This is a confidential draft submission to the United States Securities and
Exchange Commission on April 10, 2020 under the Securities Act of 1933, as amended.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FormS-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INMED PHARMACEUTICALS INC.
(Exact name of Registrant as specified in its charter)
| British Columbia | 2834 | 98-1428279 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
InMed Pharmaceuticals Inc.
Suite 310 - 815 W. Hastings Street,
Vancouver, B.C. V6C 1B4
Canada
(604)669-7207
(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)
DL Services Inc.
Columbia Center
701 Fifth Avenue, Suite 6100
Seattle, WA 98104-7043
(206)903-8800
Copies to:
Hector MacKay-Dunn, Q.C. Farris LLP 2500-700 West Georgia Street Vancouver, BC V7Y 1B3 Canada (604)684-9151 | Daniel M. Miller Dorsey & Whitney LLP Suite 1070 - 1095 W. Pender Street Vancouver, BC V6E 2M6 (604)630-5199 | Charles E. Phillips Ellenoff Grossman & Schole LLP 1345 Avenue of the Americas New York, New York 10105 (212)370-1300 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
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 of 1933, as amended, 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 a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.
| Large Accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered | Proposed Maximum Offering Price(1)(2) | Amount of Registration Fee | ||
Common Shares, without par value | $10,000,000.00 | $1,298.00 | ||
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| (1) | Includes [ ] common shares that may be sold if the underwriters exercise their option to purchase additional shares. |
| (2) | Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended |
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 of 1933, as amended, or until the registration statement shall become effective on such date as the 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 it is not soliciting offers to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED [ ], 2020
PRELIMINARY PROSPECTUS
[ ] Shares
InMed Pharmaceuticals Inc.
Common Shares
We are offering [ ] common shares. Our common shares are currently quoted under the symbol “IMLFF” on the OTCQX® Best Markets, and under the symbol “IN” on the Toronto Stock Exchange, or “TSX”. We have applied to list our common shares on the Nasdaq Capital Market under the symbol “INM.” We are an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our common shares involves a high degree of risk. Please read “Risk Factors” beginning on page [ ] of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Price to Public | Underwriting Discounts and Commissions(1) | Proceeds to InMed Pharmaceuticals Inc. | ||||||||||
Per Share | $ | [ ].00 | $ | 0.[ ] | $ | [ ] | ||||||
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Total | $ | [ ],000 | $ | [ ],000 | $ | [ ],000 | ||||||
| (1) | Does not include our obligation to reimburse the underwriters for its expenses in an amount not to exceed $75,000. We refer you to “Underwriting” beginning on page [ ] of this prospectus for information regarding expenses reimbursable by us to the underwriters. |
Certain of our existing investors, including [ ] , have indicated an interest in purchasing up to an aggregate of approximately $[ ] in our common shares in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities may determine to not purchase any shares in this offering. It is also possible that these entities could indicate an interest in purchasing more common shares. In addition, the underwriters could determine to sell fewer common shares to any of these entities than such entities indicate an interest in purchasing or to not sell any shares to these entities.
Delivery of the common shares is expected to be made on or about [ ], 2020. We have granted the underwriters an option for a period of 45 days to purchase up to an additional [ ] common shares. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $[ ], and the total proceeds to us, before expenses, will be $ [ ].
Joint Book-Running Managers
| Roth Capital Partners | Laidlaw & Company (UK) Ltd. |
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ABOUT THIS PROSPECTUS AND EXCHANGE RATES
Neither we nor any of the underwriters has authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we may have referred you in connection with this offering. We take no responsibility for and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor any of the underwriters is making an offer to sell or seeking offers to buy these securities in any jurisdiction where, or to any person to whom, the offer or sale is not permitted. The information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common shares and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates.
Through and including [ ], 2020 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors,” that could cause results to differ materially from those expressed in these publications and reports
This prospectus contains references to our trademark and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the® or™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
In order to qualify for listing on Nasdaq, we intend to complete a share consolidation prior to the completion of this offering. The exact consolidation ratio has not yet been determined. Information contained in this prospectus currently does not give effect to our proposed stock consolidation.
Unless otherwise indicated, references in this prospectus to “$”, “dollars”, “USD” or “United States dollars” are to United States dollars. Canadian dollars are referred as “Canadian dollars” or “C$”.
The high, low and closing rates for Canadian dollars in terms of the United States dollar for each of the periods indicated, as quoted by the Bank of Canada, were as follows:
| Six Months Ended December 31 | Year Ended June 30 | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
High for period | C$ | 1.3343 | C$ | 1.3642 | C$ | 1.3642 | C$ | 1.3310 | ||||||||
Low for period | C$ | 1.2988 | C$ | 1.2803 | C$ | 1.2803 | C$ | 1.2128 | ||||||||
Rate at end of period | C$ | 1.2988 | C$ | 1.3642 | C$ | 1.3087 | C$ | 1.3168 | ||||||||
On March 31, 2020, the Bank of Canada daily rate of exchange was U.S.$1.00 = C$ 1.4187 or C$1.00 = U.S.$0.7049.
On [●], 2020, the Bank of Canada daily rate of exchange was U.S.$1.00 = C$[●] or C$1.00 = U.S.$[●].
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This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common shares and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. Investing in our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes, before investing in our common shares. If any of the following risks materialize, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our common shares could decline, and you could lose part or all of your investment.
Unless the context indicates otherwise, as used in this prospectus, the terms “InMed,” “InMed Pharmaceuticals,” “we,” “us,” “our,” “our company” and “our business” refer to InMed Pharmaceuticals Inc.
Our Company
Overview
We are a clinical stage pharmaceutical company developing a pipeline of cannabinoid-based, prescription drug products targeting treatments for diseases with high unmet medical needs in a range of disease categories including dermatology and ocular diseases, among others. Our approach leverages on the several thousand year history of health benefits attributed to theCannabis plant and brings this anecdotal information into the 21st century by applying tried, tested and true pharmaceutical drug development discipline and a scientific approach to establishnon-plant-derived (synthetically manufactured), individual cannabinoid compounds as clinically proven,FDA-approved medicines. In parallel, we are developing a proprietary biosynthesis manufacturing technology to facilitate access to rare cannabinoids that are otherwise not available at commercial scale and low cost. Our goal is to be a leader in bringing cannabinoid-based therapies to patients who may benefit from them. To accomplish this goal, we have assembled a highly skilled group of individuals with extensive experience in all facets of pharmaceutical research and development, drug formulation, clinical trial execution, regulatory approval, pharmaceutical commercialization, company and capital formation, business development, legal, and corporate governance. We are focused on bringing strict scientific discipline to the field of cannabinoid medicine to unlock the full potential of this class of drugs.
We are developing a proprietary biosynthesis system for the manufacturing of pharmaceutical-grade cannabinoids, as well as multiple cannabinoid-based medications that target diseases with high unmet medical needs (collectively, “Product Candidates”). Our active pharmaceutical ingredients, or “APIs”, which are the ingredients that give medicines their effects, are synthetically made and, therefore, we have no interaction with theCannabis plant. We do not grow nor utilizeCannabis nor its extracts in any of our products; our products are applied topically (not inhaled nor ingested); and, we do not utilize tetrahydrocannabinol, or “THC”, nor cannabidiol, or “CBD”, the most common cannabinoid compounds that are typically extracted from theCannabis plant, in any of our products. The API under development for our initial two product candidates,INM-755 for Epidermolysis Bullosa, or “EB” andINM-088 for glaucoma, is a rare cannabinoid named cannabinol, or “CBN”. Additional uses of bothINM-755 andINM-088 are being explored, as well as the application of additional rare cannabinoids to treat diseases.
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This table summarize the status of our therapeutic drug development programs:
We believe we are positioned to develop multiple product candidates in diseases which may benefit from medicines based on rare cannabinoid compounds. Most current cannabinoid therapies are based specifically on CBD and/or THC and are often delivered orally, which has limitations and drawbacks, such as side effects (including the psychoactive effects of THC). Currently, we intend to deliver our rare cannabinoid pharmaceuticals through various topical formulations (cream for dermatology, eye drops for ocular diseases) as a way of seeking to minimize systemic exposure and any related unwanted systemic side effects, including any drug-drug interactions and any metabolism of the active pharmaceutical ingredient by the liver. This approach enables the treatment of the specific disease at the site of the disease, leading to negligible exposure of the drug to the rest of the body. We access rare cannabinoids via any and allnon-extraction approaches, including our proprietary biosynthesis approach, thus negating any interaction with or exposure to theCannabis plant. Therefore, we have no relationship with theCannabis plant.
Our Development Programs
Rationale for Use of CBN in Pharmaceutical Drug Development
CBN is one of several rare cannabinoids naturally produced in theCannabis plant, albeit at significantly lower levels relative to the more commonly known THC and CBD. Despite their common origin, different cannabinoids have been observed to have distinct physiological properties, including therapeutic potential in specific diseases and unique safety profiles. We are specifically exploring these unique effects of CBN, as well as other rare cannabinoids, and their therapeutic potential to treat disease.
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Our extensive preclinical testing has identified several unique properties of CBN that outperformed both THC and CBD in various disease-related assays and models. CBN can act with higher potency when interacting with some receptor systems in the body, while acting with lower potency for others. While both THC and CBD have established therapeutic benefits in certain instances, our data thus far support CBN having distinct advantages as potential treatments for EB and glaucoma over both THC and CBD. CBN is generally considered to benon-psychoactive.
INM-755 in Dermatology
INM-755, our lead product candidate, is being developed as a topical skin cream formulation containing CBN for the treatment of symptoms related to EB, a rare genetic skin disease characterized by fragile skin that blisters easily from minimal friction that causes shearing of the skin layers. In these patients, the blisters become open wounds that do not heal well. Patients experience pain from the open wounds, particularly during wound dressing changes and bathing.
In addition to relief of symptoms, including inflammation, pain, and others, we believeINM-755 may impact the underlying disease by enhancing skin integrity in a subset of EB patients. We have completed more than 30 pharmacology and toxicology studies to investigate the effects of CBN. Several of these nonclinical studies explored the effect on important symptoms such as pain and chronic inflammation that interferes with wound healing and in potentially strengthening skin and reducing blister formation. Inin vitro pharmacology studies, CBN demonstrated activity in reducing markers of inflammation. CBN upregulated expression of a type of keratin called keratin 15, or “K15”, which might lead to skin strengthening and reduced blister formation in EB simplex, or “EBS”, patients with mutations in another keratin called keratin 14, or “K14”. The anti-inflammatory activity of CBN may be beneficial in healing chronic wounds caused by prolonged inflammation. The findings from several toxicology studies support the safety of CBN for continued clinical development programs.
A regulatory application to support our first Phase I clinical trial in healthy volunteers withINM-755 was submitted November 4, 2019 and approved December 6, 2019. The initial Phase I clinical trial evaluates the safety, tolerability, and pharmacokinetics ofINM-755 cream in healthy volunteers with normal, intact skin; the volunteers have cream applied once daily for a period of 14 days. All subjects in this first clinical trial completed treatment and evaluations by March 27, 2020. A regulatory application was submitted on March 23, 2020, for a second Phase I clinical trial of healthy volunteers to test the local safety and tolerability of applying sterileINM-755 cream to small wounds once daily for 14 days. Both clinical trials will be conducted with two different drug concentrations and a vehicle control.
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Assuming that data from the two Phase I clinical trials in healthy volunteers demonstrated thatINM-755 is well tolerated, the next step will be to studyINM-755 in patients with EB (Study755-201-EB). Regulatory applications to support that global trial are planned for 4Q2020.
INM-088 for Ocular Diseases
CBN is also the active ingredient in our second drug candidate,INM-088, which is in preclinical studies as a potential treatment for glaucoma. We are conducting studies to testINM-088’s ability to provide neuroprotection and reduce intraocular pressure in the eye. We compared several cannabinoids, including CBD and THC, to determine which cannabinoid was the best drug candidate for the treatment of glaucoma. Of all the cannabinoids examined, CBN demonstrated the most optimal neuroprotection effect. Furthermore, CBN also exhibited intraocular pressure reduction capability.INM-088 is in advanced formulation development.
Current treatments for glaucoma primarily focus on decreasing fluidbuild-up in the eye. Our data has shown thatINM-088 may provide neuroprotection in addition to modulating intraocular pressure by improving drainage of fluid in the eye. Thus far, we have conducted numerous preclinical pharmacology studies to demonstrate these effects.
Regulatory and Patent Strategy
For all current and future product candidates we intend to submit New Drug Applications, or “NDAs” (or their international equivalents) in most major jurisdictions, including the USA.
We are actively establishing a broad patent portfolio to protect our commercial interests in utilizing CBN and other rare cannabinoids across these and other diseases. We have also filed multiple patent applications for our biosynthesis manufacturing technology. If granted, these patents may confer meaningful protection to the commercial potential for these technologies.
Our Team
Our management team is comprised of highly experienced pharmaceutical and biotechnology executives with successful track records in researching, developing, gaining approval for and commercializing novel medicines to treat serious diseases. Each member of our management team has over 20 to 30 years of industry experience, including our CEO, CFO, and (Sr.) Vice Presidents of Clinical and Regulatory Affairs, of Preclinical Research and Development, and of Chemistry, Manufacturing and Controls. These individuals have held leadership positions with industry leaders such as Abbott Laboratories, QLT Inc., Amgen, 3M, among others, and also with early stage biotechnology and emerging technology companies. Together, this team has covered the spectrum of pharmaceutical drug discovery, preclinical research, formulation development, manufacturing, human clinical trials, regulatory submissions and approval, and global commercialization. Additionally, the team has significant experience in company formation, capital raises, mergers/acquisitions, business development, and sales and marketing in the pharmaceutical industry. Our board of directors (the “Board”) is constituted by individuals with significant experience in the pharmaceutical and biotechnology industries.
Our Strengths
We are the only clinical stage company with multiple drug candidates, in multiple therapeutic categories, that also is developing a proprietary biosynthesis manufacturing capacity to meet the needs of the rapidly evolving pharmaceutical research of rare cannabinoids. Key strengths include:
Experienced executive team and board of directors with proven track records.
One key critical success factor in the field of pharmaceutical drug development is the experience and skill set of the individuals leading the company. We have been successful in attracting and retaining executive
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and directors with extensive (20+ years’) experience in all facets of the pharmaceutical industry, including fundamental research and development, drug formulation, clinical trial execution, regulatory approvals, pharmaceutical commercialization, company and capital formation, business development, legal, and corporate governance. Our leadership team is well-positioned to navigate all facets of drug development and into regulatory approval and commercialization, either internally or externally via partnerships. It is this group of individuals that will help optimize our chances for success.
Proprietary biosynthesis manufacturing system.
Extraction of rare cannabinoids from the plant is economically impractical for commercial applications. To provide access to cost-effective rare cannabinoids at pharmaceutical quality, we are developing a biosynthesis approach to cannabinoid manufacturing with the goal of providingbio-identical, high purity, pharmaceutical grade cannabinoids at a reasonablecost-of-goods for our internal pipeline of drug candidates as well as for potential licensing to third party drug development companies for their pipelines. We believe this approach has several advantages over other manufacturing methods.
Leading experts in the therapeutic potential of the rare cannabinoid CBN.
We have invested significant time and effort in understanding all characteristics and the therapeutic potential of our initial rare cannabinoid drug candidate, CBN. As such, we are considered to be a world leader in the pharmaceutical development of this cannabinoid. We anticipate CBN will be the first of several such drug candidates that we will explore for development.
Targeting pharmaceutical applications of rare cannabinoids to treat diseases with high unmet medical needs.
Significant investment in understanding the therapeutic potential of CBN has provided us with important insight as to how best develop this class of compounds for treating various diseases. We intend to apply thisknow-how across several disease that may benefit from cannabinoid-based medicines.
Diverse portfolio of patent applications covering a spectrum of commercial opportunities.
Success in pharmaceutical markets often rests with the strength of intellectual property, including patents, to protect commercialization interests. We have filed several patents on its novel findings and expect to continue to do so.
