be registered in their present form.

Though we currently have products available to the public, both listed with the ARTG and administered pursuant to United Kingdom and Australian compassionate use programs (or their equivalents), our current goal is to continue to expand our suite of products that are able to be administered through our NanoCelle® delivery platform through continued research and development.

Our mission is to create premier pharmaceutical drugs and therapies and delivery platforms for patients dealing with unmet medical needs, each of which will comply with applicable regulatory requirements, including the FDA, EMA and TGA. We aim to be recognized as a leading specialty drug development company, committed to restoring health and transforming the lives of patients through the development of novel pharmaceutical products and treatments.

Below is a summary of our current products that are being sold in Australia and New Zealand and are expected to be launched in the United Kingdom by the end of October 2022, as well as the potential estimated value in U.S. and other markets:

Below are our drug product candidates that are currently in various stages of regulatory approvals and are not currently listed or approved drug products or available pursuant to any compassionate use program:

MDC2000 is a product targeting major depressive disorders that has been optimized as a single molecule encapsulated in NanoCelle® following clinical studies in 2020. The 2020 studies were closed earlier than projected due to the COVID pandemic.  Based on this optimization, the program has returned to a pre-clinical stage with clinical returns expected in early 2023.

Research and Development

Our current focus is to continue expanding our suite of listed drug products, both in-market and in-development, that are compatible with NanoCelle®, including continually developing our existing products. We currently utilize the Australian Research and Development Tax Incentive, which encourages companies to engage in research and development benefiting Australia, by providing a refundable tax offset which varies depending on the aggregate annual turnover of certain eligible entities for eligible research and development activities.

The Australian federal government provides a cash rebate each year on the total amount expensed that relates to research and development costs. This includes personnel costs, product development costs, Special Access Scheme material expenditures and all clinical trial related activities.  The cash rebate is 43.5% and is provided as a direct payment back to the Company, while revenue is less than $A20 million.

The Company engages a research and development consultant to support the Company in the application process.

Research and development incentive income is based on an accrual from the prior year’s actual research and development claim calculation and is reported at the time of year-end close.  Subsequent adjustment to the accounts is made once the closed financial year’s research and development claim is determined by the AusIndustry, the federal tax authority.

Our Strategy

Our mission is to create premier pharmaceutical drugs and therapies and delivery platforms for patients dealing with unmet medical needs, each of which will be approved by applicable regulatory bodies including the FDA, EMA and TGA. Specifically, we envision the NanoCelle® platforms as a future pinnacle inflexion point in medicine. Drug therapy has played a dramatic role in the increase in human life expectancy and quality, but contains severe limitations relating to dose control, side effects, diminishing values in patient quality of life and ultimately, real, or self-perceived, diminishing patient compliance. Through our patented and proprietary drug delivery platform, NanoCelle®, we are committed to formulating on various drug compounds innovative drug-based solutions to today’s most relevant global health priorities, specifically pain and mental health, while reducing those inherent and existing limitations.

We believe that enhanced medicine delivery platforms that are able to control the rate at which a drug is released and the location in the body where it is released will play a significant role in the administration of pharmaceutical products in the future, and that current delivery methods result in significant and avoidable side effects.

Our strategy is to expand our market opportunity by gaining United States and other regulatory approval for our products. Furthermore, the superior performance we believe we can achieve through our patented drug delivery platform, NanoCelle® will be a key differentiator in the pharmaceutical space. We are seeking to develop a body of clinical and real-world evidence and findings to support the benefits of our products.

In March 2021, we raised A$15 million via a two-tranche placement in a private placement offering (the “March 2021 Offering”). The proceeds from the March 2021 Offering were applied towards funding a pivotal Phase III clinical trial in Australia, the U.S. and the United Kingdom to investigate the analgesic tolerability and exploratory endpoints of our non-opioid analgesic drug candidate delivered via NanoCelle® for the treatment of cancer-induced bone pain (bone metastases).

We develop targeted and scientifically-tested fixed-dose combinations of the NanoCelle® delivery platform and various APIs, applying proprietary insights to create long-term products that we believe will better meet the medical needs of our patients compared to what is currently available and that we believe will create value for our shareholders. Our focus is on clinical indications that we believe represent unmet or inadequately addressed medical needs.

Over the past year, we have made several key strategic achievements and milestones, including:

The Company has currently licensed its commercial IP to the following:

NanoCelle® Technology Transfer Licenses for Manufacturing:

Our Opportunity

The global drug delivery systems market size was valued at US$39.33 billion for 2021. Furthermore, this market is projected to grow from US$39.33 billion in 2022 to US$71.75 billion by 2029, exhibiting a compound annual growth rate of 9.0% during the forecast period. The global COVID-19 pandemic has been unprecedented and staggering, with the market experiencing higher-than-anticipated demand across all regions compared to pre-pandemic levels

We intend to license our intellectual property to certain global strategic partners, including larger, established companies in the biopharma, food and/or cosmetic areas that offer both local and global marketing, sales and distribution capabilities. To maximize our potential return, we are presently engaged in licensing to strategic geographical partners with larger, established companies in the biopharma, food and/or cosmetic areas, who offer both local and global marketing, sales and distribution capabilities.

To achieve our goals, we intend to:

Our Lead Product Candidate: NanoCelle^®

NanoCelle^®

The above illustration provides a nanoscopic view of how NanoCelle® disperses and releases a pharmaceutical product for absorption.

NanoCelle® is a clinically trialed, patented delivery technology utilizing standardized nanoparticles and administered in the forms of either an oro-buccal spray, nasal spray, or a topical gel, cream, or spray. The types of clinical trials that NanoCelle® has conducted includes both disease and healthy population groups with studies conducted for pharmacokinetic, bioequivalence and analgesic tolerability and exploratory endpoints. NanoCelle® is an alternative, and, we believe, more effective means of consuming medications. For example, NanoCelle® would avoid the requirement of swallowing medication for patients who temporarily or permanently are unable to ingest medications by traditional oral consumption.

Via the oro-buccal route of administration, NanoCelle® utilizes nanoparticles ranging from 5 nanometers to 90 nanometers to distribute a compound directly into the blood stream, bypassing first-pass metabolism, a phenomenon in which a drug gets metabolized at a specific location in the body that results in a reduced concentration of the active drug upon reaching its site of action or the systemic circulation. The NanoCelle® platform allows medicines to be delivered via multiple routes that bypass first-pass metabolism, allowing for quicker absorption and greater drug bioavailability. By bypassing the gastrointestinal environment, the drug substance is not subject to extensive degradation as found in other ingestible medicines.

We believe NanoCelle® delivers pharmaceutical products, without several harmful side effects inherent in other existing mediums which traditionally rely on toxic heavy metals or toxins. By changing the drug solubility, we can increase absorption and potentially reduce side effects to the patient. Furthermore, there has been limited evidence of complement activation-related pseudo allergy (CARPA), a stress reaction in blood triggered by nanomedicines and biologicals, in over 350,000 doses of pharmaceutical products dispensed through NanoCelle®.

NanoCelle® Clinical Trial Work

The above image indicates the difference of solubility between NanoCelle® and the generic versions of the product. The solution on the left, Atorvastatin Calcium (or Lipitor) in water, versus a NanoCelle® Atorvastatin. The NanoCelle® Atorvastatin is completely solubilized in water, which results in more of the pharmaceutical product being absorbed by the body.

Bioavailability and characteristics of different routes of administration include:

We believe the preferred route of administration is the oro-buccal route, as listed in the above chart, using nanoparticles to infiltrate the buccal membrane contained in the mouth for systemic response, giving, patient convenience, speed and superior bioavailability.  In a 2018 ethics-approved study that was conducted in the Company lab with Company clinical trial staff, NanoCelle® B12 administration was deemed up to five times more absorbable than other industry-approved oral B12 administrations. The other B12 medicines are ARTG-listed and found in Australian pharmacies in the form of tablets, capsules, emulsions and liposomal formulations. This head-to-head comparison involved a single dose in 30 subjects. The ethics-approved study was approved by the human ethics research unit of the IRB.

NanoCelle® contains a nanoscopic fat soluble core surrounded by a water-soluble outer layer. This structure enables the NanoCelle® solution to maintain high concentrations of selected nutrients, while delivering nano-particle sized molecules of the compound for absorption across the appropriate membrane. NanoCelle® is designed to increase absorption rate, compared to other dosage forms such as tablets, capsules, emulsions, or sublingual liposomal spray. The below study demonstrated that when compared to other delivery methods, NanoCelle® exhibited a higher rate of absorption of a pharmaceutical product, with a 28% rate of absorption.

Our patent portfolio for NanoCelle® includes granted patents spread across multiple jurisdictions, including Australia, Canada, the European Union Countries, Hong Kong, New Zealand, the United States, the United Kingdom and with a pending patent application in Singapore, until 2036.

Our Other Drug Product Candidates, both in-market and in-development

Our drug product candidates in-market that utilize the NanoCelle® platform consist of NanoCelle® B12 and NanoCelle® D3 while our drug product candidates in-development consist of NanaBis^™ , NanoCBD^™, MDC2000 and NanoCelle® Nucleic Acid. NanaBis^{™  and} NanoCBD^™ are investigational cannabinoid-based medications. MDC2000 and NanoCelle® Nucleic Acid are other investigational products utilizing the NanoCelle® platform.

TGA approved NanoCelle® Products

While we have received TGA approvals for the following specific products utilizing NanoCelle® technology, the Company is aware that this alone does not guarantee future regulatory approval with other NanoCelle® products.

Investigational NanoCelle® Cannabinoid Medications

In additional to our NanoCelle® delivery platforms, we have developed several proprietary cannabinoid-based medications, each of which we believe can be effectively administered through the NanoCelle®.  Both NanaBis^™   and NanoCBD^™ are unapproved medicines in Australia that are currently undergoing investigation under the Special Access Scheme.

Special Access Scheme

Most therapeutic goods are required to undergo an evaluation for quality, safety and efficacy and be included in the ARTG before they can be supplied in Australia. In recognition that there are circumstances where patients need access to therapeutic goods that are not included in the ARTG, the TGA manages the Special Access Scheme. In addition, the Company can benefit from patients access to therapeutic goods through the Special Access Scheme by gaining access to data that may be used by the Company for future marketing and regulatory purposes.

The Special Access Scheme allows registered health practitioners to access therapeutic goods (such as medicines, medical devices or biologicals) that are not included in ARTG for a single patient via approval by the TGA on a named patient basis. Therapeutic goods that are not included in the ARTG (and are not otherwise exempt from being in the ARTG) are described by us as “unapproved”.

NanaBis^™

We believe the world needs a new, innovative solution towards pain management and reducing the reliance on opioids. We aimed to develop a drug that treats cancer and non-cancer pain to directly compete against the US$42 billion opioid market. NanaBis^™ is a viable, multi-jurisdictional patent-protected non-opioid analgesic, initially designated to treat cancer bone pain. NanaBis^™ consists of a 1:1 mixture of CBD and delta-9- THC in a 1:1 ratio of 9.62 mg/mL CBD to 9.62 mg/mL THC. The formulation is a synthetic, standardized 1:1 blend of CBD and dronabinol, the delta 9 isomer of THC, in a patented submicron particle delivery platform optimized for buccal delivery.

Pain is classified as a chronic illness and results in loss of economic productivity in the United States of approximately US$3.7 trillion each year, per the American Action Forum. In 2010, the National Academy of Sciences estimated that more than 100 million American individuals suffered from pain, resulting in estimated costs from health care and missed work time of approximately US$3.7 trillion per year. Traditionally, pain management has centered around opioid use. Over 81,000 drug overdose deaths occurred in the United States in the 12 months ending in May 2020, the highest number of overdose deaths ever recorded in a 12-month period, according to recent provisional data from the Centers for Disease Control and Prevention.

While overdose deaths were already increasing in the months preceding the COVID-19 pandemic, recent statistics suggest an acceleration of overdose deaths during the pandemic. Synthetic opioids, primarily illicitly manufactured fentanyl, appear to be the primary driver of the increases in overdose deaths. The AMA has embarked on measures to mitigate the opioid overdose epidemic and recognizes that it is imperative to develop a new and safer alternative solution.

On February 23, 2021, we entered into a Project Scope Document contract with Renaissance whereby Renaissance will manufacture NanaBis^™ in accordance with both our instructions and specifications and FDA regulations. On July 9, 2021, we entered into a Master Services Agreement with WEP Clinical Ltd. for the exclusive development and delivery of Named Patient Programs, a type of compassionate use program, relating to the unlicensed supply of NanaBis^™ and NanoCBD^™ to patients in the United Kingdom and European Union. This represented our first partnership to supply our cannabinoid medications outside of our current Australian Special Assess Scheme.

In November 2021, we announced that we received an award of approximately A$12 million from an “Advanced and Overseas Finding” award from the federal government of Australia’s Research and Development Tax Incentive program for the further development of NanaBis^™. We believe that the outcome of the Advance and Overseas Finding will significantly extend the company’s cash runway, as well as its overall financial performance.

Drug Master Files

Drug master files are submissions to the FDA used to provide confidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of human drug products. The FDA will assess the drug master file with the Company’s overall CMC package and clinical data packages. The drug master file forms part of the CMC package, which is a significant FDA requirement for a new drug application.  The confidential information submitted to the FDA via a drug master file will be reviewed when the FDA reviews the application that references the drug master file, such as a NDA or IND. To date, the Company has not made NDA or IND submissions. The Company believes that drug master files are critical as they provide the FDA with necessary information that the Company will use in connection with future drug applications.

Australia’s Research and Development Tax Incentive Program

On October 28, 2021, the Company received acceptance to Australia’s Research and Development Tax Incentive program for overseas research and development expenditures for the 2020-2021, 2021-2022 and 2022-2023 financial years.

To be eligible for the Australian Research and Development Tax Incentive program and the related overseas expenditure, the Company must  have a significant scientific link to the Australian activities.  The Company’s current plan is to use the grant to develop and progress the NanaBis^™ product to Phase III clinical trial studies and to develop the product in U.S. markets.

The award that the Company receives from the federal government of Australia’s Research and Development Tax Incentive program for the further development of NanaBis^™ does not have ongoing conditions or requirements apart from the standard eligibility requirements on the cost to be claimed as research and development rebates.

NanoCBD^™

NanoCBD^™ is a cannabinoid-related product aimed at treating stress and stress-like symptoms and is optimally delivered through our NanoCelle® delivery platform. Our goal is to gain registration for the lawful supply of NanoCBD^™ in Australian pharmacies as an over-the-counter medicine. The NanoCBD^™ program is currently in the pre-clinical phase and seeking approval from the TGA primarily with the FDA secondary. NanoCBD™ has been designed to share nearly all the same components used in NanaBis^™, inclusive of the drug substance, CBD.  NanoCBD^™ is a non-TGA product manufactured in the same FDA facility as NanaBis^™ and available to certain approved patients through the TGA compassionate use program via the  Special Access Scheme.  Its formulation consists of 16.67 mg/mL synthetic CBD as an active ingredient, in a sub-micron spray applied to the oro-buccal membrane.

Historically, occupational stress was a term used to describe “an undesired factor causing discomfort for healthcare workers,” and stress within any workplace being mental, physical and/or emotional. Over the last few years, stress has been applied to scenarios beyond the workplace to include loss of income, loss of home, loss of life, and incarceration. The global stress management treatments market is expected to reach US$20.6 billion by 2024 from US$17.2 billion in 2019 at a compound annual growth rate of 3.7% for the forecast period of 2019 to 2024.