Our Business Strategy
Our goal is to establish rare cannabinoid pharmaceutical products as important medicines for diseases with high unmet medical needs by pursuing the following strategies:
| • | AdvanceINM-755 andINM-088 through preclinical and early clinical development, thereby establishing important humanproof-of-concept in multiple therapeutic applications. |
These activities are well underway, at various stages, for bothINM-755 for diseases of the skin andINM-088 for diseases of the eye. Building upon preclinical data sets, we have the internal capabilities to design and execute, together with multiple external vendors, the preclinical data sets and clinical studies required to advance pharmaceutical drugs towards Food and Drug Administration, or “FDA”, approval and, ultimately, commercialization.
| • | Establishing partnerships for our various technologies, at different stages of development, to expedite their path towards commercialization in a resource-efficient manner. |
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We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. With respect to the commercialization of each Product Candidate, we may rely on either i) a“go-it-alone” commercialization effort; ii)out-licensing to third parties; or, iii)co-promotion agreements with strategic collaborators for our Product Candidates. Any decision on a“go-it-alone” commercialization effort versus out-licensing to third parties will depend on various factors including, but not limited to, the complexity, the expertise required and related cost of building any such infrastructure for our Product Candidates. ForINM-755 in EB, we could oversee the clinical trials, given the relatively small patient sizes expected for such trials, and build the requisite internal commercialization infrastructure to self-market the product to EB clinics, which are limited in number and provide direct access to the vast majority of EB patients. ForINM-088 in glaucoma, because of the potentially large number of clinical trial participants (possibly several thousand) and the extensive sales effort required to reach a large number of prescribing physicians, we may consider exploring partnership opportunities early in the development process.
| • | Develop a low cost manufacturing process for high quality rare cannabinoids as APIs for our core internal drug candidate pipeline, for licensing opportunities ofnon-core drug candidates, as well as a potential source for cost-effective cannabinoids in thenon-pharmaceutical space. |
We are developing a proprietary, robust, microbial-based biosynthesis process for producing selected rare cannabinoids in a cost-effective manner for use in pharmaceutical products. The cannabinoids that will be produced from our process are targeted to bebio-identical to the naturally occurring cannabinoids in theCannabis plant. Our process is designed to offer superior yield, control, consistency and quality of rare cannabinoids when compared to alternative methods. Through our R&D activities, we have identified two manufacturing approaches demonstrating the potential to produce cannabinoids to meet the long-term commercial requirements of our drug products and potentially to supply other pharmaceutical companies. In the current and rapidly emerging cannabinoid pharmaceutical sector, our biosynthesis approaches to produce pharmaceutical-grade andbio-identical cannabinoids are potentially disruptive.
| • | Continue to explore the potential of a wide array of rare cannabinoids to treat diseases based on our significant history in cannabinoid research and lead drug candidate identification. |
Individual cannabinoids affect a range of different receptors in the human body, including, but not limited to, known endocannabinoid receptors. As such, they are responsible for a wide variety of pharmacological effects. However, due to the limited research into these varying effects, a full understanding of the role of each cannabinoid compound remains elusive. As a company, we have been formally investigating the utility of cannabinoids in treating disease for over 5 years. Our scientific founder, Dr. Sazzad Hossain (who retired in 2019), spent decades researching therapeutic applications of cannabinoids.
At the core of our activities, we are a pharmaceutical drug development company focused on commercializing important cannabinoid-based medicines to treat diseases with high unmet medical needs. We have numerous options for commercializing our various technologies.
Risks Related to Our Business
Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section entitled “Risk Factors” in this prospectus. These risks include, among others:
| • | We have no commercial revenues, have incurred significant losses since inception, may never become profitable, and will continue to incur substantial and increasing losses for the foreseeable future as we develop and seek regulatory approval for our products and technologies. |
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| • | We will need to raise additional capital to fund operations in the future. If additional capital is not available, we will have to delay, reduce or cease operations. Such capital may be dilutive to our existing shareholders. |
| • | We are subject to regulatory approval processes that are lengthy, time consuming and unpredictable, and we may not obtain approval for our products from the FDA or foreign regulatory agencies. |
| • | Our prospects depend on the success of our Product Candidates which are at early stages of development with a statistically high probability of failure. |
| • | Even if we obtain regulatory approval, commercial success is uncertain. |
| • | Our product candidates may be subject to controlled substance regulations in some or all jurisdictions, which may negatively impact our business. |
| • | Our biosynthesis manufacturing program may prove unsuccessful in achieving yields and/or cost levels required to be economically competitive with alternative methods of manufacturing. |
| • | Our success is largely dependent upon intellectual property assets. We may be unable to obtain, maintain and protect our intellectual property assets, which could impair our commercial opportunities. |
| • | We are highly dependent on our key personnel, and we may be unable to recruit and retain key such employees, including external contract research organizations, or “CROs”, third party manufacturers, and others. |
| • | As a Canadian company, certain matters may negatively impact your investment, including: certain Canadian laws that may delay or negate a change in control; investor’s tax implications if we are deemed to be a “passive foreign investment company’; investor’s ability to enforce judgements against executives/officers; and, we are significantly exposed to fluctuations in currency exchange rates, among others. |
| • | We expect to face intense competition, often from companies with greater resources and experience than we have. |
| • | There is a limited market for our securities and the market prices for our common shares and listed warrants are volatile and will fluctuate. |
Corporate Information
We were incorporated in the Province of British Columbia on May 19, 1981, under the Business Corporations Act of British Columbia, or “BCBCA”, under the name Kadrey Energy Corporation. From our incorporation through to early 2014, we operated several businesses in different industrial sectors and underwent a number of corporate name changes. On May 10, 2014, we acquired Biogen Sciences Inc., a privately held British Columbia pharmaceutical company focused on drug discovery and development of cannabinoids. On October 6, 2014, we changed our name to “InMed Pharmaceuticals Inc.” when we began to specialize in cannabinoid pharmaceutical product development. Our telephone number is (604)669-7207. We have three subsidiaries, Biogen Sciences Inc., Sweetnam Consulting Inc., and InMed Pharmaceuticals Ltd. Our website address is https://www.inmedpharma.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
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Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined by the Jumpstart Our Business Startups Act of 2012. As such, we are eligible to take advantage of exemptions from various disclosure and reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:
| • | our exemption from the auditor attestation requirements of Section 404(b) of theSarbanes-Oxley Act of 2002; |
| • | being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, in each case, instead of three years; |
| • | being permitted to present the same number of years of selected financial data as the years of audited financial statements presented, instead of five years; |
| • | reduced disclosure obligations regarding executive compensation, including no Compensation Disclosure and Analysis; |
| • | our exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; and |
| • | our exemption from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock.
We have elected not to “opt out” of the exemption for the delayed adoption of certain accounting standards and, therefore, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.
We are also a “smaller reporting company,” meaning that the market value of our common shares held bynon-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our common shares held bynon-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our common shares held bynon-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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The Offering
| Common shares offered by us | [ ] shares. | |
| Common shares to be outstanding after this offering | [ ] shares (or [ ] shares if the underwriters exercise their option to purchase additional shares in full). | |
| Underwriters’ option to purchase additional shares | We have granted the underwriters a30-day option to purchase up to [ ] additional common shares at the public offering price, less underwriting discounts and commissions on the same terms as set forth in this prospectus. | |
| Use of proceeds | We estimate that the net proceeds to us from the sale of shares of our common shares in this offering will be approximately $[ ] million, or $[ ] million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $[ ] per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering to [ ]. See “Use of Proceeds.” | |
| Proposed Nasdaq Capital Market symbol | “INM” | |
| Risk factors | Investment in our common shares involves substantial risks. You should read this prospectus carefully, including the section entitled “Risk Factors” and the financial statements and the related notes to those statements included in this prospectus, before investing in our common shares. | |
The number of common shares to be outstanding after this offering is based on an aggregate of 172,283,633 shares outstanding as of March 31, 2020. The disclosure above does not include:
| • | 19,462,500 common shares issuable upon exercise of outstanding options as of March 31, 2020, at a weighted average exercise price of $0.31 per share, of which 14,185,994 shares were vested as of such date; |
| • | 17,717,641 common shares issuable upon the exercise of warrants outstanding as of March 31, 2020, at an exercise price of $0.87 per share; and |
| • | 14,994,227 common shares reserved for future issuance under our stock option plan as of March 31, 2020, plus any future increases in the number of common shares reserved for issuance under our stock option plan pursuant to evergreen provisions. |
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Summary Financial Data
| Years Ended June 30, | Six Months Ended December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (in thousands, except share and per share data) | ||||||||||||||||
Statement of Operations and Comprehensive Loss Data | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Research and development and patents | $ | 5,126 | $ | 1,934 | $ | 3,569 | $ | 1,655 | ||||||||
General and administrative | 4,297 | 6,056 | 1,759 | 2,193 | ||||||||||||
Amortization and depreciation | 119 | 118 | 58 | 60 | ||||||||||||
Total operating expenses | 9,542 | 8,108 | 5,386 | 3,908 | ||||||||||||
Interest income | 328 | 70 | 99 | 177 | ||||||||||||
Foreign exchange (loss) gain | (34 | ) | — | (11 | ) | 69 | ||||||||||
Net loss | (9,248 | ) | (8,038 | ) | (5,298 | ) | (3,662 | ) | ||||||||
Foreign currency translation gain (loss) | 53 | (233 | ) | 32 | (642 | ) | ||||||||||
Net loss and comprehensive loss | $ | (9,195 | ) | $ | (8,271 | ) | $ | (5,266 | ) | $ | (4,304 | ) | ||||
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted | 171,338,793 | 142,451,768 | 172,283,633 | 170,869,956 | ||||||||||||
Pro forma net loss per share, basic and | [ ] | [ ] | [ ] | [ ] | ||||||||||||
Weighted-average shares outstanding used in computing pro forma net loss per share, basic and diluted | [ ] | [ ] | [ ] | [ ] | ||||||||||||
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Investing in our common shares involves a high degree of risk. You should carefully consider each of the following risks, together with all other information set forth in this prospectus, including the consolidated financial statements and the related notes, before making a decision to buy our common shares. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common shares could decline, and you may lose all or part of your investment.
Risks Related to our Securities
The market prices for our common shares and listed warrants are volatile and will fluctuate.
The market price for our common shares and listed warrants may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including the following: (i) actual or anticipated fluctuations in our quarterly financial results; (ii) recommendations by securities research analysts; (iii) changes in the economic performance or market valuations of other issuers that investors deem comparable to ours; (iv) addition or departure of our executive officers or members of our Board and other key personnel; (v) release or expiration oflock-up or other transfer restrictions on outstanding common shares and listed warrants; (vi) sales or perceived sales of additional common shares and warrants; (vii) liquidity of the common shares and listed warrants; (viii) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; and (ix) news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets. Financial markets often experience significant price and volume fluctuations that affect the market prices of equity securities of public entities and that are, in many cases, unrelated to the operating performance, underlying asset values or prospects of such entities. Accordingly, the market price of our common shares and listed warrants may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. As well, certain institutional investors may base their investment decisions on consideration of our environmental, governance and social practices and performance against such institutions’ respective investment guidelines and criteria, and failure to meet such criteria may result in limited or no investment in our common shares and listed warrants by those institutions, which could materially adversely affect the trading price of our common shares and listed warrants. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue for a protracted period of time, our operations could be materially adversely impacted and the trading price of our common shares and listed warrants may be materially adversely affected.
There is a limited market for our securities.
Our common shares and listed warrants are listed on the TSX and our common shares are currently quoted on the OTCQX® Best Market. We have applied to list our common shares on Nasdaq. However, there can be no assurance that Nasdaq will approve our listing application, or that an active and liquid market for the common shares will develop or be maintained on the applicable stock exchanges, and an investor may find it difficult to resell any of our securities.
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or Product Candidates.
We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing ownership interests will be diluted and the terms of such financings may include liquidation or other preferences that adversely affect the rights of
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existing shareholders. Debt financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing shareholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our Product Candidates or grant licenses on terms that are not favorable to us.
Future offerings of debt or equity securities may rank senior to common shares.
If we decide to issue debt or equity securities in the future ranking senior to our common shares or otherwise incur additional indebtedness, it is possible that these securities or indebtedness will be governed by an indenture or other instrument containing covenants restricting our operating flexibility and limiting our ability to pay dividends to shareholders. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges, including with respect to dividends, more favorable than those of common shares and may result in dilution to shareholders. Because our decision to issue debt or equity securities in any future offering or otherwise incur indebtedness will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or financings, any of which could reduce the market price of our common shares and dilute their value.
Common shareholders are subordinated to our lenders.
In the event of bankruptcy, liquidation or reorganization, any holders of our debt and our trade creditors will generally be entitled to payment of their claims from our assets before any assets are made available for distribution to us or our shareholders. The common shares are effectively subordinated to our debt and other obligations. As of the date of this document, we do not have any debt obligations.
Future sales of common shares by officers and directors may negatively impact the market price for our common shares.
Subject to compliance with applicable securities laws, our directors and officers and their affiliates may sell some or all of their common shares in the future. No prediction can be made as to the effect, if any, such future sales of common shares may have on the market price of the common shares prevailing from time to time. However, the future sale of a substantial number of common shares by our directors and officers and their affiliates, or the perception that such sales could occur, could adversely affect prevailing market prices for our common shares.
We have additional securities in the form of warrants.
Our listed warrants, issued on June 21, 2018 and expiring on June 21, 2020, are listed on the TSX. The liquidity of the trading market in our listed warrants and the sale price, if any, for such listed warrants, may be adversely affected by, among other things: changes in the overall market for the listed warrants; changes in our financial performance or prospects; changes or perceived changes in our creditworthiness; the prospects for companies in the industry generally; and the number of holders of the listed warrants.
The remainder of our outstanding share purchase warrants are not listed on any exchange, and we do not intend to list these unlisted warrants on any exchange. Investors may be unable to sell our unlisted warrants at the prices desired or at all. There is no existing trading market for our unlisted warrants and there can be no assurance that a liquid market will develop or be maintained for such unlisted warrants, or that an investor will be able to sell any of such unlisted warrants at a particular time (if at all). The liquidity of the trading market in our
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unlisted warrants and the sale price, if any, for such unlisted warrants, may be adversely affected by, among other things: changes in the overall market for the unlisted warrants; changes in our financial performance or prospects; changes or perceived changes in our creditworthiness; the prospects for companies in the industry generally; the number of holders of the unlisted warrants; and the interest of securities dealers in making a market for the unlisted warrants.
We do not currently pay dividends on our common shares and have no intention to pay dividends on our common shares for the foreseeable future.
No dividends on our common shares have been paid by us to date. We do not intend to declare or pay any cash dividends in the foreseeable future. Payment of any future dividends will be at the discretion of our Board, after taking into account a multitude of factors appropriate in the circumstances, including our operating results, financial condition and current and anticipated cash needs. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends unless certain consents are obtained and certain conditions are met.
Investors in our securities may face adverse tax consequences. In particular, we may be considered a “passive foreign investment company” which may have adverse United States federal income tax consequences for United States shareholders.
Prospective investors should be aware that the purchase of any of our securities may have tax consequences in the United States, Canada and other jurisdictions. Prospective investors should consult with their own independent tax advisor before purchasing any of our securities.
In particular, investors in our common shares who are subject to United States federal taxation should be aware that we believe we may be classified as a passive foreign investment company, or “PFIC”, during the tax year ended June 30, 2019, and based on the nature of our business, the projected composition of our gross income and the projected composition and estimated fair market value of our assets, we may be classified as a PFIC for the current tax year ending June 30, 2020 and may be a PFIC in subsequent tax years. If we are a PFIC for any year during a United States shareholder’s holding period, then such United States shareholder generally will be required to treat any gain realized upon a disposition of common shares, or anyso-called “excess distribution” received on our common shares, as ordinary income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective “qualified electing fund” election, or a QEF election, or a“mark-to-market” election with respect to the common shares. A United States shareholder who makes a QEF election generally must report on a current basis its share of our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our shareholders. A United States shareholder who makes themark-to-market election generally must include as ordinary income each year the excess of the fair market value of the common shares over the taxpayer’s basis therein. The foregoing is qualified in its entirety by the more detailed discussion of the PFIC rules below in “Material United States Federal Income Tax Considerations – Passive Foreign Investment Company Rules.” Each United States shareholder should consult its own tax advisor regarding the United States federal, United States local, and foreign tax consequences of the PFIC rules and the acquisition, ownership, and disposition of our common shares.