Other Investigational NanoCelle^® Programs

MDC2000 (formerly known as NRGBiotic™)

MDC2000 is a novel pharmaceutical program, formerly known as NRGBiotic^™, used to produce specific compounds in the gastrointestinal tract that reduce symptomatology of major depressive disorders and seeking approval from the FDA. We believe mental health continues to be recognized globally as a growing issue. Like opioids, the global mental health problem was exacerbated by some 25% due to the recent COVID-19 pandemic. Data from the World Health Organization stated that in 2021, the percentage of the global population suffering from depression was 3.8%, and specifically 5.0% of adults. MDC2000 is a product targeting major depressive disorders that has been optimized as a single molecule encapsulated in NanoCelle® following clinical studies in 2020. The 2020 studies were closed earlier than projected due to the COVID pandemic.  Based on this optimization the program has returned to a pre-clinical stage with clinical returns expected in early 2023.

We believe that the currently available antidepressant therapies do not effectively control or cure depressive symptoms. Furthermore, refractory major depressive disorder is characterized by recurrent, long-lasting cycles of severe, often suicidal depressive episodes that do not remit using multiple types of antidepressant therapies.

On July 5, 2021, we announced that the Phase IIA trial results for MDC2000, conducted in the University of Technology, Queensland, fulfilled its objectives and displayed that normalization of major depressive symptoms occurred in eight weeks when MDC2000 was used in conjunction with an anti-depressant medicine.  Furthermore, the clinical evidence highlighted a significant potential for optimization, easing the future regulatory burden and availing the product to a simpler manufacturing requirement.

Our research data found that in approximately 130 Australian patients, a normalization of major depressive symptoms occurred in eight weeks when used in conjunction with an anti-depressant medicine. This was opposed to a placebo and anti-depressant medicine in a randomized, placebo-controlled, Phase II clinical study that was independently carried out by the Queensland University of Technology.

Given that major depressive disorder (“MDD”) is a leading cause of disability worldwide; only 50% of patients with MDD respond to the first trial of an antidepressant, and 36.8% of patients achieve remission after a first course of antidepressant treatment. Patients with MDD who respond partially to an adequate trial of antidepressant often need an augmentation agent to further optimize the response. Our clinical trial with NRGBiotic^™ as an adjunct to pharmacotherapy has provided such an augmentation response in patients diagnosed with MDD.

Our goal is for MDC2000 to become a more scalable product that is supportive of an FDA 505(b)(2) pathway.

Nanocelle® Nucleic Acid

While the program is embryotic, the nasal adherence work for the NanoCelle® platform was conducted using insulin, and the work demonstrated strong properties for nasal adherence and delivery, thereby showing NanoCelle® was appropriate for nasal delivery.

NanoCelle®-Nucleic Acid is expected to be TGA-focused with the intention to utilize the Company’s NanoCelle delivery method for RNA COVID-19 vaccines.  The program goals are to deliver a validated proof of concept for a NanoCelle® nasal delivery of either an mRNA or SiRNA molecule to the Australian Government by year end 2022. Subsequently, it is expected that next steps and potential funding would be made known at this time.

NanoCelle® was optimized to improve small molecules, however, the Nanocelle® Nucleic Acid program provides a unique opportunity to demonstrate the NanoCelle® capabilities in large molecules, ultimately establishing NanoCelle® as a robust and diverse delivery platform for a majority of today’s medicines. Ultimately, the NanoCelle®-Nucleic Acid program will require approvals from the TGA.  Below is a summary of our developmental NanoCelle®-Nucleic Acid-based products:

Nutraceuticals

Since inception, we developed a portfolio of nutraceuticals, or fortified foods or dietary supplements, that provide health benefits in addition to their basic nutritional value. Nutraceuticals is globally valued at approximately US$353 billion, with more people turning toward some form of supplementation as a potential preventative to a future disease state.

Government Regulation

The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

FDA

In the United States, pharmaceutical products are subject to extensive regulation by the FDA pursuant to the Federal Food, Drug and Cosmetic Act, or FDCA. The FDCA and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical products. Failure to comply with applicable FDA or other requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending applications, clinical holds, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, withdrawal of product from the market, injunctions, fines, civil penalties and criminal prosecution.

FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States. The process required by the FDA before a new drug may be marketed in the United States generally involves:

Preclinical and Clinical Development

Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol or protocols for preclinical studies and clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product, chemistry, manufacturing and controls information, and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

In addition to the IND submission process, supervision of human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment and such review may result in some delay before initiation of a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing preclinical studies and clinical trials and clinical study results to public registries.

The preclinical and clinical testing and approval process may take a number of years and the actual time required to obtain approval, if any, may vary substantially based upon the product.  The conduct of the preclinical tests must comply with federal and other regulations and requirements. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, analytical data, any available clinical data or literature to support the use of the investigational drug in humans and a proposed clinical trial protocol. The IND may rely in part on information contained in already approved drug applications, where a 505(b)(2) NDA is planned.

Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. Sponsors of clinical trials generally must register and report, at the NIH-maintained website ClinicalTrials.gov, key parameters of certain clinical trials.  For purposes of an NDA submission and approval, human clinical trials are typically conducted in the following sequential phases, which may overlap or be combined:

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include, among other things, the results of all preclinical, clinical and other testing, including negative or ambiguous results as well as positive findings and a compilation of data relating to the product’s pharmacology, chemistry, manufacture and controls, as well as proposed labeling.

Future changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, typically require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented, which may require us to develop additional data or conduct additional pre-clinical studies and clinical trials.

Section 505(b)(2) NDAs

As an alternative path to FDA approval for modifications to formulations or uses of products previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments to the FDCA and enables the applicant to rely, in part, on the FDA’s previous approval of a similar product, or published literature, in support of its application. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety and effectiveness is scientifically appropriate, it may eliminate the need to conduct certain preclinical studies or clinical trials of the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the approved reference drug. The FDA may then approve the new product candidate for all, or some, of the label indications for which the reference drug has been approved or for any new indication sought by the Section 505(b)(2) applicant.

ANDA Approval Process

The Hatch-Waxman Amendments also established an abbreviated FDA approval process for drugs that are shown to be bioequivalent to drugs previously approved by the FDA through the NDA process. Approval to market and distribute these drugs is obtained by filing an abbreviated new drug application, or ANDA, with the FDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown to be bioequivalent to the listed drug. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are termed abbreviated because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness. Instead, a generic applicant must demonstrate that its product is bioequivalent to the innovator drug. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.

Orange Book Listing

In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant’s product. Upon approval, 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. Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a Section 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA that (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. This last certification is known as a paragraph IV certification. A notice of the paragraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDA or Section 505(b)(2) application refers. The applicant may also elect to submit a “section viii” statement certifying that its proposed label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.

DEA Regulation

The active ingredients in our current drug product candidates are listed by the U.S. Drug Enforcement Administration, or DEA, as controlled substances under the Controlled Substances Act of 1970, or CSA. The CSA and its implementing regulations establish a closed chain of distribution for entities handling controlled substances and impose registration, record-keeping and reporting, security, storage, procurement, manufacturing, distribution, importation, exportation, labeling, packaging, and other requirements on such entities. The DEA requires individuals or entities that handle controlled substances to comply with these requirements to ensure legitimate use and prevent diversion of controlled substances to illicit channels of commerce.

The CSA categorizes controlled substances into one of five schedules, Schedule I, II, III, IV or V, depending on the potential for abuse and physical or psychological dependence. Schedule I substances by definition have a high potential for abuse, have no currently accepted medical use in treatment in the U.S. and lack accepted safety for use under medical supervision. They may not be marketed or sold for dispensing to patients in the U.S. Pharmaceutical products having a currently accepted medical use and that are otherwise approved for marketing may be listed as Schedule II, III, IV, or V substances, with Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential for abuse and dependence. Schedule II substances (as well as substances defined as narcotics in any Schedule) are subject to the strictest requirements for registration, security, recordkeeping and reporting, and the distribution and dispensing of these substances are highly regulated. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist in most situations, unless they are electronically prescribed pursuant to DEA regulations, and may not be refilled. The active ingredients in our product candidates (dexmethylphenidate and dextroamphetamine) are Schedule II controlled substances and are under various restrictions. Consequently, the procurement, manufacturing, shipping, storage, sales and use of the products, if approved, will be subject to a high degree of regulation.

Facilities that manufacture, distribute, import or export controlled substances must register annually with the DEA. 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. Similarly, separate registrations are also required for separate facilities.

The DEA inspects manufacturers, distributors, importers, and exporters to review compliance with the CSA and DEA regulations, including security, record keeping and reporting prior to issuing a controlled substance registration and on a periodic basis. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances handled by the registrant, 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 vaults and inventory reconciliations. Manufacturers and distributors must also submit regular reports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III narcotic substances, and other designated substances. Records must be maintained for the handling of all controlled substances, for example, a complete and accurate record of each substance manufactured, received, sold, delivered, or otherwise disposed of. All DEA registrants must also report any controlled substance thefts or significant losses and must obtain authorization to destroy or dispose of controlled substances. In addition to maintaining an importer and/or exporter registration, importers and exporters of controlled substances must obtain a permit for every import or export of a Schedule I or II substance and a narcotic substance in Schedule III, IV and V. For all other drugs in Schedule III, IV and V, importers and exporters must submit an import or export declaration.

In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. The DEA establishes annually an aggregate quota for how much of a controlled substance may be produced in total in the United States based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. The limited aggregate number of opioids and stimulants that the DEA allows to be produced in the United States each year is allocated among individual companies, which must submit applications annually to the DEA for individual production and procurement quotas. We must receive an annual quota from the DEA in order to produce or procure our Schedule II substance for use in manufacturing of our product and product candidates. 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. Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copies provided to the DEA.

Failure to maintain compliance with applicable DEA requirements, particularly as manifested in loss or diversion or controlled substances, can result in administrative, civil or criminal enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate administrative proceedings to revoke those registrations. In some circumstances, violations could lead to criminal prosecution.

The various states and the District of Columbia, also regulate controlled substances and impose similar licensing, recordkeeping, and reporting requirements on entities that handle controlled substances. Entities must independently comply with the various state requirements in addition to the federal controlled substance requirements.

Other Healthcare Laws and Compliance Requirements

Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation: the federal Anti-Kickback Statute, the federal False Claims Act, HIPAA and similar foreign, federal and state fraud, abuse and transparency laws.

The federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, to induce, or in return for, either the referral of an individual, or the purchase or recommendation of an item or service for which payment may be made under any federal healthcare program. The term remuneration has been interpreted broadly to include anything of value, including stock options. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand, and prescribers and purchasers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but they are drawn narrowly and practices that involve remuneration, such as consulting agreements, that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. 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.

Civil and criminal false claims laws, including the federal False Claims Act, and civil monetary penalty laws, which can be enforced through civil whistleblower or qui tam actions, prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to the federal government, including federal healthcare programs, that are false or fraudulent. For example, the federal False Claims Act prohibits any person or entity 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 claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. 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. In addition, the government may assert that a claim resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

HIPAA created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program, including private third-party payors, and making false statements relating to healthcare matters. A person or entity does not need to have actual knowledge of the healthcare fraud statute implemented under HIPAA or specific intent to violate the statute in order to have committed a violation.

The FDCA addresses, among other things, the design, production, labeling, promotion, manufacturing, and testing of drugs, biologics and medical devices, and prohibits such acts as the introduction into interstate commerce of adulterated or misbranded drugs or devices. The U.S. Public Health Service Act also prohibits the introduction into interstate commerce of unlicensed or mislabeled biological products.

The U.S. federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to CMS information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, such reporting obligations will be expanded to include payments and other transfers of value provided in 2021 to certain other healthcare professionals, including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.

We are also subject to additional similar U.S. state and foreign law equivalents of each of the above federal laws, which, in some cases, differ from each other in significant ways, and may not have the same effect, thus complicating compliance efforts. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to penalties, including, without limitation, civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations.

Data Privacy and Security

Numerous state, federal and foreign laws, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws and regulations, govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. For example, HIPAA, as amended by HITECH, and their respective implementing regulations, imposes privacy, security and breach notification obligations on certain health care providers, health plans, and health care clearinghouses, known as covered entities, as well as their business associates that perform certain services that involve creating, receiving, maintaining or transmitting individually identifiable health information for or on behalf of such covered entities. Entities that are found to be in violation of HIPAA may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. Further, entities that knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA covered entity in a manner that is not authorized or permitted by HIPAA may be subject to criminal penalties.

Even when HIPAA does not apply, according to the FTC, violating consumers’ privacy rights or failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.

In addition, certain state and non-U.S. laws, such as the GDPR govern the privacy and security of personal information, including health-related information, in certain circumstances. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. For example, the CCPA, which went into effect on January 1, 2020, creates new data privacy obligations for covered companies and provides new privacy rights to California residents. In Europe, the GDPR went into effect in May 2018 and introduces strict requirements for processing the personal data of individuals within the EEA. Further, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of personal data from the EEA. For example, on July 16, 2020, the CJEU invalidated the Privacy Shield under which personal data could be transferred from the EEA to United States entities who had self-certified under the Privacy Shield scheme. Moreover, it is uncertain whether the standard contractual clauses will also be invalidated by the European courts or legislature

Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater. Additionally, following the United Kingdom’s withdrawal from the European Union and the EEA, companies have to comply with the GDPR and the GDPR as incorporated into United Kingdom national law, the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, for example around how data can lawfully be transferred between each jurisdiction, which exposes us to further compliance risk.

Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product for which we obtain regulatory approval. Sales of any product, if approved, depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement, if any, for such product by third-party payors. Decisions regarding whether to cover any of our product candidates, if approved, the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. Further, no uniform policy for coverage and reimbursement exists in the United States, and coverage and reimbursement can differ significantly from payor to payor. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations.

As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. In addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biological products, will apply to companion diagnostics.

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. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product that receives approval. Decreases in third-party reimbursement for any product or a decision by a third-party not to cover a product could reduce physician usage and patient demand for the product.

Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of reform proposals to change the healthcare system. There is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by federal and state legislative initiatives, including those designed to limit the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, especially under government-funded health care programs, and increased governmental control of drug pricing.

The ACA, which was enacted in March 2010, substantially changed the way healthcare is financed by both governmental and private insurers in the United States, and significantly affected the pharmaceutical industry. The ACA contains a number of provisions of particular import to the pharmaceutical and biotechnology industries, including, but not limited to, those governing enrollment in federal healthcare programs, a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, the Tax Act was enacted, which, among other things, removes penalties for not complying with ACA’s requirement to carry health insurance, known as the “individual mandate,” effective January 1, 2019. Since the enactment of the Tax Act, there have been additional amendments to certain provisions of the ACA. In December 2019, the U.S. District Court for the Fifth Circuit upheld a ruling by a Texas U.S. District Court Judge that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. On March 2, 2020, the Supreme Court of the United States granted certiorari to hear the appeal of this decision. While various parties, including the Trump administration and CMS have stated that the ruling will have no immediate effect, it is unclear how this and other efforts to repeal and replace the ACA will impact the ACA.

Other legislative changes have been proposed and adopted since the ACA was enacted, including automatic aggregate reductions of Medicare payments to providers of 2% per fiscal year as part of the federal budget sequestration under the Budget Control Act of 2011. These reductions went into effect in April 2013 and, due to subsequent legislative amendments, will remain in effect through 2030 with the exception of a temporary suspension from May 1, 2020 through December 31, 2020, unless additional action is taken by Congress.