We are exposed to risks related to currency exchange rates.
We currently hold most of our cash, cash equivalents and short-term investments in Canadian dollars which is our functional currency. Over time a greater portion of our operations may be conducted in U.S. dollars. Because our financial statements are presented in U.S. dollars, changes in currency exchange rates have had and could have a significant effect on our operating results. Exchange rate fluctuations between other currencies and the Canadian dollar create risk in several ways, including the following:
| • | weakening of the Canadian dollar may decrease the value of our cash, cash equivalents and short-term investments when translated to U.S. dollars in our financial statements; |
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| • | weakening of the Canadian dollar may reduce the U.S. dollar value of funds that we will have available for an increasing amount of research and development expenses incurred outside Canada and the cost of sourced product components from outside Canada; |
| • | weakening of the U.S. dollar may decrease the value of our revenues denominated in other currencies; |
| • | the exchange rates onnon-U.S. dollar transactions and cash deposits can distort our financial results; and |
| • | commercial product pricing and profit margins are affected by currency fluctuations. |
For as long as we are an “emerging growth company” we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our common shares being less attractive to investors and could make it more difficult for us to raise capital as and when we need it.
We are an “emerging growth company,” as defined in the JOBS Act, and we have taken advantage, and intend to continue to take advantage, of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of theSarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding anon-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Investors may find our common shares less attractive because we rely on these exemptions, which could contribute to a less active trading market for our common shares or volatility in our share price. In addition, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
We may take advantage of these reporting exemptions until we are no longer an emerging growth company.
If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common shares.
We will be required, under Section 404 of theSarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of theSarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the independent registered public accounting firm attestation requirement.
Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We may not be able to complete our evaluation, testing and any required
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remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. This may expose us, including individual executives, to potential liability which could significantly affect our business. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its Section 404 reviews, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common shares could decline, and we could be subject to sanctions or investigations by the TSX, Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments indecision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
Deficiencies in disclosure controls and procedures and internal control over financial reporting could result in a material misstatement in our financial statements.
We could be adversely affected if there are deficiencies in our disclosure controls and procedures or in our internal controls over financial reporting. The design and effectiveness of our disclosure controls and procedures and our internal controls over financial reporting may not prevent all errors, misstatements or misrepresentations. Consistent with other entities in similar stages of development, we have a limited number of employees currently in the accounting group, limiting our ability to provide for segregation of duties and secondary review. A lack of resources in the accounting group could lead to material misstatements resulting from undetected errors occurring from an individual performing primarily all areas of accounting with limited secondary review. Deficiencies in internal controls over financial reporting which may occur could result in material misstatements of our results of operations, restatements of financial statements, other required remediations, a decline in the price of our common shares or listed warrants, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.
In connection with the audit of our financial statements as of and for the years ended June 30, 2019 and 2018, material weaknesses in our internal control over financial reporting were identified and we may identify additional material weaknesses in the future.
In connection with the preparation and audits of our financial statements as of and for the years ended June 30, 2019 and 2018, material weaknesses (as defined under the Exchange Act and by the auditing standards of the U.S. Public Company Accounting Oversight Board, or “PCAOB”, were identified in our internal control
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over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected on a timely basis. The identified material weaknesses arose from a lack of resources in our finance function that resulted in an overstatement of the valuation of warrants issued as part of a financing.
In light of the identified material weaknesses, it is possible that, had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting in accordance with PCAOB standards, additional control deficiencies may have been identified.
We have begun taking measures, and plan to continue to take measures, to remediate these material weaknesses. However, the implementation of these measures may not fully address these material weaknesses in our internal control over financial reporting, and, if so, we would not be able to conclude that they have been fully remedied. Our failure to correct these material weaknesses or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our common shares, may be materially and adversely affected.
We have incurred, and will continue to incur, increased costs as a result of operating as a public company, and our management has been required, and will continue to be required, to devote substantial time to new compliance initiatives.
As a public company, we have incurred and are continuing to incur significant legal, accounting and other expenses and these expenses may increase even more after we are no longer an “emerging growth company.” In the United States, upon the effectiveness of this registration statement we will become subject to the reporting requirements of the Exchange Act and the rules adopted, and to be adopted, by the SEC and, when our common shares are listed on Nasdaq. Our management and other personnel devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations have substantially increased our legal and financial compliance costs and made some activities moretime-consuming and costly. The increased costs have increased our net loss. These rules and regulations may make it more difficult and more expensive for us to maintain sufficient director’s and officer’s liability insurance coverage. We cannot predict or estimate the amount or timing of additional costs we may continue to incur to respond to these requirements. The ongoing impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as executive officers.
Future sales and issuances of our common shares or rights to purchase common shares pursuant to our equity incentive plan could result in additional dilution of the percentage ownership of our shareholders and may cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantial amounts of common shares or securities convertible into or exchangeable for common shares. These future issuances of common shares or common share-related securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in material dilution to our investors. Such sales may also result in material dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common shares.
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Pursuant to our 2017 Amended and Restated Stock Option Plan, our compensation committee is authorized to grantequity-based incentive awards in the form of options to purchase common shares to our directors, executive officers and other employees and service providers. As of March 31, 2020, there were 14,994,227options to purchase common shares available for future grant under our stock option plan. Future equity incentive grants under our stock option plan may result in material dilution to our shareholders and may have an adverse effect on the market price of our common shares.
Provisions in our corporate charter documents and certain Canadian laws could delay or deter a change of control.
Provisions in our articles and ourby-laws, as well as certain provisions under the BCBCA and applicable Canadian securities laws, may discourage, delay or prevent a merger, acquisition, tender offer or other change in control of us that some shareholders may consider favorable. In addition, because our Board is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our Board. As well, our preferred shares are available for issuance from time to time at the discretion of our Board, without shareholder approval. Our articles allow our Board, without shareholder approval, to determine the special rights to be attached to our preferred shares, and such rights may be superior to those of our common shares.
In addition, limitations on the ability to acquire and hold our common shares may be imposed by the Competition Act in Canada. This legislation permits the Commissioner of Competition of Canada, or “Commissioner”, to review any acquisition of a significant interest in us. This legislation grants the Commissioner jurisdiction to challenge such an acquisition before the Canadian Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada. The Investment Canada Act subjects an acquisition of control of a company by anon-Canadian to government review if the value of our assets, as calculated pursuant to the legislation, exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to result in a net benefit to Canada. Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic opportunities for our shareholders to sell their shares.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our share price and trading volume may decline.
The trading market for our common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable research about our business, our shares price may decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our shares may decrease, which may cause our shares price and trading volume to decline.
We are incorporated in Canada, with our assets and officers primarily located in Canada, with the result that it may be difficult for investors to enforce judgments obtained against us or some of our officers.
We are a company organized and existing under the laws of British Columbia, Canada. Many of our directors and officers and the experts named in this registration statement are residents of Canada or otherwise reside outside the United States, and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside the United States. It may be difficult for holders of common shares who reside in the United States to effect service within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult for holders of securities who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our directors, officers and experts under the U.S. federal securities laws. Our Canadian counsel has advised us that there is doubt as to the enforceability in Canada against us or against our directors,
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officers and experts who are not residents of the United States, in original actions or in actions for enforcement of judgments of courts of the United States, of liabilities predicated solely upon U.S. federal or state securities laws.
Conversely, some of our directors and officers reside outside Canada and some of our assets are also located outside Canada. Therefore, it may not be possible for you to enforce in Canada against our assets or those directors and officers residing outside Canada, judgments obtained in Canadian courts based upon the civil liability provisions of the Canadian securities laws or other laws of Canada.
Risks Related to our Financial Position and Capital Needs
We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.
Since our inception as a pharmaceutical company in October 2014, we have devoted substantially all of our resources to the development of our proprietary Product Candidates. We have generated significant operating losses since our inception with an accumulated deficit to December 31, 2019 of approximately $61.0 million. Our comprehensive losses for the fiscal years ended June 30, 2019 and 2018 were approximately $9.2 million and $8.3 million, respectively. For thesix-month period ending December 31, 2019, we had a comprehensive loss of $5.3 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses will increase as we continue the research and development of, and clinical trials for, our Product Candidates. In addition to budgeted expenses, we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. If our Product Candidates fail in preclinical or clinical trials, or do not gain regulatory approval, or even if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.
Due to our limited operating history and history of losses, any predictions about our future success, performance or viability may not be accurate.
We will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete the development and commercialization of our Product Candidates.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial and increasing amounts to conduct further research and development, preclinical testing and clinical trials of our Product Candidates, to seek regulatory approvals and reimbursement for our Product Candidates and to launch and commercialize any Product Candidates for which we receive regulatory approval.
As at December 31, 2019, we had approximately $9.2 million in cash, cash equivalents and short-term investments, which we currently estimate funds our base operations until approximately into the second quarter of calendar 2021. Included in our base operations are overheads, the completion of both the currently ongoingINM-755 Phase I clinical trial, Study755-101-HV, and the second Phase I clinical trial, Study755-102-HV, certain formulation and early preclinical development work forINM-088, and furtherscale-up of the biosynthesis program. Our ability to develop our research and development programs beyond these specific activities, which are expected to be substantially completed by the end of our current fiscal year, is subject to accessing additional capital, including through the sale of equity, partnership revenues, andout-licensing activities. There is no assurance that we will be successful in these efforts.
The progress of our Product Candidates for both current and prospective target indication(s) is uncertain because it is difficult to predict our spending for our Product Candidates up to the time that we seek
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FDA approval due to numerous factors, including, without limitation, the rate of progress of clinical trials, the results of preclinical studies and clinical trials for such indication, the costs and timing of seeking and obtaining FDA and other regulatory approvals for clinical trials and FDA guidance regarding clinical trials for such indication. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control. For these reasons, we are unable to state unequivocally the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near andlong-term, will depend on many factors, including, but not limited to:
| • | the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our Product Candidates; |
| • | any change in the clinical development plans or target indications for these Product Candidates; |
| • | the number and characteristics of Product Candidates that we develop or mayin-license; |
| • | the terms of any collaboration agreements we may choose to execute; |
| • | the outcome, timing and cost of meeting regulatory requirements established by the Drug Enforcement Administration, or “DEA”, the FDA, the European Medicines Agency, or “EMA”, Health Canada, or “HC”, or other comparable foreign regulatory authorities; |
| • | the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; |
| • | the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us; |
| • | the effect of competing product and market developments; |
| • | the costs and timing of the implementation of commercial scale manufacturing activities; and |
| • | the cost of establishing, or outsourcing, sales, marketing and distribution capabilities for any Product Candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own. |
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our Product Candidates or one or more of our other research and development initiatives.
Any doubt about our ability to continue as a going concern may materially and adversely affect the price of our common shares and warrants, and it may be more difficult for us to obtain financing. Any doubt about our ability to continue as a going concern may also adversely affect our relationships with current and future collaborators, contract manufacturers and investors, who may become concerned about our ability to meet our ongoing financial obligations. If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase our financial resources may be limited. We have prepared our financial statements on a going concern basis, which assumes that we will be able to meet our commitments, realize our assets and discharge our liabilities in the normal course of business. Our consolidated financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
We currently have no commercial revenue and may never become profitable.
To date, the only revenue we have generated has been from the receipt of research grants and interest income on short-term investments. Our ability to generate revenue and become profitable depends upon our
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ability to obtain regulatory approval for, and successfully commercialize, our Product Candidates that we may develop,in-license or acquire in the future.
Even if we are able to successfully achieve regulatory approval for these Product Candidates, we do not know what the reimbursement status of our Product Candidates will be or when any of these products will generate revenue for us, if at all. We have not generated, and do not expect to generate, any product revenue for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies and clinical trials and the regulatory approval process for our Product Candidates. The amount of future losses is uncertain and will depend, in part, on the rate of growth of our expenses.
Our ability to generate revenue and become profitable depends upon a number of additional factors, including our ability to:
| • | successfully complete development activities, including the remaining preclinical studies and ongoing and planned clinical trials for our Product Candidates; |
| • | in-license or acquire in the future, Product Candidates and other potential lines of business that we may develop; |
| • | complete and submit NDAs to the FDA and Marketing Authorization Applications, or “MAAs”, to the EMA, and obtain regulatory approval for indications for which there is a commercial market; |
| • | complete and submit applications to, and obtain regulatory approval from, other foreign regulatory authorities; |
| • | manufacture any approved products in commercial quantities and on commercially reasonable terms; |
| • | develop a commercial organization, or find suitable partners, to market, sell and distribute approved products in the markets in which we have retained commercialization rights; |
| • | achieve acceptance among patients, clinicians and advocacy groups for any products we develop; |
| • | obtain coverage and adequate reimbursement from third parties, including government payors; and |
| • | set a commercially viable price for any products for which we may receive approval. |
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. Even if we are able to complete the processes described above, we anticipate incurring significant costs associated with commercializing our Product Candidates.
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and ability to achieve profitability.
We are subject to income taxes in Canada. As our operations expand, we may become subject to income tax in jurisdictions outside of Canada. Our effective income tax rate in the future could be adversely affected by a number of factors including changes in the mix of earnings (losses) in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws. We regularly assess all of these matters to determine the adequacy of our tax provision which is subject to discretion. If our assessments are incorrect, it could have an adverse effect on our business and financial condition. There can be no assurance that income tax laws and administrative policies with respect to the income tax consequences generally applicable to us or to our subsidiaries will not be changed in a manner which adversely affects our shareholders.
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Our ability to use our net operating loss carryforwards and other tax attributes may be limited.
As of our last fiscal year end, we hadnon-capital loss, or “NOL”, carry-forwards of approximately $28.9 million available to offset future taxable income in Canada. These NOL carry-forwards begin to expire in 2026.
Our NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under provisions in the Canadian Income Tax Act, and corresponding provisions of Canadian provincial law, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change, by value, the corporation’s ability to use itspre-change Canadian NOLs and otherpre-change tax attributes, such as research and development tax credits, to offset its post-change income may be limited. Specifically, NOLs from a business before the change of control may be carried forward to taxation years after the change of control, but only if the same business is carried forward on after the change in control with a reasonable expectation of profit, and only to offset income from that business or a similar business. We have not performed any analyses under the applicable provisions in the Canadian Income Tax Act and cannot forecast or otherwise determine our ability to derive benefit from our various federal or provincial tax attribute carryforwards. As a result, if we earn net taxable income, our ability to use ourpre-change NOL carryforwards to offset Canadian federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the provincial level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase provincial taxes owed.
In addition, we may experience ownership changes in the future as a result of subsequent shifts in our share ownership, including in any future offerings, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our NOL carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
Changes to accounting standards may adversely impact the manner in which we report our financial position and operating results.
There are ongoing projects conducted by the Financial Accounting Standards Board in the United States that are expected to result in new pronouncements that continue to evolve, which could adversely impact the manner in which we report our financial position and operating results.
Risks Related to our Business and Industry
Our biosynthesis program may prove unsuccessful in achieving yields and/or cost levels required to be economically competitive with alternative methods of manufacturing.
Given the early stage of development of the biosynthesis program and the risks inherent in research and development, it is too early to project the commercial viability of cannabinoids produced via this process. Potential negative outcomes from this program include but are not limited to:
| • | the technology fails to produce sufficient quantities of cannabinoids or ones for which we or others have a need; or |
| • | the cost structure of the technology is such that it is not commercially competitive with alternate methods of cannabinoid manufacturing leading to the technology having no value proposition nor incremental value to the Company. |
Our prospects depend on the success of our Product Candidates which are at early stages of development with a statistically high probability of failure.
Given the early stage of development, we can make no assurance that our research and development programs will result in regulatory approval or commercially viable products. To achieve profitable operations,
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we, alone or with others, must successfully develop, gain regulatory approval, and market our future products. We currently have no products that have been approved by the FDA, HC, or any similar regulatory authority. To obtain regulatory approvals for our Product Candidates being developed and to achieve commercial success, clinical trials must demonstrate that the Product Candidates are safe for human use and that they demonstrate efficacy. We have no products or technologies which are currently in human clinical trials. Additionally, we have no products for commercial sale or licensed for commercial sale, nor do we expect to have any such products for the next several years.