Moreover, there has recently 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 and enacted federal and state measures designed to, among other things, reduce the cost of prescription drugs, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, in May 2019, CMS adopted a final rule allowing Medicare Advantage Plans the option to use step therapy for Part B drugs, permitting Medicare Part D plans to apply certain utilization controls to new starts of five of the six protected class drugs, and requiring the Explanation of Benefits for Part D beneficiaries to disclose drug price increases and lower cost therapeutic alternatives beginning January 1, 2021. In addition, on March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases.

Congress and the Trump administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Other Government Regulation Outside of the United States

In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, quality control, labeling, packaging, storage, record keeping, distribution, reporting, export and import, advertising, marketing and other promotional practices involving biological products as well as authorization, approval as well as post-approval monitoring and reporting of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.

Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application, or a CTA, much like the IND prior to the commencement of human clinical trials.

The requirements and process governing the conduct of clinical trials, including requirements to conduct additional clinical trials, product licensing, safety reporting, post-authorization requirements, marketing and promotion, interactions with healthcare professionals, pricing and reimbursement may vary widely from country to country. No action can be taken to market any product in a country until an appropriate approval application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product, which would make launch of such products commercially unfeasible in such countries.

Regulation in the European Union

Drug and Biologic Development Process

The conduct of clinical trials is currently governed by the EU Clinical Trials Directive 2001/20/EC, or Clinical Trials Directive, and will be replaced by the EU Clinical Trials Regulation (EU) No. 536/2014, or Clinical Trials Regulation, once the latter comes into effect. The Clinical Trials Regulation introduces a complete overhaul of the existing regulation of clinical trials for medicinal products in the EU. Currently it is not expected to come into force before December 2021.

Under the current regime, before a clinical trial can be initiated, it must be approved in each EU Member State where there is a site at which the trial is to be conducted. The approval must be obtained from two separate entities: the National Competent Authority, or NCA, and one or more Ethics Committees. The NCA of the EU Member States in which the clinical trial will be conducted must authorize the conduct of the trial, and the independent Ethics Committee must grant a positive opinion in relation to the conduct of the clinical trial in the relevant EU Member State before the commencement of the trial. Any substantial changes to the trial protocol or other information submitted with the clinical trial applications must be submitted to or approved by the relevant NCA and Ethics Committees. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial must be reported to the NCA and to the Ethics Committees of the EU Member State where they occur.

A more unified procedure will apply under the new Clinical Trials Regulation. A sponsor will be able to submit a single application for approval of a clinical trial through a centralized EU clinical trials portal. One national regulatory authority (the reporting EU Member State proposed by the applicant) will take the lead in validating and evaluating the application and the other regulatory authorities will have limited involvement. If an application is rejected, it may be amended and resubmitted through the EU clinical trials portal. If an approval is issued, the sponsor may start the clinical trial in all concerned Member States. However, a concerned EU Member State may in limited circumstances declare an “opt-out” from an approval and prevent the clinical trial form being conducted in such Member State. The Clinical Trials Regulation also aims to streamline and simplify the rules on safety reporting, and introduces enhanced transparency requirements such as mandatory submission of a summary of the clinical trial results to the EU Database.

Under both the current regime and the new Clinical Trials Regulation, national laws, regulations, and the applicable Good Clinical Practice and Good Laboratory Practice standards must also be respected during the conduct of the trials, including the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use, or ICH, guidelines on Good Clinical Practice, or GCP, and the ethical principles that have their origin in the Declaration of Helsinki.

During the development of a medicinal product, the European Medical Agency, or EMA, and national regulators within the EU provide the opportunity for dialogue and guidance on the development program, usually in the form of scientific advice. A fee is incurred with each scientific advice procedure. Advice from the EMA is typically provided based on questions concerning, for example, quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical studies, and pharmacovigilance plans and risk-management programs.

Drug Marketing Authorization

In the European Union, medicinal products, including advanced therapy medicinal products, or ATMPs, are subject to extensive pre- and post-market regulation by regulatory authorities at both the European Union and national levels. ATMPs comprise gene therapy products, somatic cell therapy products and tissue engineered products, which are genes, cells or tissues that have undergone substantial manipulation and that are administered to human beings in order to cure, diagnose or prevent diseases or regenerate, repair or replace a human tissue. We anticipate that our gene therapy development products will be regulated as ATMPs in the European Union under the EU Regulation (EC) No 1394/2007 on advanced therapy medicinal products, or ATMP Regulation. Pursuant to the ATMP Regulation, the Committee on Advanced Therapies, or CAT, is responsible in conjunction with the CHMP for the evaluation of ATMPs. The CHMP and CAT are also responsible for providing guidelines on ATMPs. These guidelines provide additional guidance on the factors that the EMA will consider in relation to the development and evaluation of ATMPs and include, among other things, the preclinical studies required to characterize ATMPs; the manufacturing and control information that should be submitted in a marketing authorization application; and post-approval measures required to monitor patients and evaluate the long term efficacy and potential adverse reactions of ATMPs. Although such guidelines are not legally binding, compliance with them is often necessary to gain and maintain approval for product candidates.

In the European Union and in Iceland, Norway and Liechtenstein (together the European Economic Area, or EEA), after completion of all required clinical testing, medicinal products may only be placed on the market after a related Marketing Authorization, or MA, has been granted. MAs can be obtained through, amongst others, a centralized procedure, which is compulsory for certain medicinal products such as ATMPs. The centralized procedure provides for the grant of a single MA by the European Commission, or EC, that is valid for all 27 EU Member States and, after respective national implementing decisions, in the three additional EEA Member States (Iceland, Norway and Liechtenstein). The centralized procedure is compulsory for certain medicinal products, including medicinal products derived from biotechnological processes, orphan medicinal products, ATMPs and products with a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. It is optional for medicinal products containing a new active substance not yet authorized in the EEA before May 20, 2004, that constitute significant therapeutic, scientific or technical innovations, or for which the grant of a MA through the centralized procedure would be in the interest of public health at EU level. The timeframe for the evaluation of an application under the centralized procedure is 210 days, excluding clock stops. Typically, the overall process takes a year or more unless the application is eligible for an accelerated assessment.

All new marketing authorization applications must include a Risk Management Plan, or RMP, describing the risk management system that the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. RMPs and Periodic Safety Update Reports, or PSURs, are routinely available to third parties requesting access, subject to limited redactions.

Additionally, the holder of a marketing authorization for an ATMP must put in place and maintain a system to ensure that each individual product and its starting and raw materials, including all substances coming into contact with the cells or tissues it may contain, can be traced through the sourcing, manufacturing, packaging, storage, transport and delivery to the relevant healthcare institution where the product is used.

MAs have an initial duration of five years. The authorization may subsequently be renewed for an unlimited period unless the EC or the national competent authority grants only a five-year renewal.

Data and Market Exclusivity

As in the United States, the European Union also provides opportunities for market and/or data exclusivity. For example, new Chemical Entities, or NCE, approved in the European Union generally qualify for eight years of data exclusivity and ten years of market exclusivity. Data exclusivity is the period during which another applicant cannot rely on the MA holder’s pharmacological, toxicological and clinical data in support of another MA for the purposes of submitting an application, obtaining marketing authorization or placing the product on the market. But after eight years, a generic or biosimilar product application may be submitted and generic companies may rely on the MA holder’s data.

However, even if a generic or biosimilar product is authorized it cannot be placed on the market in the European Union until the expiration of the 10-year market exclusivity period. An additional non-cumulative one-year period of marketing exclusivity is possible if during the data exclusivity period (the first eight years of the 10-year marketing exclusivity period), the MA holder obtains an authorization for one or more new therapeutic indications that are deemed to bring a significant clinical benefit compared to existing therapies.

Products may not be granted data exclusivity since there is no guarantee that a product will be considered by the European Union’s regulatory authorities to include a NCE. Even if a compound is considered to be a NCE and the MA applicant is able to gain the prescribed period of data exclusivity, another company nevertheless could also market another version of the medicinal product if such company can complete a full marketing authorization application with their own complete database of pharmaceutical tests, preclinical studies and clinical trials and obtain MA of its product.

Orphan Designation and Exclusivity

The criteria for designating an orphan medicinal product in the European Union are similar in principle to those in the United States. The EMA grants orphan drug designation if the medicinal product is intended for the diagnosis, prevention or treatment of (i) a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the European Union when the application is made or a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without the benefits derived from orphan status, would not generate sufficient return in the European Union to justify investment and (ii) where there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized in the European Union, or if such a method exists, the product will be of significant benefit to those affected by the condition. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization that covers only the therapeutic indication(s) that meet the orphan drug designation criteria, entitled to ten years of market exclusivity for the approved therapeutic indication. An application for orphan drug designation must be submitted first before an application for marketing authorization of the medicinal product is submitted. The applicant will receive a fee reduction for the marketing authorization application if the orphan drug designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

During the 10-year period of market exclusivity, with a limited number of exceptions, the regulatory authorities of the EU Member States and the EMA may not accept applications for marketing authorization, accept an application to extend an existing marketing authorization or grant marketing authorization for other similar medicinal products for the same therapeutic indication. A similar medicinal product is defined as a medicinal product containing a similar active substance or substances as contained in a currently authorized orphan medicinal product, and which is intended for the same therapeutic indication. An orphan medicinal product can also obtain an additional two years of market exclusivity for an orphan-designated condition when the results of specific studies are reflected in the Summary of Product Characteristics, or SmPC, addressing the pediatric population and completed in accordance with a fully compliant Pediatric Investigation Plan, or PIP. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.

The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, a marketing authorization may be granted to another medicinal product (orphan or not) for the same or overlapping indication at any time subject to certain requirements.

Pediatric Development

In the European Union, companies developing a new medicinal product are obligated to study their product in children and must therefore agree upon a PIP with the EMA’s Pediatric Committee. The companies must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies, e.g., because the relevant disease or condition occurs only in adults. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection under a supplementary protection certificate (if any is in effect at the time of approval) or, in the case of orphan medicinal products, a two year extension of the orphan market exclusivity. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.

PRIME Designation

In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation reviewed under the centralized procedure. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME scheme than larger companies on the basis of compelling non-clinical data and tolerability data from initial clinical trials. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and potentially accelerated marketing authorization application assessment once a dossier has been submitted. Importantly, once a candidate medicine has been selected for the PRIME scheme, a dedicated contact point and rapporteur from the CHMP or from CAT are appointed facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting with the CHMP/CAT rapporteur initiates these relationships and includes a team of multidisciplinary experts to provide guidance on the overall development plan and regulatory strategy. PRIME eligibility does not change the standards for product approval, and there is no assurance that any such designation or eligibility will result in expedited review or approval.

Post-Approval Regulation

Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission and/or the competent regulatory authorities of the EU Member States. This oversight applies both before and after grant of manufacturing licenses and marketing authorizations. It includes control of compliance with EU good manufacturing practices rules, manufacturing authorizations, pharmacovigilance rules and requirements governing advertising, promotion, sale, and distribution, recordkeeping, importing and exporting of medicinal products.

Failure by us or by any of our third-party partners, including suppliers, manufacturers and distributors to comply with EU laws and the related national laws of individual EU Member States governing the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal products and marketing of such products, both before and after grant of marketing authorization, statutory health insurance, bribery and anti-corruption or other applicable regulatory requirements may result in administrative, civil or criminal penalties.

These penalties could include delays or refusal to authorize the conduct of clinical trials or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.

The holder of a marketing authorization for a medicinal product must also comply with EU pharmacovigilance legislation and its related regulations and guidelines, which entail many requirements for conducting pharmacovigilance, or the assessment and monitoring of the safety of medicinal products. These pharmacovigilance rules can impose on holders of MAs the obligation to conduct a labor intensive collection of data regarding the risks and benefits of marketed medicinal products and to engage in ongoing assessments of those risks and benefits, including the possible requirement to conduct additional clinical studies or post-authorization safety studies to obtain further information on a medicine’s safety, or to measure the effectiveness of risk-management measures, which may be time consuming and expensive and could impact our profitability. MA holders must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of PSURs in relation to medicinal products for which they hold MAs. The EMA reviews PSURs for medicinal products authorized through the centralized procedure. If the EMA has concerns that the risk benefit profile of a product has varied, it can adopt an opinion advising that the existing MA for the product be suspended, withdrawn or varied. The agency can advise that the MA holder be obliged to conduct post-authorization Phase 4 safety studies. If the EC agrees with the opinion, it can adopt a decision varying the existing MA. Failure by the marketing authorization holder to fulfill the obligations for which the EC’s decision provides can undermine the ongoing validity of the MA.

More generally, non-compliance with pharmacovigilance obligations can lead to the variation, suspension or withdrawal of the MA for the product or imposition of financial penalties or other enforcement measures.

Sales and Marketing Regulations

The advertising and promotion of our products is also subject to EU laws concerning promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other national legislation of individual EU Member States may apply to the advertising and promotion of medicinal products and may differ from one country to another. These laws require that promotional materials and advertising in relation to medicinal products comply with the product’s SmPC as approved by the competent regulatory authorities. The SmPC is the document that provides information to physicians concerning the safe and effective use of the medicinal product. It forms an intrinsic and integral part of the marketing authorization granted for the medicinal product. Promotion of a medicinal product that does not comply with the SmPC is considered to constitute off-label promotion. All advertising and promotional activities for the product must be consistent with the approved SmPC and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription-only medicines is also prohibited in the European Union. Violations of the rules governing the promotion of medicinal products in the European Union could be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public and may also impose limitations on its promotional activities with healthcare professionals.

Anti-Corruption Legislation

In the EU, interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct both at EU level and in the individual EU Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited in the European Union. The provision of benefits or advantages to physicians is also governed by the national anti-bribery laws of the EU Member States. Violation of these laws could result in substantial fines and imprisonment.

Payments made to physicians in certain EU Member States also must be publicly disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician’s employer, his/her regulatory professional organization, and/or the competent authorities of the individual EU Member States. These requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable in the individual EU Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

Australia

Clinical trials conducted using “unapproved therapeutic goods” in Australia, being those which have not yet been evaluated by the TGA for quality, safety and efficacy must occur pursuant to either the Clinical Trial Notification Scheme, or the CTN Scheme, or the Clinical Trial Exemption Scheme, or the CTX Scheme. In each case, the trial is supervised by a Human Research Ethics Committee (“HREC”), an independent review committee set up under guidelines of the Australian National Health and Medical Research Council that ensures the protection of rights, safety and well-being of human subjects involved in a clinical trial. A HREC does this by reviewing, approving and providing continuing examination of trial protocols and amendments, and of the methods and material to be used in obtaining and documenting informed consent of the trial subjects.

The CTN Scheme broadly involves:

Under the CTX Scheme:

A sponsor cannot commence a trial under the CTX Scheme until written advice has been received from the TGA regarding the application and approval for the conduct of the trial has been obtained from an ethics committee and the institution at which the trial will be conducted.

Approval for inclusion in the Australian Register of Therapeutic Goods, or ARTG, is required before a pharmaceutical product may be marketed (or imported, exported or manufactured) in Australia. In order to obtain registration of the product on the ARTG, it is required that:

Other Markets

Since the United Kingdom has formally left the European Union on January 31, 2020 and the transition period, during which EU laws continued to apply to the United Kingdom, has expired on December 31, 2020, EU laws now only apply to the United Kingdom in respect of Northern Ireland as laid out in the Protocol on Ireland and Northern Ireland. The European Union and the United Kingdom have concluded a trade and cooperation agreement (“TCA”), which was ratified by the United Kingdom Parliament on December 30, 2020. The TCA was applied provisionally as of January 1, 2021 and has entered into force on May 1, 2021.