Many potential pharmaceuticals products never reach the stage of clinical testing and even those that do have only a small chance of successfully completing clinical development and gaining regulatory approval. Our Product Candidates may fail for a number of reasons, including, but not limited to, being unsafe for human use or due to the failure to provide therapeutic benefits equal to or better than the standard of treatment at the time of testing. Positive results of early preclinical research may not be indicative of the results that will be obtained in later stages of preclinical or clinical research. Similarly, positive results from early stage clinical trials may not be indicative of favorable outcomes in later-stage clinical trials. We can make no assurance that any future studies, if undertaken, will yield favorable results.
The early stage of our product development makes it particularly uncertain whether any of our product development efforts will prove to be successful and meet applicable regulatory requirements, and whether any of our Product Candidates will receive the requisite regulatory approvals, be capable of being manufactured at a reasonable cost or be successfully marketed. If we are successful in developing our current and future Product Candidates into approved products, we will still experience many potential obstacles, such as the need to develop or obtain manufacturing, marketing and distribution capabilities. If we are unable to successfully commercialize any of our products, our financial condition and results of operations may be materially and adversely affected.
Even if our Product Candidates advance through preclinical studies and clinical trials, we may experience difficulties in managing our growth and expanding our operations.
We have limited resources to carry out objectives for our current and future preclinical studies and clinical trials. Since our inception as a pharmaceutical company in October 2014, we have conducted numerous preclinical experiments and are currently conducting early stage clinical trials, which is atime-consuming, expensive and uncertain process. In addition, while we have experienced management and expect to contract out many of the activities related to conducting these programs, we are a small company with less than 20 employees and therefore have limited internal resources both to conduct preclinical studies and clinical trials and to monitorthird-party providers. As our Product Candidates advance through preclinical studies and clinical trials, we will need to expand our development, regulatory and manufacturing operations, either by expanding our internal capabilities or contracting with other organizations to provide these capabilities for us. In the future, we expect to have to manage additional relationships with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures.
If we have difficulty enrolling patients in clinical trials, the completion of the trials may be delayed or cancelled.
As our Product Candidates advance from preclinical testing to clinical testing, and then through progressively larger and more complex clinical trials, we will need to enroll an increasing number of patients that meet the eligibility criteria for those trials. The factors that affect our ability to enroll patients are largely uncontrollable and include, but are not limited to, the following:
| • | size and nature of the patient population; |
| • | inclusion and exclusion criteria for the trial; |
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| • | design of the study protocol; |
| • | competition with other companies for clinical sites or patients; |
| • | the perceived risks and benefits of the product candidate under study; |
| • | the patient referral practices of physicians; and |
| • | the number, availability, location and accessibility of clinical trial sites. |
As a result of the foregoing factors, we may have difficulty enrolling or maintaining the enrollment of patients in any clinical trials conducted for our products, which may result in the delay or cancellation of such trials. The delay or cancellation of any clinical trials could shorten any periods during which we may have the exclusive right to commercialize our Product Candidates or allow our competitors to bring products to market before us, which would impair our ability to successfully commercialize our Product Candidates and may harm our financial condition, results of operations and prospects.
If clinical trials of our Product Candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we would incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our Product Candidates.
Before obtaining marketing approval from regulatory authorities for the sale of our Product Candidates, we must conduct preclinical studies in animals and extensive clinical trials in humans to demonstrate the safety and efficacy of the Product Candidates. Clinical testing is expensive and difficult to design and implement, can take many years to complete and has uncertain outcomes. The outcome of preclinical studies and early clinical trials may not predict the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in earlier trials. We do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market any of our Product Candidates in any jurisdiction. A product candidate may fail for safety or efficacy reasons at any stage of the testing process. A major risk we face is the possibility that none of our Product Candidates under development will successfully gain market approval from the FDA or other regulatory authorities, resulting in us being unable to derive any commercial revenue from them after investing significant amounts of capital in multiple stages of preclinical and clinical testing.
If we experience delays in clinical testing, we will be delayed in commercializing our Product Candidates, and our business may be substantially harmed.
We cannot predict whether any clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Our product development costs will increase if we experience delays in clinical testing. Significant clinical trial delays could shorten any periods during which we may have the exclusive right to commercialize our Product Candidates or allow our competitors to bring products to market before us, which would impair our ability to successfully commercialize our Product Candidates and may harm our financial condition, results of operations and prospects. The commencement and completion of clinical trials for our products may be delayed for a number of reasons, including delays related, but not limited, to:
| • | failure by regulatory authorities to grant permission to proceed or placing the clinical trial on hold; |
| • | import/export and research restrictions for cannabinoid-based pharmaceuticals may delay or prevent clinical trials in various geographical jurisdictions; |
| • | patients failing to enroll or remain in our trials at the rate we expect; |
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| • | suspension or termination of clinical trials by regulators for many reasons, including concerns about patient safety or failure of our contract manufacturers to comply with current good manufacturing practice, or “cGMP”, requirements; |
| • | any changes to our manufacturing process that may be necessary or desired; |
| • | delays or failure to obtain clinical supply from contract manufacturers of our products necessary to conduct clinical trials; |
| • | Product Candidates demonstrating a lack of safety or efficacy during clinical trials; |
| • | patients choosing an alternative treatment for the indications for which we are developing any of our Product Candidates or participating in competing clinical trials and/or scheduling conflicts with participating clinicians; |
| • | patients failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons; |
| • | reports of clinical testing on similar technologies and products raising safety and/or efficacy concerns; |
| • | clinical investigators not performing our clinical trials on their anticipated schedule, dropping out of a trial, or employing methods not consistent with the clinical trial protocol, regulatory requirements or other third parties not performing data collection and analysis in a timely or accurate manner; |
| • | failure of our CROs, to satisfy their contractual duties or meet expected deadlines; |
| • | inspections of clinical trial sites by regulatory authorities or Institutional Review Boards, or “IRBs”, or ethics committees finding regulatory violations that require us to undertake corrective action, resulting in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study; |
| • | one or more IRBs or ethics committees rejecting, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; or |
| • | failure to reach agreement on acceptable terms with prospective clinical trial sites. |
Our product development costs will increase if we experience delays in testing or approval or if we need to perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur, and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to regulatory authorities or IRBs or ethics committees forre-examination, which may impact the cost, timing or successful completion of that trial. Delays or increased product development costs may have a material adverse effect on our business, financial condition and prospects.
Negative results from clinical trials or studies of others and adverse safety events involving the targets of our products may have an adverse impact on our future commercialization efforts.
From time to time, studies or clinical trials on various aspects of pharmaceutical products are conducted by academic researchers, competitors or others. The results of these studies or trials, when published, may have a significant effect on the market for the pharmaceutical product that is the subject of the study. The publication of negative results of studies or clinical trials or adverse safety events related to our Product Candidates, or the therapeutic areas in which our Product Candidates compete, could adversely affect the price of our common shares and our ability to finance future development of our Product Candidates, and our business and financial results could be materially and adversely affected.
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We intend to expend our limited resources to pursue our Product Candidates for certain indications and may fail to capitalize on other Product Candidates or other indications for our Product Candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we are focusing on research programs relating to our Product Candidates for certain indications, primarily for the treatment of EB, which concentrates the risk of product failure in the event our Product Candidates prove to be unsafe or ineffective or inadequate for clinical development or commercialization. As a result, we may forego or delay pursuit of opportunities with other Product Candidates or for other indications that could later prove to have greater commercial potential. We may also deem it advisable to refocus our clinical development programs based on clinical trial results.
The regulatory approval processes of the FDA, HC, 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.
We are not permitted to market our Product Candidates in any jurisdiction until we receive formal approval from the appropriate regulatory authorities. For example, 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 preclinical studies and clinical trials. Successfully completing our clinical program and obtaining approval of an application seeking commercialization approval is a complex, lengthy, expensive and uncertain process, and the regulatory authorities may delay, limit or deny approval of our Product Candidates for many reasons, including, among others, because:
| • | we may not be able to demonstrate that our Product Candidates are safe and effective in treating patients to the satisfaction of the regulatory authorities such as the FDA, HC or EMA; |
| • | the results of our clinical trials may not meet the level of statistical or clinical significance required by the regulatory authorities for marketing approval; |
| • | the regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical trials; |
| • | the regulatory authorities may require that we conduct additional clinical trials; |
| • | the regulatory authorities or other applicable foreign regulatory authorities may not approve the formulation, labeling or specifications of our Product Candidates; |
| • | the contract manufacturing organizations and other contractors that we may retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our clinical trials; |
| • | the regulatory authorities may find the data from clinical studies and clinical trials insufficient to demonstrate that our Product Candidates are safe and effective for their proposed indications; |
| • | the regulatory authorities may disagree with our interpretation of data from our preclinical studies and clinical trials; |
| • | the regulatory authorities may not accept data generated at our clinical trial sites or may disagree with us over whether to accept efficacy results from clinical trial sites outside the United States, Canada or outside the European Union, as applicable, where the standard of care is potentially different from that in the United States, Canada or in the European Union, as applicable; |
| • | if our applications are submitted to the regulatory authorities, the regulatory authorities may have difficulties scheduling the necessary review meetings in a timely manner, may recommend against approval of our application or may recommend or require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions; |
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| • | the FDA may require development of a Risk Evaluation and Mitigation Strategy which would use risk minimization strategies to ensure that the benefits of certain prescription drugs outweigh their risks, as a condition of approval orpost-approval, and the EMA may grant only conditional marketing authorization or impose specific obligations as a condition for marketing authorization, or may require us to conductpost-authorization safety studies; |
| • | the FDA, DEA, HC, EMA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities ofthird-party manufacturers with which we contract or DEA or other applicable foreign regulatory agency quotas may limit the quantities of controlled substances available to our manufacturers; or |
| • | the FDA, HC, EMA or other applicable foreign regulatory agencies may change their approval policies or adopt new regulations. |
In the United States, our activities are potentially subject to additional regulation by various federal, state and local authorities in addition to the FDA, including, among others, the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services, or “HHS”, (for example, the Office of Inspector General), the Department of Justice, or “DOJ”, and individual United States Attorney offices within the DOJ, and state and local governments. Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre marketing product approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Any of these factors, many of which are beyond our control, could increase development costs, jeopardize our ability to obtain regulatory approval for and successfully market our Product Candidates and generate product revenue.
We intend to conduct clinical trials for our Product Candidates in several international jurisdictions, and acceptance by all regulatory authorities for such “international” data is not certain.
We intend to conduct clinical trials for our Product Candidates both inside and outside the United States. Ultimately, we plan to submit NDAs for our Product Candidates to the FDA and other regulatory authorities upon completion of all requisite clinical trials. As an example, although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the clinical trial must be conducted in accordance with FDA regulations relating governing human subject protection and the conduct of clinical trials, which are referred to as “Good Clinical Practice”, or “GCP” requirements and the FDA must be able to validate the data from the clinical trial through an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are considered applicable to the U.S. patient population and U.S. medical practice, the clinical trials were performed by clinical investigators of recognized competence, and the data is considered valid without the need for anon-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through anon-site inspection or other appropriate
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means. In addition, such clinical trials would be subject to the applicable local laws of the foreign jurisdictions where the clinical trials are conducted. There can be no assurance the FDA or any other regulatory authorities will accept data from clinical trials conducted outside of the United States or other international jurisdiction. If the FDA or any other regulatory authorities does not accept any such data, it would likely result in the need for additional clinical trials, which would be costly andtime-consuming and delay aspects of our development plan.
In addition, the conduct of clinical trials outside the United States could have a significant impact on us. Risks inherent in conducting international clinical trials include:
| • | foreign regulatory requirements that could burden or limit our ability to conduct our clinical trials; |
| • | administrative burdens of conducting clinical trials under multiple foreign regulatory schema; |
| • | foreign currency fluctuations which could negatively impact our financial condition since certain payments are paid in local currencies; |
| • | manufacturing, customs, shipment and storage requirements; |
| • | cultural differences in medical practice and clinical research; and |
| • | diminished protection of intellectual property in some countries. |
Our Product Candidates contain compounds that may be classified as “controlled substances”, the use of which may generate public controversy and restrict their development or commercialization.
If a drug has a potential for abuse, the NDA or other regulatory submission must include a description and analysis of studies or information related to abuse of the drug, including a proposal for scheduling (for example, in the U.S. under the federal Controlled Substances Act, or “CSA”). A description of any studies related to overdosage is also required, including information on dialysis, antidotes, or other treatments, if known. While we believe there would be relatively minimal abuse potential with our Product Candidates, we could be wrong or they may be perceived as having the potential for substance abuse. In either case, there may be a negative effect on our ability to successfully develop or commercialize our Product Candidates. Since our Product Candidates contain substances related to theCannabis plant and may therefore be classified as “controlled substances”, their regulatory approval may generate public controversy. Political and social pressures and adverse publicity could lead to delays in approval of, and increased expenses for, our Product Candidates. These pressures could also limit or restrict the introduction and marketing of our Product Candidates. Adverse publicity fromCannabis misuse or adverse side effects fromCannabis or other cannabinoid products may adversely affect the commercial success or market penetration achievable for our Product Candidates. The nature of our business attracts a high level of public and media interest, and in the event of any resultant adverse publicity, our reputation may be harmed. Furthermore, if our Product Candidates are classified as “controlled substances”, they may be subject to import/export and research restrictions that could delay or prevent the development of our products in various geographical jurisdictions. The successful commercialization of our Product Candidates may require permits or approvals from regulatory bodies, such as the DEA, that regulate controlled substances.
Research restrictions, product shipment delays or prohibitions could have a material adverse effect on our business, results of operations and financial condition.
Research on and the shipment, import and export of our Product Candidates and the API used in our Product Candidates will require research permits, import and export licenses by many different authorities. For instance, in the United States, the FDA, U.S. Customs and Border Protection, and the DEA; in Canada, the Canada Border Services Agency, and HC; in Europe, the EMA and the European Commission; in Australia and New Zealand, the Australian Customs and Border Protection Service, the Therapeutic Goods Administration, the New Zealand Medicines and Medical Device Safety Authority and the New Zealand Customs Service; and in other countries, similar regulatory authorities, regulate the research on and import and export of pharmaceutical
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products that contain controlled substances. Specifically, the import and export process requires 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, shipments of API and our Product Candidates may be held up 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 Product Candidates. Once shipment is complete, we or the research contractors we are working with may also suffer further delays or restrictions as a result of regulations governing research on cannabinoids. 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 Product Candidates could have a material adverse effect on our business, results of operations and financial condition. The aforementioned examples and lists of various authorities that may currently, or in the future, affect our ability to conduct research on or import or export our Product Candidates and/or API, should not be construed as exhaustive or comprehensive in any way.
Healthcare legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercialize our Product Candidates.
Particularly in the United States but also in other jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our Product Candidates, restrict or regulatepost-approval activities or affect our ability to profitably sell any Product Candidates for which we obtain marketing approval. One such regulation is the U.S. federal Patient Protection and Affordable Care Act (P.L.111-148), or “PPACA”, also referred to as the “Affordable Care Act” or “ACA”, was signed March 23, 2010, as amended by the Health Care and Education Reconciliation Act, signed March 31, 2010. The act contains many provisions, with various effective dates. Provisions included in the ACA are intended to expand access to insurance, increase consumer protections, emphasize prevention and wellness, improve quality and system performance, expand the health workforce, and curb rising health care costs. The ACA aims to extend health insurance coverage to about 32 million uninsured Americans by expanding both private and public insurance.
We expect that the Affordable Care Act, as well as other healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenue. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.
Increased scrutiny on drug pricing or changes in pricing regulations could restrict the amount that we are able to charge for our Product Candidates, which could adversely affect our revenue and results of operations.
Drug pricing by pharmaceutical companies is currently under increased scrutiny and is expected to continue to be the subject of intense political and public debate in the United States and other jurisdictions. Specifically, there have been several recent U.S. Congressional inquiries and hearings with respect to pharmaceutical drug pricing practices, including in connection with the investigation of specific price increases by several pharmaceutical companies. Additionally, several states have recently passed laws designed to, among other things, bring more transparency to drug pricing, and other states may pursue similar initiatives in the future. We cannot predict the extent to which our business may be affected by these or other potential future legislative or regulatory developments. However, increased scrutiny on drug pricing, negative publicity related to the pricing of pharmaceutical drugs generally, or changes in pricing regulations could restrict the amount that we are able to charge for our Product Candidates, which could have a material adverse effect on our revenue and results of operations.
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Even if we are able to commercialize our Product Candidates, they may not receive coverage and adequate reimbursement fromthird-party payors, which could harm our business.
The availability of reimbursement by governmental and private payors is essential for most patients to be able to afford their treatments. Sales of our Product Candidates, if approved, will depend substantially on the extent to which the costs of these Product Candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and otherthird-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our Product Candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
In the United States, the Medicare Modernization Act, established the Medicare Part D program and provided authority for limiting the number of drugs that will be covered in any therapeutic class thereunder. The Medicare Modernization Act, including its cost reduction initiatives, could decrease the coverage available for any of our approved products. Furthermore, private payors often follow Medicare in setting their own coverage policies. Therefore, any reduction in coverage that results from the Medicare Modernization Act may result in a similar reduction from private payors.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or “CMS”, an agency within the HHS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.
The intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable under Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular product may be uncertain.
Outside the United States, particularly in EU Member States, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations or the successful completion of Health Technology Assessment, or “HTA”, procedures with governmental authorities can take considerable time after receipt of marketing authorization 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. Certain countries allow companies to fix their own prices for medicines but monitor and control company profits. 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 betweenlow-priced andhigh-priced EU member states, can further reduce net realized prices. In some countries, we or our collaborators may be required to conduct a clinical trial or other studies that compare thecost-effectiveness of our Product Candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts bythird-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 any product candidate approved for marketing is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations or prospects could be adversely affected.
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Our relationships with customers andthird-party payors will be subject to applicableanti-kickback, fraud and abuse, federal exclusion or debarment, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians andthird-party payors play a primary role in the recommendation and prescription of any Product Candidates for which we obtain marketing approval. Our future arrangements withthird-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or otherthird-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our ability to operate include the following:
| • | the U.S. federal healthcareAnti-Kickback Statute impacts our marketing practices, educational programs, pricing policies and relationships with healthcare providers or other entities, by prohibiting, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid; |
| • | federal civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of government funds (including through reimbursement by Medicare or Medicaid or other federal health care programs), which has been applied to impermissible promotion of pharmaceutical products foroff-label uses, or making a false statement or record to avoid, decrease or conceal an obligation to pay money to the federal government; |
| • | the U.S. Health Insurance Portability and Accountability Act, or “HIPPA”, as amended by the Health Information Technology for Economic and Clinical Health Act, or “HITECH Act”, among other things, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services; |
| • | the U.S. federal Physician Payment Sunshine Act, being implemented as the Open Payments Program, requires applicable manufacturers of covered drugs, devices, biologics and medical supplies to report annually to HHS information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; |
| • | analogous state laws and regulations, such as stateanti-kickback laws, false claims laws and privacy and security of health information laws, may apply to sales or marketing arrangements, claims involving healthcare items or services reimbursed bynon-governmentalthird-party payors, including private insurers, or health information; and |
| • | certain state laws require pharmaceutical companies to adopt codes of conduct consistent with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; restrict certain marketing-related activities including the |
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provision of gifts, meals, or other items to certain health care providers; and/or require drug manufacturers to report information related to payments and other transfers of value to physicians and certain other healthcare providers or marketing expenditures. |
Comparable laws and regulations exist in the countries within the European Economic Area, or “EEA”. Although such laws are partially based upon European Union, or “EU”, law, they may vary from country to country. Healthcare specific, as well as general EU and national laws, regulations and industry codes constrain, for example, our interactions with government officials and healthcare professionals, and the collection and processing of personal health data.Non-compliance with any of these laws or regulations could lead to criminal or civil liability.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Failure to comply with the U.S. Foreign Corrupt Practices Act, or “FCPA”, the Canadian Corruption of Foreign Public Officials Act, or “CFPOA”, and other global anti-corruption and anti-bribery laws could subject us to penalties and other adverse consequences
The FCPA and the CFPOA, as well as any other applicable domestic or foreign anti-corruption or anti-bribery laws to which we are or may become subject generally prohibit corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity and requires companies to maintain accurate books and records and internal controls, including at foreign-controlled subsidiaries. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity.
Compliance with these anti-corruption laws and anti-bribery laws may be expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, these laws present particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and physicians and other hospital employees are considered to be foreign officials. Certain payments by other companies to hospitals in connection with clinical trials and other work have been deemed to be improper payments to governmental officials and have led to FCPA enforcement actions.
Our internal control policies and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, licensees or agents. We are currently working to get policies and processes in place to monitor compliance with the FCPA and CFPOA. We can make no assurance that they will not engage in prohibited conduct, and we may be held liable for their acts under applicable anti-corruption and anti-bribery laws. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension or debarment from contracting with certain persons, the loss of export privileges, whistleblower complaints, reputational harm, adverse media coverage, and other collateral consequences. Any investigations, actions or sanctions or other previously mentioned harm could have a material negative effect on our business, operating results and financial condition.
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Recent federal legislation and actions by state and local governments may permit reimportation of drugs from/to foreign countries where the drugs are sold at lower prices than in the country of origination, which could materially adversely affect our business and financial condition.
We may face competition for our Product Candidates, if approved, from cheaper generics and/or cannabinoid therapies sourced from foreign countries that have placed price controls on pharmaceutical products. This is referred to as parallel importation. For instance, the Medicare Modernization Act contains provisions that may change U.S. importation laws and expand pharmacists’ and wholesalers’ ability to import cheaper versions of an approved drug and competing products from Canada, where there are government price controls. These changes to U.S. importation laws will not take effect unless and until the Secretary of HHS certifies that the changes will pose no additional risk to the public’s health and safety and will result in a significant reduction in the cost of products to consumers. The Secretary of HHS has so far declined to approve a reimportation plan. Proponents of drug reimportation, including certain state legislatures, may attempt to pass legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing the reimportation of drugs, if enacted, could decrease the price we receive for any products that we may develop, including our Product Candidates, and adversely affect our future revenues and prospects for profitability.
We are dependent upon our key personnel to achieve our business objectives.
We depend on key personnel, the loss of any of whom could harm our business. Our future performance and development will depend to a significant extent on the efforts and abilities of its executive officers, key employees, and consultants. The loss of the services of one or more of these individuals could harm our business. Our success will depend largely on our continuing ability to attract, develop and retain skilled employees and consultants in our business. Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. The competition for qualified personnel in our field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. Any delay in replacing such persons, or an inability to replace them with persons of similar expertise, would have a material adverse effect on our business, financial condition and results of operations.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could subject us to significant liability and harm our reputation.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with regulations of domestic or foreign regulatory authorities. In addition, misconduct by employees could include intentional failures to comply with certain development standards, to report financial information or data accurately, or to disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. While prohibited, it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
Our insurance may be insufficient to cover losses that may occur as a result of our operations.
We currently maintain directors’ and officers’ liability insurance, clinical trial insurance and property and general liability insurance and intend in the future to obtain shipping and storage insurance for Product
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Candidates. This insurance may not remain available to us or be obtainable by us at commercially reasonable rates, and the amount of our coverage may not be adequate to cover any liability we incur. Future increases in insurance costs, coupled with the increase in deductibles, will result in higher operating costs and increased risk. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we were not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected.
There may be changes in laws, regulations and guidelines which are detrimental to our business.
Our operations are subject to a variety of laws, regulations and guidelines relating to pharmacology, cannabinoids and drug delivery, as well as laws and regulations relating to health and safety, the conduct of operations, and the protection of the environment. While, to the knowledge of our management, we are currently in compliance with all such laws, changes to such laws, regulations and guidelines due to matters beyond our control may cause adverse effects to our operations and financial condition. These changes may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business plan. In addition, if the governments of Canada or the United States were to enact or amend laws relating to our industry, it may decrease the size of, or eliminate entirely, the market for our Product Candidates, may introduce significant new competition into the market and may otherwise potentially materially and adversely affect our business, results of operations and financial condition.
If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
The research and development that we carry out either directly or through third-parties involves, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operations may produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations and fire and building codes. Although we maintain workers’ compensation insurance as prescribed by the Province of British Columbia to cover us for costs and expenses we may incur due to injuries to our employees, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.
Our proprietary information, or that of our customers, suppliers and business partners, may be lost or we may suffer security breaches.
In the ordinary course of our business, we may collect and store sensitive data, including intellectual property, data from preclinical studies, clinical trial data, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers, clinical trial subjects and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Although to our knowledge we have not experienced any such material security breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our operations, damage to our ability to obtain patent protection for our Product Candidates, damage to our reputation, and cause a loss of confidence in our products and our ability to conduct clinical trials, which could adversely affect our business and reputation and lead to delays in gaining regulatory approvals.
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We expect to face intense competition, often from companies with greater resources and experience than we have.
The pharmaceutical industry is highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing number of competitors and potential competitors enter the market. Many of these competitors and potential competitors have substantially greater financial, technological, managerial and research and development resources and experience than we have. Some of these competitors and potential competitors have more experience than we have in the development of pharmaceutical products, including validation procedures and regulatory matters. Other companies researching in the same disease areas may develop products that are competitive or superior to our Product Candidates. Other companies working in cannabinoid research may develop products targeting the same diseases that we are focused on that are competitive or superior to our Product Candidates. In addition, there arenon-FDA approvedCannabis/cannabinoid preparations being made available from companies in theso-called “medical marijuana” industry, which may be competitive to our products. If we are unable to compete successfully, our commercial opportunities will be reduced and our business, results of operations and financial conditions may be materially harmed.
If we receive regulatory approvals, we intend to market our Product Candidates in multiple jurisdictions where we have limited or no operating experience and may be subject to increased business and economic risks that could affect our financial results.
If we receive regulatory approvals, we may plan to market our Product Candidates in jurisdictions where we have limited or no experience in marketing, developing and distributing our products. Certain markets have substantial legal and regulatory complexities that we may not have experience navigating. We are subject to a variety of risks inherent in doing business internationally, including risks related to the legal and regulatory environment innon-U.S. jurisdictions, including with respect to privacy and data security, trade control laws and unexpected changes in laws, regulatory requirements and enforcement, as well as risks related to fluctuations in currency exchange rates and political, social and economic instability in foreign countries. If we are unable to manage our international operations successfully, our financial results could be adversely affected.
Controlled substance legislation may differ in other jurisdictions and could restrict our ability to market our products internationally, which would result in increased business and economic risks that could affect our financial results.
Controlled substance legislation may differ in other jurisdictions and could restrict our ability to market our products internationally. Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances, includingCannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for Product Candidates in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our Product Candidates to be marketed or achieving such amendments to the laws and regulations may take a prolonged period of time. We would be unable to market our Product Candidates in countries with such obstacles in the near future or perhaps at all without modification to laws and regulations.
Product liability lawsuits against us could cause us to incur substantial liabilities.
Our use of our Product Candidates in clinical trials and the sale of our Product Candidates, if approved, exposes us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others selling or otherwise coming into contact with our Product Candidates. For example, we may be sued if any product we develop allegedly causes injury or is alleged to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the
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product, including as a result of interactions with alcohol or other drugs, negligence, strict liability, and a breach of warranties. Claims could also be asserted under local jurisdiction consumer protection acts. If we become subject to product liability claims and cannot successfully defend ourselves against them, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in, among other things:
| • | withdrawal of patients from our clinical trials; |
| • | substantial monetary awards to patients or other claimants; |
| • | decreased demand for our Product Candidates following marketing approval, if obtained; |
| • | damage to our reputation and exposure to adverse publicity; |
| • | increased FDA warnings on product labels or increased warnings imposed by the EMA or other regulatory authorities; |
| • | litigation costs; |
| • | distraction of management’s attention from our primary business; |
| • | loss of revenue; and |
| • | the inability to successfully commercialize our Product Candidates, if approved. |
Our current clinical trial liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for our Product Candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly in light of the size of our business and financial resources. A product liability claim or series of claims brought against us could cause our share price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial condition, results of operations, business and prospects could be materially adversely affected.
Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions, or data corruption could significantly disrupt our operations and adversely affect our business and operating results.
We rely on information technology, telephone networks and systems, including the internet, to process and transmit sensitive electronic information and to manage or support a variety of business processes and activities. We use enterprise information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory, financial reporting, legal and tax requirements. Despite the implementation of security measures, our information technology systems, and those of our third-party contractors and consultants, are vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy or other significant disruption. Any such successful attacks could result in the theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyber-attacks are becoming more sophisticated and frequent, and our systems could be the target of malware and other cyber-attacks. We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. Nonetheless, our computer systems are subject to penetration and our data protection measures may not prevent unauthorized access. We can give no assurances that these measures and efforts will prevent interruptions or breakdowns. If
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we are unable to detect or prevent a security breach or cyber-attack or other disruption from occurring, then we could incur losses or damage to our data, or inappropriate disclosure of our confidential information or that of others; and we could sustain damage to our reputation, suffer disruptions to our research and development and incur increased operating costs including increased cybersecurity and other insurance premiums, costs to mitigate any damage caused and protect against future damage, and be exposed to additional regulatory scrutiny or penalties and to civil litigation and possible financial liability. For instance, the loss of preclinical or clinical data could result in delays in our development and regulatory filing efforts and significantly increase our costs.
Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.
We are subject to various domestic and international data protection laws and regulations (i.e., laws and regulations that address privacy and data security). The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. Numerous laws, including data breach notification laws, health information privacy laws and consumer protection laws, govern the collection, use and disclosure of health-related and other personal information. In addition, we may obtain health information from third parties (e.g., healthcare providers who prescribe our products) that are subject to privacy and security requirements under HIPAA regulations.
EU Member States, Australia and other countries have also adopted data protection laws and regulations, which impose significant compliance obligations. For example, the collection and use of personal data in the EU is governed by the provisions of the General Data Protection Regulation, or “GDPR”. The GDPR and the national implementing legislation of the EU Member States impose strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. In particular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information provided to the individuals, the rights of individuals to control personal data and the security and confidentiality of the personal data. In addition, the Australian Privacy Act 1988 (Cth), and other laws in the states and territories in Australia where we conduct certain of our clinical trials, apply similar restrictions on our ability to collect, analyze and transfer medical records and other patient data.
A claim or series of claims brought against us alleging a failure to comply with these laws, or changes in the way in which these laws are implemented, could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results and could cause our share price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial condition, results of operations, business and prospects could be materially adversely affected.
TheCOVID-19 coronavirus could adversely impact our business, including several key activities that are critical to our success.
The global outbreak ofCOVID-19 continues to rapidly evolve. As a result, businesses have closed and limits have been placed on travel. The extent to whichCOVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate impact of the disease on specific geographies, the duration of the outbreak, travel restrictions and social distancing in the United States, Canada and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States, Canada and other countries to contain and treat the disease.
The spread ofCOVID-19 throughout the world has also created global economic uncertainty, which may cause partners, suppliers and potential customers to closely monitor their costs and reduce their spending budget. Either of the foregoing could materially adversely affect our research and development activities, clinical trials, supply chain, financial condition and cash flows.
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If theCOVID-19 outbreak continues to spread, we may need to limit operations or implement other limitations on our activities. There is a risk that other countries or regions may be less effective at containingCOVID-19, in which case the risks described herein could be elevated significantly.
Risks Related to our Intellectual Property
Our success is largely dependent upon our patents, proprietary technology, and other intellectual property.
Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the proprietary rights of others. Patents and other proprietary rights are essential to our business. We rely on trade secret, patent, copyright and trademark laws, and confidentiality and other agreements with employees and third parties, all of which offer only limited protection. Our general policy has been to file patent applications to protect our inventions and improvements to our inventions that are considered important to the development of our business. In certain cases, we have chosen to protect our intellectual property by treating it as confidential internalknow-how. Our success will depend in part on our ability to obtain patents, defend patents, maintain internalknow-how/trade secret protection and operate without infringing on the proprietary rights of others. Interpretation and evaluation of pharmaceutical patent claims present complex legal and factual questions. Further, patent protection may not be available for some of the products or technology we are developing. If we are placed in a position where we must spend significant time and money defending or enforcing our patents, designing around patents held by others or licensing patents or other proprietary rights held by others, our business, results of operations and financial condition may be harmed. In seeking to protect our inventions using patents it is important to note that we have no assurance that:
| • | patent applications will result in the issuance of patents; |
| • | additional proprietary products developed will be patentable; |
| • | patents issued will provide adequate protection or any competitive advantages; |
| • | patents issued will not be successfully challenged by third parties; |
| • | commercial exploitation of our inventions does not infringe the patents or intellectual property of others; or |
| • | we will be able to obtain any extensions of the patent term. |
A number of pharmaceutical, biotechnology and medical device companies and research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to our business. Some of these technologies, applications or patents could limit the scope of the patents, if any, that we may be able to obtain. It is also possible that these technologies, applications or patents may preclude us from obtaining patent protection for our inventions. Further, there may be uncertainty as to whether we may be able to successfully defend any challenge to our patent portfolio. Moreover, we may have to participate in derivation proceedings,inter partes review proceedings, post-grant review proceedings, or opposition proceedings in the various jurisdictions around the world. An unfavorable outcome in a derivation proceeding, aninter partes review proceeding, a post-grant review proceeding, or an opposition proceeding could preclude us or our collaborators or licensees from making, using or selling products using the technology, or require us to obtain license rights from third parties. It is not known whether any prevailing party would offer a license on commercially acceptable terms, if at all. Further, any such license could require the expenditure of substantial time and resources and could harm our business. If such licenses are not available, we could encounter delays or prohibition of the development or introduction of our product. In the case of intellectual property where we have chosen to protect it by treating it as internal know how, there can be no assurance that others with greater expertise or access to greater resources do not develop similar or superior technology that impairs the competitive value of our internalknow-how.
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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 fornon-compliance with these requirements.
The U.S. Patent and Trademark Office, or “PTO”, and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Periodic maintenance fees on any issued patent are due to be paid to the PTO and various foreign national or international patent agencies in several stages over the lifetime of the patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance 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.Non-compliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on our international patent application, failure to respond to official actions within prescribed time limits,non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our Product Candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.
We may become subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property or claiming ownership of what we regard as our own intellectual property.
Our commercial success depends upon our ability to develop, manufacture, market and sell our Product Candidates, and to use our related proprietary technologies without violating the intellectual property rights of others. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our Product Candidates, including interference or derivation proceedings before the PTO or other international patent offices. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing our Product Candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to cease commercializing the applicable product candidate. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our Product Candidates or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.
While our preclinical studies are ongoing, we believe that the use of our Product Candidates in these preclinical studies fall within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. As our Product Candidates progress toward clinical trials and, ultimately, commercialization, the possibility of a patent infringement claim against us increases. We attempt to ensure that our Product Candidates and the methods we employ to manufacture them, as well as the methods for their uses we intend to promote, do not infringe other parties’ patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and have a material adverse effect on the success of our business.
Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our
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own intellectual property rights or the proprietary rights of others. Also, third parties may initiate legal proceedings against us to challenge the validity or scope of intellectual property rights we own. These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by us is invalid or unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our current and former employees, consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets. Any party with whom we or they have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive andtime-consuming, and the outcome is unpredictable. In addition, some courts are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they disclose such trade secrets, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or otherthird-party, our competitive position would be harmed.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our Product Candidates throughout the world would be prohibitively expensive. Therefore, we have filed applications and/or obtained patents only in key markets such as the United States, Canada, Japan and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may be able to export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain
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developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. For example, an April 2016 report from the Office of the United States Trade Representative identified a number of countries, including India and China, where challenges to the procurement and enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the report every year since 1989. As a result, proceedings to enforce our patent rights in certain foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business and could be unsuccessful.
Patent terms may be inadequate to protect our competitive position on our Product Candidates for an adequate amount of time.
Given the amount of time required for the development, testing and regulatory review of new Product Candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the PTO, and any equivalent regulatory authorities in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.
Intellectual property rights do not necessarily 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. For example:
| • | others may be able to make compounds that are the same as or similar to our Product Candidates but that are not covered by the claims of the patents that we own; |
| • | we might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own; |
| • | we might not have been the first to file patent applications covering certain of our inventions; |
| • | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
| • | it is possible that our pending patent applications will not lead to issued patents; |
| • | issued patents that we own may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges; |
| • | our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; or |
| • | the patents of others may have an adverse effect on our business. |
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Risks Related to our Third Parties
We rely heavily on contract manufacturers over whom we have limited control. If we are subject to quality, cost or delivery issues with the preclinical and clinical grade materials supplied by contract manufacturers, our business operations could suffer significant harm.
We currently have no manufacturing capabilities and rely on contract development and manufacturing organizations, or “CDMOs”, to manufacture our Product Candidates for preclinical studies and clinical trials. We rely on CDMOs for manufacturing, filling, packaging, testing, storing and shipping of drug products in compliance with cGMP, regulations applicable to our products. The FDA and other regulatory agencies ensure the quality of drug products by carefully monitoring drug manufacturers’ compliance with cGMP regulations. The cGMP regulations for drugs contain minimum requirements for the methods, facilities and controls used in manufacturing, processing and packaging of a drug product. If our CDMOs increase their prices or fail to meet our quality standards, or those of regulatory agencies such as the FDA, and cannot be replaced by other acceptable CDMOs, our ability to obtain regulatory approval for and commercialize our Product Candidates may be materially adversely affected.
The APIs used in all of our Product Candidates are currently sourced from either contract manufacturers or, for smaller quantities, from research material suppliers, that typically utilize synthetic chemistry as their manufacturing method. This is intended to be an interim step to enable us to proceed with developing our formulation, execute preclinical toxicology studies and progress through Phase I and II clinical trials, after which time we anticipate that we will have been able to successfullyscale-up our biosynthesis program so that it will be commercial-scale ready. Bridging studies consisting of chemical analysis and, possibly, animal studies may be required in order to switch our APIs from the current external manufacturing sources to our internal biosynthesized products. There is no guarantee that we will be successful in scaling up our biosynthesis manufacturing process for cannabinoids, or successfully complete any required bridging studies, or be able to successfully transfer our biosynthesis manufacturing process to a CDMO. Failing to do this may mean that we are not able to produce certain cannabinoids in our Product Candidates in a cost-effective manner. This could result in us not being able to successfully commercialize our Product Candidates, if any, that obtain regulatory approval.
Our existing collaboration agreements and any that we may enter into in the future may not be successful.
We also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and development strategies. These scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, companies that conflict in interests with and pose a competitive threat to us. Moreover, to the extent that we decide to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators. Collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish, implement and maintain collaborations or other alternative arrangements if we choose to enter into such arrangements and our selected partners may be given, and may exercise, a right to terminate their agreement with us without cause. The terms of any collaboration or other arrangements that we may establish may not be favorable to us.
For all of the aforesaid reasons and others set forth in this registration statement, an investment in our common shares and any other securities that we may offer from time to time involves a certain degree of risk. Any person considering an investment in our common shares or any other of our securities should be aware of these and other factors set forth in this registration statement and should consult with his or her legal, tax and financial advisors prior to making an investment in our common shares or any other of our securities that may be offered from time to time. Our common shares and any other securities that we may offer from time to time should only be purchased by persons who can afford to lose all of their investment.
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This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. We may, in some cases, use words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:
| • | Our researching, developing, manufacturing and commercializing cannabinoid-based biopharmaceutical products will treat diseases with high unmet medical needs; |
| • | The continued optimization of the vector of the production platform for the biofermentation of cannabinoids in parallel with the identification of optimal fermentation conditions and downstream purification processes with third party CDMOs; |
| • | Our success in initiating discussions with potential partners for the development of an ocular delivery system; |
| • | Our ability to register and commercialize products in the United States and other jurisdictions; |
| • | Our ability to successfully build a dedicated cannabinoid biosynthesis facility or to transfer our biosynthesis process for manufacturing to a contract manufacturing organization with existing infrastructure to produce for us the preclinical, clinical and commercial scale supply of our Product Candidates; |
| • | Our belief that the biosynthesis manufacturing approach that we are developing is robust and effective and will result in high yields of cannabinoids; |
| • | Our belief that the biosynthesis manufacturing approach that we are developing and products produced using it face less obstacles when it comes to regulatory approval than products produced via traditional plant growing, harvesting, processing, extraction and purification techniques; |
| • | Our belief that a single-agent formulation, rather than a combination product, will improve the probability of development and regulatory success in EB; |
| • | Our belief that thatINM-755 offers specific advantages and will prove to provide the extensive relief symptomology with the added potential of addressing the underlying disease in EB; |
| • | The structure of futureINM-755 studies; |
| • | Filing a regulatory application for a Phase I/II study in EB patients in the fourth quarter of calendar year 2020; |
| • | Our ability to introduce a revenue stream to us before the expected commercial approval of our therapeutic programs; |
| • | Our ability to successfully scale up our biosynthesis program so that it will be commercial-scale ready after Phase I and IIa clinical trials are completed, after which time we believe that we will no longer need to source APIs from contract manufacturers; |
| • | The success of the key next steps in our biosynthesis program, including continuing efforts to diversify the number of cannabinoids produced,scaling-up the biosynthesis process to larger vessels and identifying external vendors to assist in the commercialscale-up of the process; |
| • | Our ability to optimize fermentation conditions and downstream purification processes withyet-to-be announced third party suppliers; |
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| • | Our ability to successfully make determinations as to which R&D programs to continue based on several strategic factors; |
| • | Our ability to license or sell certain new drug candidates to pharmaceutical companies for further development, commercialization and distribution; |
| • | Our ability to take an opportunistic approach in the rapidly emerging sector of cannabinoid pharmaceutical development to maximize the return to investors/shareholders; |
| • | Our ability to continue to outsource the majority of our research and development activities through scientific collaboration agreements and fee-for-service arrangements with various scientific collaborators, academic institutions and their personnel; |
| • | The success of work to be conducted under the research and development collaboration between us and various CDMOs; |
| • | Our ability to develop our therapies through early human testing, and then evaluating the financial returns on a ‘goit-alone’ commercialization effort versusout-licensing to third parties, who would continue to advance human testing, seek regulatory approval, and subsequent product sales and marketing; |
| • | Relying on licensing and/orco-promotion agreements with strategic collaborators for the commercialization of our products in the United States and other territories; |
| • | Overseeing clinical trials forINM-755 in EB and building the requisite internal commercialization infrastructure to self-market the product to EB clinics; |
| • | Seeking a partnership early in the development process forINM-088 in glaucoma; |
| • | Our biosynthesis products beingbio-identical to the naturally occurring cannabinoids in the cannabis plant, and offering superior ease, control and quality of manufacturing when compared to alternative methods; |
| • | Further optimizing fermentation parameters as we scale up fermentation to larger vessels, and transferring thisknow-how to a commercial scale GMP operation; |
| • | Our ability to explore an alternative biosynthesis manufacturing process which may confer certain benefits, either cost, yield, speed, or all of the above, when pursuing specific types of cannabinoids, and filing a provisional patent application for same; |
| • | Plans regarding our next steps, options, and targeted benefits of the biosynthesis program; |
| • | Our ability toout-license drug candidates to third parties in those areas of low strategic interest to us in order to maximize revenue potential, potentially leading to drug supply agreements using our biosynthesis program; |
| • | Our ability to potentially earn revenue from our biosynthesis program by (i) becoming a supplier of drug product to the pharmaceutical industry and/or (ii) providing pharmaceutical-grade ingredients to the recreational market; |
| • | Our plans to work closely with regulatory authorities and clinical experts in developing the clinical program forINM-755; |
| • | Our ability to successfully file a future patent application for the treatment of glaucoma; |
| • | Completing formulation development andproof-of-conceptin vivo studies forINM-088 in the 1H2020, in preparation for clinical trial enabling pharmacology and toxicology studies; |
| • | INM-088 being aonce-a-day or twice-a-day eye drop medication that will compete with treatment modalities in the ‘medicines’ category; |
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| • | The potential ofINM-088 to assist in reducing the high rate ofnon-adherence with current glaucoma therapies; |
| • | Our belief that with a novel delivery system, the reduction of IOP and/or providing neuroprotection in glaucoma patients by topical (eye drop) application of cannabinoids will hold significant promise as a new therapy; |
| • | The expectation that the results from ourin vitrostudies using surrogate biomarkers will form part of a new patent application for the treatment of glaucoma; |
| • | The potential of peripheral application of certain cannabinoid compounds, alone or in combination, such asINM-405 to be effective in the treatment of pain disorders, without any observed CNS side effects, and for them to be a more desirable strategy than systemic pain-relief administration; |
| • | The potential toout-license our delivery vehicle to other companies with ophthalmic drugs; the ability tore-invigorate the commercial potential ofoff-patent ocular products with our delivery vehicle; |
| • | Our intention to utilize the full complement of patents available to protect our intellectual property; |
| • | The potential for any of our patent applications to provide intellectual property protection for us; |
| • | Expecting that the final formulations of both theINM-755 topical product and theINM-088 eye drop formulation will be manufactured by contract manufacturers and subcomponent fabricators; |
| • | Our ability to secure insurance coverage for shipping and storage of Product Candidates, and clinical trial insurance; |
| • | Our ability to expand our insurance coverage to include the commercial sale of approved drug products; |
| • | Our continuing investment in each of ournon-core asset programs; |
| • | Choosing to partner some or allnon-core asset programs with external parties; |
| • | Our ability to initiate discussions with potential partners; |
| • | Our ability to position ourselves to achieve value-driving, near term milestones for our Product Candidates with limited investment; |
| • | The continued availability of key personnel, such as scientific advisors, executives, and directors; |
| • | Our ability to execute our business strategy; |
| • | Management’s assessment of future plans and operations; and |
| • | The outlook of our business and the global economic and geopolitical conditions and how it may effect the competitive environment in which we and our business units operate. |
These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. We discuss many of these risks in greater detail under “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
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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, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
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We estimate that we will receive net proceeds of approximately $[ ] million (or approximately $[ ] million if the underwriters’ option to purchase additional shares is exercised in full) from the sale of the common shares offered by us in this offering, based on an assumed initial offering price of $[ ].00 per share, the U.S. dollar equivalent of the last reported sale price of our common shares on the TSX on , 2020, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
A $1.00 increase (decrease) in the assumed public offering price of $[ ].00 per share would increase (decrease) the net proceeds to us from this offering by approximately $[ ] million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Similarly, a [ ] share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by approximately $[ ] million, based on an assumed initial public offering price of $[ ].00 per share (themid-point of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to obtain additional capital to support our operations and to facilitate our future access to the public equity markets. We intend to use the net proceeds from this offering to fund our development efforts ofINM-755,INM-088 and our other programs, including clinical trials, and to fund working capital, research and development and general corporate purposes. We may also use a portion of the remaining net proceeds toin-license, acquire, or invest in complementary businesses, intellectual property, products or assets. However, we have no current commitments or obligations to do so.
Our management will have broad discretion in the application of the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of those net proceeds. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending the uses described above, we plan to invest these net proceeds in short-term, interest bearing investments, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States or Canada.
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We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our common shares. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our Board and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board may deem relevant.
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The following table sets forth our cash and cash equivalents as well as capitalization as of December 31, 2019:
| • | on an actual basis; and |
| • | on an as adjusted basis to give effect to the sale of [ ] common shares in this offering at the assumed offering price of $[ ] per share, which is the U.S. dollar equivalent of the last reported sale price of our common shares on the TSX on May[ ], 2020, converted into U.S. dollars at , after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus, and our financial statements and related notes thereto.
| As of December 31, 2019 | ||||||||
| Actual | Pro forma as adjusted | |||||||
(In thousands, except share and per share data) | ||||||||
Cash, cash equivalents and short-term investments | $ | 9,244 | $ | |||||
Shareholders’ equity (deficit): | ||||||||
Common share; unlimited shares authorized, [ shares issued and outstanding, actual; 172,283,633 shares issued and outstanding, pro forma; [ ] shares issued and outstanding, pro forma as adjusted | 53,065 | |||||||
Additionalpaid-in capital | 17,404 | |||||||
Accumulated deficit | (61,009 | ) | ||||||
Accumulated other comprehensive income | 150 | |||||||
|
| |||||||
Total shareholders’ equity | 9,610 | |||||||
Total capitalization | $ | 9,610 | $ | |||||
Each $1.00 increase (decrease) in the assumed public offering price of $[ ] per share, the U.S. dollar equivalent of the last reported sale price of our common shares on the TSX on May[ ], 2020, would increase (decrease) the pro forma amount of cash and cash equivalents, total shareholders’ equity and total capitalization by approximately $[ ] million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 100,000 shares in the number of shares offered by us would increase (decrease) the pro forma amount of cash and cash equivalents, total shareholders’ equity and total capitalization by approximately $[ ] million, assuming that the assumed public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
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The number of common shares to be outstanding after this offering is based on an aggregate of 172,283,633 shares outstanding as of December 31, 2019. The table above does not include:
| • | 19,462,500 common shares issuable upon exercise of outstanding options as of December 31, 2019, at a weighted average exercise price of $0.31 per share, of which 14,185,994 shares were vested as of such date; |
| • | 17,717,641 common shares issuable upon the exercise of warrants outstanding as of December 31, 2019, at an exercise price of $0.87 per share; and |
| • | 14,994,227 common shares reserved for future issuance under our stock option plan as of December 31, 2019, plus any future increases in the number of common shares reserved for issuance under our stock option plan pursuant to evergreen provisions. |
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Investors purchasing common shares in this offering will experience immediate and substantial dilution in the as adjusted net tangible book value of their common shares. Dilution in as adjusted net tangible book value represents the difference between the public offering price per share and the as adjusted net tangible book value per common share immediately after the offering.
The historical net tangible book value of our common shares as of December 31, 2019 was $[ ], or $0.[ ] per share. Historical net tangible book value per common share represents our total tangible assets (total assets less intangible assets) less total liabilities divided by the number of common shares outstanding as of that date.
After giving effect to the sale of [ ] common shares in this offering at the assumed offering price of $[ ] per share, which was the U.S. dollar equivalent of the last reported sale price of our common shares on the TSX on May [ ], 2020, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of December 31, 2019 would have been $[ ] million, or $[ ] per share. This amount represents an immediate increase in net tangible book value of $[ ] per share to our existing shareholders and an immediate dilution in net tangible book value of approximately $[ ] per share to new investors purchasing our common shares in this offering. We determine dilution by subtracting the net tangible book value per share after the offering from the amount of cash that a new investor paid for a common share.
The following table illustrates this dilution on a per share basis:
Assumed offering price per share | $ | [ | ] | |
Historical net tangible book value per share as of December 31, 2019 | $ | [ | ] | |
Increase in net tangible book value per share attributable to Investors | $ | [ | ] | |
Net tangible book value per share after the offering | $ | [ | ] | |
Dilution per share to new investors | $ | [ | ] |
Each $1.00 increase or decrease in the assumed public offering price of $[ ] per share would increase or decrease our net tangible book value after this offering by approximately $[ ] million, or approximately $[ ] per share, and increase or decrease the dilution per share to new investors by approximately $[ ] per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 100,000 shares in the number of shares offered by us would increase or decrease our net tangible book value after this offering by approximately $[ ] million, or $[ ] per share, and increase or decrease the dilution per share to new investors by approximately $[ ] per share, assuming that the assumed public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
If the underwriters exercise their option to purchase additional shares in full, the net tangible book value per share after giving effect to the offering would be $[ ] per share. This represents an immediate increase in pro forma net tangible book value of $[ ] per share to existing shareholders and an immediate dilution in net tangible book value of $[ ] per share to new investors purchasing shares of our common shares in this offering.
The table above does not include:
| • | 19,462,500 common shares issuable upon exercise of outstanding options as of December 31, 2019, at a weighted average exercise price of $0.31 per share, of which 14,185,994 shares were vested as of such date; |
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| • | 17,717,641 common shares issuable upon the exercise of warrants outstanding as of December 31, 2019, at an exercise price of $0.87 per share; and |
| • | 14,994,227 common shares reserved for future issuance under our stock option plan as of December 31, 2019, plus any future increases in the number of common shares reserved for issuance under our stock option plan pursuant to evergreen provisions. |
To the extent that outstanding options or warrants are exercised, you will 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.
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The selected statements of operations data for the years ended June 30, 2019 and 2018 and the balance sheet data as of June 30, 2019 and 2018 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected statements of operations data for the six months ended December 31, 2019 and 2018 and the balance sheet data as of December 31, 2019 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results in any future period and results from our interim period may not necessarily be indicative of the results of the entire year.
You should read the following selected financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. The selected financial data in this section are not intended to replace our financial statements and the related notes and are qualified in their entirety by the financial statements and related notes included elsewhere in this prospectus.
| Year Ended June 30, | Six Months Ended December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Total revenue | $ | — | $ | — | $ | — | $ | — | ||||||||
Operating expenses | ||||||||||||||||
Research and development | 5,126,408 | 1,934,473 | 3,568,743 | 1,655,392 | ||||||||||||
General and administrative | 4,296,520 | 6,055,739 | 1,759,256 | 2,192,945 | ||||||||||||
Amortization and depreciation | 119,399 | 117,928 | 58,459 | 59,647 | ||||||||||||
Total operating expenses | 9,542,327 | 8,108,140 | 5,386,458 | 3,907,984 | ||||||||||||
Interest income | 327,720 | 69,552 | 98,901 | 177,015 | ||||||||||||
Foreign exchange (loss) gain | (33,888 | ) | 226 | (11,250 | ) | 68,507 | ||||||||||
Net loss | $ | (9,248,495 | ) | $ | (8,038,362 | ) | $ | (5,298,807 | ) | $ | (3,662,462 | ) | ||||
Other comprehensive income (loss) | ||||||||||||||||
Foreign currency translation gain (loss) | 53,314 | (232,536 | ) | 31,676 | (641,921 | ) | ||||||||||
Comprehensive loss for the year | (9,195,181 | ) | (8,270,898 | ) | (5,267,131 | ) | (4,304,383 | ) | ||||||||
Net loss per share(1) | (0.05 | ) | (0.06 | ) | (0.03 | ) | (0.02 | ) | ||||||||
Basic and diluted | $ | 171,338,793 | 142,451,768 | 172,283,633 | 170,869,956 | |||||||||||
Pro forma net loss per share(1): | (0.05 | ) | (0.06 | ) | (0.03 | ) | (0.02 | ) | ||||||||
Basic and diluted | 171,338,793 | 142,451,768 | 172,283,633 | 170,869,956 | ||||||||||||
| (1) | See Note 2 of the notes to our financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net income per share attributable to common shareholders and preferred shareholders and pro forma basic and diluted net loss per share attributable to common shareholders. |
| Year ended June 30, | As of December 31, | |||||||||||
| 2019 | 2018 | 2019 | ||||||||||
Balance Sheet Data: | ||||||||||||
Cash, cash equivalents and short-term investments | $ | 13,783,949 | $ | 20,106,996 | $ | 9,243,535 | ||||||
Working capital | 12,978,873 | 19,589,903 | 8,250,661 | |||||||||
Total assets | 15,437,115 | 21,651,380 | 11,183,689 | |||||||||
Lease obligations | — | — | 369,893 | |||||||||
Total liabilities | 1,194,211 | 712,150 | 1,573,481 | |||||||||
Accumulated deficit | (55,710,232 | ) | (46,461,737 | ) | (61,009,039 | ) | ||||||
Total shareholders’ deficit | $ | 14,242,904 | 20,939,230 | 9,610,208 | ||||||||
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the “Selected Financial Data” and our financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Forward-Looking Statements” and “Risk Factors.” We are not undertaking any obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document is declared effective by the SEC.
Overview
We are a clinical stage pharmaceutical company developing our Product Candidates.
Since our acquisition of Biogen Science Inc., our operations have focused on conducting research and development for our drug candidates and for our biosynthesis manufacturing technology, establishing our intellectual property, organizing and staffing our company, business planning and capital raising. To date, we have funded our operations primarily through the issuance of common shares.
We have incurred significant operating losses since our inception and since the acquisition of Biogen Science Inc. and we expect to continue to incur significant operating losses for the foreseeable future. Our ability to generate product revenue, if ever, that is sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our drug candidates and/or our biosynthesis manufacturing technology. Our net comprehensive losses were $9.2 million and $8.3 million for the years ended June 30, 2019 and 2018, respectively, and $5.3 million for the six months ended December 31, 2019. As of December 31, 2019, we had an accumulated deficit of $61.0 million, which includes all losses since our inception in 1981. We expect our expenses and operating losses will increase substantially over the next several years in connection with our ongoing activities as we:
| • | continue to further advance the development of our proprietary biosynthesis manufacturing technology; |
| • | continue research onINM-755, our lead drug candidate for the treatment of EB, by completing the ongoing clinical trials and commencing subsequent clinical trials; |
| • | continue preclinical research studies forINM-088, our drug candidate for the treatment of glaucoma, which we expect to be followed by clinical trial-enabling studies and then human clinical trials; |
| • | investigate our Product Candidates for additional indications; |
| • | pursue the discovery of drug targets for other diseases with high unmet medical needs and the subsequent development of any resulting Product Candidates; |
| • | seek regulatory approvals for any Product Candidates that successfully complete clinical trials; |
| • | scale-up our manufacturing processes and capabilities, or arrange for a third party to do so on our behalf, to support our clinical trials of our Product Candidates and commercialization of any of our Product Candidates for which we obtain marketing approval; |
| • | acquire orin-license products externally developed product(s) and/or technologies; |
| • | maintain, expand, enforce, defend and protect our intellectual property; |
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| • | hire additional clinical, quality control and scientific personnel; and |
| • | add operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and our operations as a public company. |
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our Product Candidates, or grant rights to external entities to develop and market our Product Candidates, even if we would otherwise prefer to develop and market such Product Candidates ourselves.
Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of increased expenses or the timing of when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. 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 be forced to reduce or terminate our operations.
Components of Results of Operations
Revenue
To date, our only source of revenues has been interest earned on our cash, cash equivalents and short-term investments. We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future Product Candidates are successful and result in marketing approval, we may generate revenue in the future from product sales. We cannot predict if, when or to what extent we will generate revenue from the commercialization and sale of our Product Candidates. We may never succeed in obtaining regulatory approval for any of our Product Candidates.
We may also, in the future, enter into license or collaboration agreements for our Product Candidates or intellectual property, and we may generate revenue in the future from payments as a result of such license or collaboration agreements.
Operating Expenses
Research and Development and Patent Expenses
Research and development and patent expenses represent costs incurred by us for the discovery, development, and manufacture of our Product Candidates and include:
| • | external research and development expenses incurred under agreements with CROs, contract development and manufacturing organizations, or “CDMOs”, and consultants; |
| • | salaries, payroll taxes, employee benefits expenses for individuals involved in research and development efforts; |
| • | research supplies; and |
| • | legal and patent office fees related to patent and intellectual property matters. |
We expense research and development costs as incurred. We recognize expenses for certain development activities, such as preclinical studies and manufacturing, based on an evaluation of the progress to completion of
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specific tasks using data or other information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of expenses incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. These amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
External costs represent a significant portion of our research and development expenses, which we track on aprogram-by-program basis following the nomination of a development candidate. Our internal research and development expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation expense. We do not track our internal research and development expenses on aprogram-by-program basis as the resources are deployed across multiple projects.
The successful development of our Product Candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the remainder of the development of our Product Candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our Product Candidates, if approved. This is due to the numerous risks and uncertainties associated with developing our Product Candidates, including the uncertainty related to:
| • | the timing and progress of preclinical and clinical development activities; |
| • | the number and scope of preclinical and clinical programs we decide to pursue; |
| • | our ability to raise additional funds necessary to complete preclinical and clinical development and commercialization of our Product Candidates and to advance the development of our biosynthesis manufacturing technology; |
| • | our ability to maintain our current research and development programs and to establish new ones; |
| • | our ability to establish licensing or collaboration arrangements; |
| • | the progress of the development efforts of parties with whom we may enter into collaboration arrangements; |
| • | the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; |
| • | the receipt and related terms of regulatory approvals from applicable regulatory authorities; |
| • | the availability of raw materials and API for use in production of our Product Candidates; |
| • | our ability to establish and operate a manufacturing facility, or secure manufacturing supply through relationships with third parties; |
| • | our ability to consistently manufacture our Product Candidates in quantities sufficient for use in clinical trials; |
| • | our ability to obtain and maintain intellectual property protection and regulatory exclusivity, both in the United States and internationally; |
| • | our ability to maintain, enforce, defend and protect our rights in our intellectual property portfolio; |
| • | the commercialization of our Product Candidates, if and when approved; |
| • | our ability to obtain and maintain third-party payor coverage and adequate reimbursement for our Product Candidates, if approved; |
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| • | the acceptance of our Product Candidates, if approved, by patients, the medical community and third-party payors; |
| • | competition with other products; and |
| • | a continued acceptable safety profile of our products following receipt of any regulatory approvals. |
A change in the outcome of any of these variables with respect to the development of any of our Product Candidates would significantly change the costs and timing associated with the development of that product candidate, and potentially other candidates.
Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase significantly in future periods as we continue to implement our business strategy, which includes advancing our biosynthesis manufacturing platform to commercial scale and our drug candidates into and through clinical development, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, and ultimately seeking regulatory approvals for our drug candidates that successfully complete clinical trials. In addition, drug candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our drug candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through to commercialization. There are numerous factors associated with the successful commercialization of any of our Product Candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative Expenses
General and administrative expenses consist of personnel-related costs, including salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, human resources, business operations and other administrative functions, investor relations activities, legal fees related to corporate matters, fees paid for accounting and tax services, consulting fees and facility-related costs.
We expect our general and administrative expenses will increase for the foreseeable future to support our expanded infrastructure and increased costs of expanding our operations and operating as a public company. These increases will likely include increased expenses related to accounting, audit, legal, regulatory andtax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.
Amortization and Depreciation
Intangible assets are comprised of intellectual property that we acquired in 2014 and 2015. The intellectual property is recorded at cost and is amortized on a straight-line basis over an estimated useful life of 18 years net of any accumulated impairment losses. Equipment and leasehold improvements are depreciated using the straight-line method based on their estimated useful lives.
Share-based Payments
Share-based payments is the stock-based compensation expense related to our granting of stock options to employees and others. The fair value, at the grant date, of equity-settled share awards is charged to our loss over the period for which the benefits of employees and others providing similar services are expected to be received. The vesting components of graded vesting employee awards are measured separately and expensed over the related
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tranche’s vesting period. The amount recognized as an expense is adjusted to reflect the number of share options expected to vest. The fair value of awards is calculated using the Black-Scholes option pricing model which considers the exercise price, current market price of the underlying shares, expected life of the award, risk-free interest rate, expected volatility and the dividend yield. Prior to July 1, 2018, each vesting tranche of equity classifiednon-employee awards were remeasured each reporting period with a final measurement date of each vesting tranche being its vesting date. Starting July 1, 2018, we early adopted Accounting Standards UpdateNo. 2018-07 which allowed us to align the accounting fornon-employee awards to employee awards.
Other Income
Other income consists primarily of interest income earned on our cash, cash equivalents and short-term investments.
Foreign Currency Translation Gain (Loss)
Our assets and liabilities are translated from our Canadian dollar functional currency to the U.S. dollar presentation currency based on the exchange rate at the balance sheet date. Our income and expense, capital transactions and cash flows are translated to U.S. dollar presentation currency using the exchange rates prevailing at the transaction date or at an appropriate average exchange rate. Foreign currency translation adjustments to arrive at the presentation currency are recognized as a component of comprehensive income.
Results of Operations
Comparison of the Six Months Ended December 31, 2019 and 2018
| Six Months Ended December 31, | ||||||||||||||||
| 2019 | 2018 | Change | % Change | |||||||||||||
| (in thousands) | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 3,569 | $ | 1,655 | $ | 1,914 | 116 | % | ||||||||
General and administrative | 1,759 | 2,193 | (434 | ) | (20 | %) | ||||||||||
Amortization and depreciation | 58 | 60 | (2 | ) | (3 | %) | ||||||||||
Total operating expenses | 5,386 | 3,908 | 1,478 | 38 | % | |||||||||||
Interest income | 99 | 177 | (78 | ) | (44 | %) | ||||||||||
Foreign exchange (loss) gain | (11 | ) | 69 | (80 | ) | (116 | %) | |||||||||
Net loss | $ | (5,298 | ) | $ | (3,662 | ) | $ | (1,636 | ) | 45 | % | |||||
Research and Development Expenses
Research and development expenses increased by $1.9 million, or 116%, from the six months ended December 31, 2018 compared to the six months ended December 31, 2019. The increase in research and development expenses was primarily due to work associated with the preclinical studies forINM-755 which were required for the regulatory application to initiate clinical trials forINM-755 in the second half of calendar year 2019 together with increased spending on our biosynthesis program. This resulted in an increase in expenditures, including fees paid to our external contracts, including CROs and CDMOs, of $1.9 million and an increase in payroll and personnel-related expenses, including salaries, benefits andnon-cash share-based compensation expense, of $0.1 million.
General and administrative expenses
General and administrative expenses were $1.8 million for the six months ended December 31, 2019,
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compared to $2.2 million for the six months ended December 31, 2018. The decrease of $0.4 million was primarily a result of reducednon-cash share-based compensation expense offset by higher accounting and legal expenses associated with preparing to register our securities with the SEC.
Interest income
Interest income of $0.1 million for the six months ended December 31, 2019, decreased compared to the $0.2 million of interest income for the six months ended December 31, 2018 as a result of decreased cash, cash equivalents and short-term investments.
Comparison of the years ended June 30, 2019 and 2018
The following table summarizes our results of operations for the years ended June 30, 2019 and 2018:
| Year Ended June 30, | ||||||||||||||||
| 2019 | 2018 | Change | % Change | |||||||||||||
| (in thousands) | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 5,126 | $ | 1,934 | $ | 3,192 | 165 | % | ||||||||
General and administrative | 4,297 | 6,056 | (1,759 | ) | (29 | %) | ||||||||||
Amortization and depreciation | 119 | 118 | 1 | 1 | % | |||||||||||
Total operating expenses | 9,542 | 8,108 | 1,434 | 18 | % | |||||||||||
Interest income | 328 | 70 | 258 | 369 | % | |||||||||||
Foreign exchange (loss) gain | (34 | ) | — | (34 | ) | — | ||||||||||
Net loss | $ | (9,248 | ) | $ | (8,038 | ) | $ | (1,210 | ) | 15 | % | |||||
Research and Development Expenses
Research and development expenses increased by $3.2 million, or 165%, for the year ended June 30, 2019 from the year ended June 30, 2018. The increase in research and development expenses was primarily due to work associated with the preclinical studies forINM-755 which were required for the regulatory application to initiate clinical trials forINM-755 in the second half of calendar year 2019 together with increased spending on our biosynthesis program. This resulted in an increase in expenditures, including fees paid to our external contracts, including CROs and CDMOs, of $2.2 million and an increase in payroll and personnel-related expenses, including salaries, benefits andnon-cash share-based compensation expense, of $0.9 million.
General and administrative expenses
General and administrative expenses were $4.3 million for the year ended June 30, 2019, compared to $6.1 million for the year ended June 30, 2018. The decrease of $1.8 million was primarily a result of reducednon-cash share-based compensation expense and external investor relations activities. These decreases were partially offset primarily by higher accounting and legal expenses associated with preparing to register our securities with the SEC and higher personnel-related expenses incurred as a consequence of increased operations.
Interest income
Interest income increased by $0.3 million for the year ended June 30, 2019, compared to the year ended June 30, 2018 as a result of larger average cash, cash equivalents and short-term investments on hand in 2018 compared to 2019.
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Liquidity and Capital Resources
Since our inception, we have not generated any revenue from any product sales or any other sources and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. We have funded our operations to date primarily with proceeds from the sale of common shares.
As of December 31, 2019, we had cash and cash equivalents of $9.2 million.
The following table summarizes our cash flows for each of the periods presented:
| (in thousands) | Year Ended June 30, 2019 | Year Ended June 30, 2018 | Six Months Ended December 31, 2019 | Six Months Ended December 31, 2018 | ||||||||||||
Net cash used in operating activities | $ | (6,624 | ) | $ | (3,696 | ) | $ | (4,455 | ) | $ | (2,722 | ) | ||||
Net cash provided by (used in) investing activities | (2,088 | ) | (1,877 | ) | 3,799 | (3,828 | ) | |||||||||
Net cash provided by (used in) financing activities | 205 | 18,880 | — | 9 | ||||||||||||
Effects of foreign exchange on cash and cash equivalents | 17 | (148 | ) | 18 | (404 | ) | ||||||||||
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Net (decrease) increase in cash, cash equivalents, and restricted cash | $ | (8,490 | ) | $ | 13,159 | $ | (638 | ) | $ | (6,945 | ) | |||||
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Operating Activities
During the six months ended December 31, 2019, we used cash in operating activities of $4.5 million, primarily resulting from our net loss of $5.3 million, partially offset primarily bynon-cash share-based compensation expenses.
During the six months ended December 31, 2018, we used cash in operating activities of $2.7 million, primarily resulting from our net loss of $3.7 million and a reduction in working capital, partially offset primarily bynon-cash share-based compensation expenses.
During the year ended June 30, 2019, we used cash in operating activities of $6.6 million, primarily resulting from our net loss of $9.2 million, partially offset primarily bynon-cash share-based compensation expenses of $2.3 million.
During the year ended June 30, 2018, we used cash in operating activities of $3.7 million, primarily resulting from our net loss of $8.0 million, partially offset primarily bynon-cash share-based compensation expenses of $3.8 million.
Changes in accounts payable and accrued expenses in all periods were generally due to growth in our business, the advancement of our product candidates, and the timing of vendor invoicing and payments.
Investing Activities
During the six months ended December 31, 2019, investing activities provided $3.8 million, consisting primarily of the net disposition of short-term investments to fund our operating activities.
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During the six months ended December 31, 2018, we used cash in investing activities of $3.8 million, consisting primarily of the net purchase of short-term investments.
During the year ended June 30, 2019, we used cash in investing activities of $2.1 million, consisting primarily of the net purchase of short-term investments.
During the year ended June 30, 2018, we used cash in investing activities of $1.9 million, consisting of proceeds from the exercise of stock options.
Financing Activities
During the six months ended December 31, 2019 we had no cash provided by or used in financing activities.
During the six months ended December 31, 2018, we had cash provided by financing activities of less than $0.1 million from the proceeds upon the exercise of stock options.
During the year ended June 30, 2019, we had cash provided by financing activities of $0.2 million, consisting primarily of the net purchase of short-term investments.
During the year ended June 30, 2018, we had cash provided by financing activities of $18.9 million, primarily the result of $7.5 million gross proceeds from a January 2018 private placement of our common shares and $11.2 million gross proceeds from a June 2018 public offering in Canada of our common shares, which were both partially offset by cash share issue costs for the year of $1.7 million. In addition, we had $1.8 million of cash provided from the exercise of stock options and warrants.
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we continue the research and development of and initiate clinical trials of our Product Candidates. In addition, upon listing on Nasdaq, we expect to incur additional costs associated with operating as aUS-listed public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
We believe that the anticipated net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements into calendar 2022. However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.
Our funding requirements and timing and amount of our operating expenditures will depend largely on:
| • | the progress, costs and results of our ongoing Phase I clinical trials; |
| • | the scope, progress, results and costs of discovery research, preclinical development, laboratory testing and clinical trials for our Product Candidates; |
| • | the scope, progress, results and costs of development of our biosynthesis manufacturing technology; |
| • | the number of and development requirements for other Product Candidates that we pursue; |
| • | the costs, timing and outcome of regulatory review of our Product Candidates; |
| • | our ability to enter into contract manufacturing arrangements for supply of API and manufacture of our Product Candidates and the terms of such arrangements; |
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| • | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements; |
| • | the costs and timing of future commercialization activities, including product manufacturing, sales, marketing and distribution, for any of our Product Candidates for which we may receive marketing approval; |
| • | the amount and timing of revenue, if any, received from commercial sales of our Product Candidates for which we receive marketing approval; |
| • | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims; |
| • | expansion costs of our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a dual listed company; and |
| • | the costs to obtain, maintain, expand and protect our intellectual property portfolio. |
A change in the outcome of any of these or other variables with respect to the development of any of our Product Candidates could significantly change the costs and timing associated with the development of that product candidate. We will need to continue to rely on additional financing to achieve our business objectives.
In addition to the variables described above, if and when any of our Product Candidates successfully complete development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights, and regulatory protection, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity securities, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts, and additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements or other strategic transactions in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or Product Candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts or grant rights to develop and market Product Candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, anyoff-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements included as part of this registration statement, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make
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estimates and assumptions that affect the reported amounts of assets and liabilities and the revenue and expenses incurred during the reported periods. We base estimates on our historical experience, known trends and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The full details of our accounting policies are presented in Note 2 of our audited consolidated financial statements for the year ended June 30, 2019 and Note 2 of our unaudited condensed consolidated financial statements for the six months ended December 31, 2019. These policies are considered by management to be essential to understanding the processes and reasoning that go into the preparation of our financial statements and the uncertainties that could have a bearing on its financial results. The significant accounting policies that we believe to be most critical in fully understanding and evaluating our financial results are research and development costs and share based payments.
Research & Development costs:
Research and development costs is a critical accounting estimate due to the magnitude and nature of the assumptions that are required to calculate third-party accrued and prepaid research and development expenses. Research and development costs are charged to expense as incurred and include, but are not limited to, personnel compensation, including salaries and benefits, services provided by CROs that conduct preclinical studies, costs of filing and prosecuting patent applications, and lab supplies.
The amount of expenses recognized in a period related to service agreements is based on estimates of the work performed using an accrual basis of accounting. These estimates are based on services provided and goods delivered, contractual terms and experience with similar contracts. We monitor these factors and adjust our estimates accordingly.
Share-based payments:
The fair value, at the grant date, of equity share awards is charged to income or loss over the period for which the benefits of employees and others providing similar services are expected to be received, generally the vesting period. The corresponding accrued entitlement is recorded in contributed surplus. The amount recognized as an expense is adjusted to reflect the number of share options expected to vest. The fair value of awards is calculated using the Black-Scholes option pricing model which considers the following factors:
| • | Exercise price |
| • | Current market price of the underlying shares |
| • | Expected life of the award |
| • | Risk-free interest rate |
| • | Expected volatility |
| • | Dividend yield |
Management determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, forfeiture rates and corporate performance. For employee awards, we use the “simplified method” to determine the expected term of options. Under this method, the expected term represents the average of the vesting period and the contractual term. Such judgments and assumptions are inherently uncertain. Changes in
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these assumptions affect the fair value estimates. If we had made different judgments and assumptions than those described previously, the amount of our share-based payments expense, net loss and net loss per common shares amounts could have been materially different.
Going Concern
The financial statements included in this registration statement were prepared on a going concern basis. The going concern basis assumes that we will continue in operation for the foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business.
We have a history of losses including a net comprehensive loss of $9.2 million and $8.3 million for the years ended June 30, 2019 and 2018, respectively, and $5.3 million for the six months ended December 31, 2019 and had an accumulated deficit of approximately $61.0 million as at December 31, 2019.
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we continue the research and development of and initiate clinical trials of our Product Candidates. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
Based on our current operating plan, we expect that our existing cash and cash equivalents and short-term investments and expected grant revenue and interest income will enable us to fund our operating expenses and capital expenditure requirements until approximately the end of the second quarter of calendar year 2021. However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements included elsewhere in this prospectus.
Financial Instruments and Risk Management
We are exposed through our operations to the following financial risks:
| • | Market Risk including foreign currency risk and interest rate risk |
| • | Credit Risk |
| • | Liquidity Risk |
In common with all other businesses, we are exposed to risks that arise from any use of financial instruments. This section of the MD&A describes our objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout our consolidated financial statements included in this registration statement.
There have been no substantive changes in our exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous years unless otherwise stated in this discussion and analysis.
General Objectives, Policies and Processes:
The Board has overall responsibility for the determination of our risk management objectives and policies and, while retaining ultimate responsibility for them, has delegated the authority for designing and
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operating processes that ensure the effective implementation of the objectives and policies to our management team. The effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets are reviewed periodically by the Board if and when there are any changes or updates required.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting our competitiveness and flexibility. Further details regarding these policies are set out below.
Quantitative and qualitative disclosures about market risks
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices are comprised of four types of risk: foreign currency risk, interest rate risk, commodity price risk and equity price risk. We do not currently have significant commodity risk or equity price risk.
Foreign Currency Risk:
Foreign currency risk is the risk that the future cash flows or fair value of our financial instruments that are denominated in a currency that is not our functional currency (Canadian dollars) will fluctuate due to changes in foreign exchange rates. Portions of our cash and cash equivalents and accounts payable and accrued liabilities are denominated in U.S. dollars. Accordingly, we are exposed to fluctuations in the U.S. and Canadian dollar exchange rates.
As at December 31, 2019, we had a net excess of U.S. dollar denominated cash and cash equivalents in excess of U.S. dollar denominated accounts payable and accrued liabilities of $1,433,730. The U.S. dollar financial assets generally result from holding U.S. dollar cash to settle anticipated near-term accounts payable and accrued liabilities denominated in U.S. dollars. The U.S. dollar financial liabilities generally result from purchases of supplies and services from suppliers from outside of Canada.
Each change of 1% in the U.S. dollar in relation to the Canadian dollar results in a gain or loss, with a corresponding effect on cash flows, of $14,337 based on the December 31, 2019 net U.S. dollar assets (liabilities) position. During the six months ended December 31, 2019 and 2018, we recorded a foreign exchange loss of $11,250 and a gain of $68,507, respectively.
Interest Rate Risk:
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. As at December 31, 2019, holdings of cash and cash equivalent of $2,944,799 are subject to floating interest rates. In addition, we held fixed rate guaranteed investment certificates, cashable within ninety days of purchase, with a book value of $6,139,206. The balance of our cash holdings of $114,740 as at December 31, 2019 arenon-interest bearing.
Our current policy is to invest excess cash in guaranteed investment certificates or interest-bearing accounts of major Canadian chartered banks or credit unions with comparable credit ratings. We regularly monitor compliance to our cash management policy.
As at December 31, 2019, we do not have any borrowings. Interest rate risk is limited to potential decreases on the interest rate offered on cash and cash equivalents and short-term investments held with chartered Canadian financial institutions.
Credit Risk:
Credit risk is the risk of financial loss to us if a customer or a counter party to a financial instrument fails to meet its contractual obligations. Financial instruments which are potentially subject to credit risk for us consist
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primarily of cash and cash equivalents and short-term investments. Cash and cash equivalents and short-term investments are maintained with financial institutions of reputable credit and may be redeemed upon demand.
The carrying amount of financial assets represents the maximum credit exposure. Credit risk exposure is limited through maintaining cash and cash equivalents and short-term investments with high-credit quality financial institutions and management considers this risk to be minimal for all cash and cash equivalents and short-term investments assets based on changes that are reasonably possible at each reporting date.
Liquidity Risk:
Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. Our policy is to ensure that we will always have sufficient cash to allow us to meet our liabilities when they become due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. The key to success in managing liquidity is the degree of certainty in the cash flow projections. If future cash flows are fairly uncertain, the liquidity risk increases. As at December 31, 2019, we had cash and cash equivalents of $9.2 million, current liabilities of $1.3 million and a working capital surplus of $8.3 million.
Financial