The TCA includes provisions affecting the life sciences sector (including on customs and tariffs) but areas for further discussion between the European Union and the United Kingdom remain. In addition, there are some specific provisions concerning pharmaceuticals. These include the mutual recognition of Good Manufacturing Practice (“GMP”), inspections of manufacturing facilities for medicinal products and GMP documents issued. The TCA does not, however, contain wholesale mutual recognition of United Kingdom and EU pharmaceutical regulations and product standards.

Since January 1, 2021, the EU laws which have been transposed into United Kingdom law through secondary legislation continue to be applicable as “retained EU law.” As there is no general power to amend these regulations, the United Kingdom government has adopted the Medicines and Medical Devices Act 2021 which seeks to address this regulatory gap through introducing regulation-making, delegated powers covering the fields of human medicines, clinical trials of human medicines, veterinary medicines and medical devices. The purpose of the act is to enable the existing regulatory frameworks to be updated, with the powers granted under it only exercisable in relation to four pieces of legislation: the Human Medicines Regulations 2012, the Medicines for Human Use (Clinical Trials) Regulations 2004, the Medicines (Products for Human Use) Regulations 2016 and limited parts of the Medicines Act 1968 (specifically those parts which make provision related to pharmacies). It is then further restricted to amending or updating only those provisions stated in the act, which include clinical trials.

Specified provisions of the Medicines and Medical Devices Act 2021 entered into force on February 11, 2021 when the legislation formally became law. The remaining provisions came into effect within two months of February 11, 2021 or will come into effect otherwise as stipulated in subsequent statutory instruments. The new Medicines and Medical Devices Act 2021 supplements the United Kingdom Medical Devices Regulations 2002 (the “Regulations”), which are based on the EU Medical Devices Directive as amended to reflect the United Kingdom’s post-Brexit regulatory regime. Notably, the United Kingdom Medical Devices Regulations 2002 do not include any of the revisions that have been made by the EU Medical Devices Regulation (EU) 2017/745, which has gained full application in all EU Member States since May 26, 2021. Additionally, the United Kingdom’s Medicines and Healthcare products Regulatory Agency (MHRA) launched a comprehensive consultation on September 16, 2021 with proposals to amend the regulatory framework for medical devices in the United Kingdom. The stated objectives of the proposals include expansion of the scope of the Regulations (for example, by expanding the in vitro diagnostic medical device definition to include software and other products, including products without an intended medical purpose but with similar functioning and risk profiles) and potentially through use of internationally recognized definitions (for example, by excluding products that contain viable biological substances and excluding food), remove trade barriers, further the availability of medical devices and improve the favorability of the United Kingdom market. The consultation period closes on November 25, 2021 with a view to the new regulations coming into force on July 1, 2023 with appropriate transitional measures.

For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Intellectual Property

As of August 2022, we own, or exclusively license through our various wholly owned subsidiaries, nine (9) patent families in connection with our product offerings. Five (5) of the patent families have granted patents registered in various countries, as detailed below. Six (6) families have active pending application/s under examination. We also rely on trade secrets to protect certain aspects of our technology.

Patent families with granted patents:

Patent Portfolio

(1) The expiration of the Multibiotic patent in Australia on May 11, 2023 will not have an impact on our patent portfolio and business.

(2) The mesothelioma application is still a pending international application under the Patent Cooperation Treaty (PCT), which  provides provisional protection for 156 jurisdictions, as contracting states of the PCT. The specific jurisdictions for national/regional phase entry in connection with the pending international application (PCT) will not be decided until August 2023.

Quantitative and Qualitative Disclosures about Market Risk

Our cash consists entirely of cash held in interest-bearing accounts with banks in Australia, the U.S. and the United Kingdom.  Thus, our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of Australian interest rates.  However, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation.

Employees

As of June 30, 2022, we had 42 employees. Of these employees, 24 were employed in research and development and 18 in general management and administration. 35 employees were located in Australia, 6 employees were located in the U.S. and one employee was located in the United Kingdom. As at the end of fiscal year June 30, 2021, we had 59 employees.

Each of our employees has entered into an employment agreement with an unlimited term. We may only terminate the employment of any of our employees in accordance with the relevant employee’s contract of employment.

Our standard contract of employment for full time provides that we can terminate the employment of an employee without notice for serious misconduct or with between one to six months’ notice without cause (as set out in the relevant employee’s contract of employment).

Property and Facilities

We entered into a five-year lease agreement, ending on May 31, 2024, for a facility at units A5-A6, 11-13 Lord Street, Botany, New South Wales, 2019, Australia for our medical laboratory, corporate head office and warehouse space associated with our medical laboratory. The rent payments on this facility are A$484,213 annually. We also entered into a five-year lease agreement, ending in January 2025, to lease a property of 1,376 feet, through our wholly owned U.S. facility, in Rancho Santa Margarita, California. The rent payments on the California property are A$3,027 a month.

Inflation and Seasonality

Management believes inflation has not had a material impact on our operations or financial condition. Management further believes that our operations are not currently subject to seasonal influences due to our current lack of marketed products. Moreover, the targets of our drug candidates, are not seasonal diseases. Accordingly, once we have marketed products, management does not expect that our business will be subject to seasonal influences.

Legal Proceedings

To our knowledge, we are not currently a party to any lawsuit, and are not aware of any pending or threatened lawsuit, that, if adversely determined, would have a material adverse effect on our financial position, results of operations or liquidity.  As such, we do not believe that any pending or threatened legal proceedings, taken as a whole, should have any significant impact on our financial statements. From time to time in the future we may be subject to legal proceedings and claims in the ordinary course of business. While we expect that these claims would be covered by our existing insurance policies, those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

Manufacturing and Raw Materials

We have no manufacturing capabilities and are dependent on third parties for cost effective manufacture and manufacturing process development of our drug candidates. Problems with third-party manufacturers or the manufacturing process as such may delay or jeopardize clinical trials and commercialization of our drug candidates.

Organizational Structure

Below is a list of our significant subsidiaries, including our ownership percentage, date of formation and jurisdiction. These subsidiaries were established to allow us to conduct commercial and clinical operations in Europe and the United States and expand our operations in Australia.

(1) Dr. David Rutolo, an employee of the Company, owns 40% of Medlab Nutraceuticals, Inc.

Competition

Potential competitors to our products are either cannabinoid medicines that are regulatory (FDA) approved for specific purpose or proprietary drug enhancement and delivery technology platforms. We do not believe that direct competition exists for either our proprietary delivery platform, NanoCelle®, or our lead drug candidate, NanaBis^™.

Below are several companies that own FDA-approved cannabinoid products for specific purposes, each of whom we consider a potential competitor:

Epidiolex® was FDA-approved in 2018 and is the first FDA-approved prescription CBD (botanical cannabis-derived CBD) product, used for the treatment for childhood-onset epilepsy, specifically Lennox-Gastaut syndrome, Dravet syndrome (“DS”), or Tuberous Sclerosis Complex.

Syndros®, asynthetic THC – Dronabinol, was FDA-approved in 2016 to treat nausea and vomiting caused by anti-cancer medicine (e.g., chemotherapy) in people whose nausea and vomiting have not improved with usual anti-nausea medicines, and loss of appetite (e.g., anorexia) in people with acquired immune deficiency syndrome (“AIDS”) who have lost weight.

Marinol®, synthetic THC – Dronabinol, was FDA-approved in 1985, and is another registered trade name for dronabinol and like Syndros® is approved for treating severe nausea and vomiting caused by cancer chemotherapy and loss of appetite contributing to weight loss in people with AIDS.

Cesamet®, synthetic THC – Nabilone, was FDA-approved in 1985 and approved for the treatment of nausea and vomiting associated with cancer chemotherapy in May 2006, and treats severe nausea and vomiting caused by cancer chemotherapy. Similar to Syndros® and Marinol, Cesamaet is usually given after other medicines to control nausea and vomiting have been tried without success.

The following companies could be considered competitors to us in the FDA-approved market or clinical trial stage cannabinoid pharmaceuticals market:

The companies listed above have advanced cannabinoid research programs and in some specific cases, such as GW Pharmaceuticals, PLC (now Jazz Pharmaceuticals plc), have already demonstrated the ability to progress these programs to FDA-approved products and subsequent commercialization.

Although we do not believe any of these companies are known to be actively progressing cannabinoid products purposed toward managing bone cancer pain, and therefore do not directly compete with our lead candidate NanaBis^™ at this time, prior expertise in drug research and development and experience with the FDA regulatory process for approval of a cannabinoid pharmaceutical product provides them a theoretical ability to compete with us in the future. Should the University of Arizona pilot program examining Syndros®’s effectiveness in pain management and opioid-sparing for breast cancer and bone metastases deliver positive results, it is possible that Benuvia Therapeutics (or its parent company, Chilion Group Holdings) would pursue an FDA application for Syndros®, or AbbVie Inc. would pursue an FDA application for Marinol, for each to be used for this purpose.

MANAGEMENT

Directors and Senior Management

The following table sets forth our directors and senior management, their age and the positions they held as of           , 2022.

Michael Hall has over 35 years of experience working with Australian-based nutrition products and contributes his insight and experience towards our Company’s goals and product offerings. He has served as our Chairman since January 2013. He last served as the Managing Director of FIT-BioCeuticals Ltd. from January 1999 until January 2010, at which time the company was sold to a third party. Mr. Hall received a Bachelor of Commerce degree from the University of New South Wales and was a Certified Practicing Accountant (currently retired).

Dr. Sean Hall has over 25 years of experience in health care senior management. He has served as our Chief Executive Officer since July 2012.  From July 2008 to July 2012, Dr. Hall was Chief Executive Officer for FIT-BioCeuticals Ltd. and prior to that role was Chief Operating Officer from February 2004 until July 2008. Dr. Hall is also currently a member of World Medical Association, American Academy of Anti-Aging Medicine, and the Special Operations Medical Association. He has an undergraduate degree from Blue Marble Medical School, an MBA from Academy of Business Management, as well as education in Leadership, Board Governance and continuing medical education from Harvard University.

Drew Townsend has over 35 years of experience in the finance industry as a Chartered Accountant. He has served as a director of the Company since August 2020. He has worked as an accountant at Hall Chadwick Chartered Accountants since April 1987 and was named a Partner in January 1993. He received a Bachelor of Commerce, majoring in accounting and finance, from the University of New South Wales, is a member of the Institute of Chartered Secretaries and Accountants and member of the Institute of Internal Auditors.

Cheryl Maley has served a director of the Company since April 2021. She has over 20 years of pharmaceutical industry experience with roles spanning across sales, marketing, business development, commercial excellence, patient access and general management. Cheryl has worked at Novartis AG since November 2013, and currently serves as the General Manager of Oncology for Australia and New Zealand. She served as a Director at Commercial Excellence at AbbVie Inc. from January 2012 until October 2013. She worked at Abbot from June 2017 until December 2011, last serving as a Director of Global Strategic Initiatives Immunology. Cheryl has a Bachelor of Science Degree, a Diploma of Education, a Master of Business Administration and is a graduate of the Australian Institute of Company Directors. She has a passion for innovation and has completed formal innovation training with What-If Innovation (UK), the Kellogg Institute (USA), Inventium (Australia) and RAW Innovation (Australia).

Mohit Gupta has served as our director since August 2022 and has more than 20 years’ experience in various roles and geographies, with last 10 years in pharmaceuticals in various commercial capacities based in Australia and Switzerland. Since January 2021, he has served as managing director of MetTAS Pty Ltd, a pharmaceutical company servicing Australia. From August 2018 until December 2020, he served as Head of Business Development (EU) of Mylan GmbH, and prior was the Head of Business Development from October 2014 until August 2018. From April 2012 until August 2018, he worked in various business developmental roles at Alphapharm.  From April 2011 until March 2012, he served as a project manager at Ingram Micro. Mr. Gupta received a Bachelors in Commerce in Accountancy from Delhi University and an MBA in Finance from Birla Institute of Management Technology.

Kerem Kaya has served as our Chief Financial Officer and Secretary since May 2021 and has over 26 years of experience in pharmaceuticals and chemicals industries, holding positions including Chief Financial Officer, Financial Planning and Analysis Heads and Project Management roles at various companies, both locally and globally. From November 2004 until December 2020, he worked at Novartis AG in numerous positions.  He has an undergraduate degree in Business from Western Sydney University and is a Certified Practicing Accountant.

Family Relationships

Michael Hall, our Chairman, is the father of our Chief Executive Officer, Mr. Sean Hall.

Compensation of Directors and Executive Officers

For the fiscal year ended June 30, 2022, we paid aggregate cash compensation of approximately A$1,635,045 to our directors and executive officers as a group.

Executive Compensation

The following table indicates the remuneration received by our non-executive directors, executive directors, and other key management personnel during the fiscal year ending June 30, 2022:

The total amounts set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits for the fiscal year ended June 30, 2022 was A$0.7 million.

Corporate Governance

ASX Corporate Governance Principles

In Australia, there are no defined corporate governance structures and practices that must be observed by a company listed on the ASX, except those entities of a certain size are required to have audit and remuneration committees and trading policies for key management personnel. Instead, the ASX corporate governance council has published the 4^th Edition of its Corporate Governance Principles and Recommendations, which contains what are called the “Recommendations” which articulate eight core principles which are intended to provide a reference point for companies about their corporate governance structures and practices. Under ASX Listing Rule 4.10.3, companies are required to attach a copy of the Company’s corporate governance statement (which has been approved by the board of directors) and provide a statement in their annual report to shareholders disclosing the extent to which they have followed the Recommendations in the reporting period and where they have not followed all the Recommendations, identify the Recommendations that have not been followed, and the reasons for not following them and what (if any) alternative governance practices it adopted in lieu of the recommendations during that period. It is not mandatory to follow the Recommendations. As compliance with the Recommendations would entail excessive costs to us, and in light of our current size, we do not fully follow the Recommendations because the costs of doing so would outweigh the benefits.

Non-Executive and Independent Directors

Australian law does not require a company to appoint a certain number of independent directors to its board of directors or audit committee. However, under the Corporate Governance Principles and Recommendations, the ASX corporate governance council recommends, but does not require, that an ASX-listed company have a majority of independent directors on its board of directors and is chaired by an independent director. Our board of directors has determined that Messrs. Gupta, Townsend and Mrs. Maley qualify as independent directors under the requirements of the ASX.

Our board of directors does not have regularly scheduled meetings at which only independent directors are present. The board of directors does meet regularly and independent directors are expected to attend all such meetings.

Committees of the Board of Directors

Audit Committee.  Nasdaq Marketplace Rules require us to establish an audit committee comprised of at least three members, each of whom is financially literate and satisfies the respective “independence” requirements of the SEC and Nasdaq and one of whom has accounting or related financial management expertise at senior levels within a company.

Our Audit Committee assists our board of directors in overseeing the accounting and financial reporting processes of our company and audits of our financial statements, including the integrity of our financial statements, compliance with legal and regulatory requirements, our independent public accountants’ qualifications and independence, and independent public accountants, and such other duties as may be directed by our board of directors. The Audit Committee is also required to assess risk management.

Our Audit Committee currently consists of two board members, including Drew Townsend and Michael Hall. We believe our Audit Committee members each satisfy the “independence” requirements of the SEC and Nasdaq Marketplace Rules.

Corporate Governance Requirements under Nasdaq listing rules.

As we are incorporated in Australia, we are allowed to follow Australian “home country” corporate governance practices in lieu of the otherwise applicable Nasdaq corporate governance standards, as long as we disclose each requirement of Rule 5600 that we do not follow and describe the home country practice we follow in lieu of the relevant Nasdaq corporate governance standards. We intend to take all actions necessary to maintain compliance with applicable corporate governance requirements under the rules adopted by the SEC and listing standards of Nasdaq. We follow Australian corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Marketplace Rules in respect of: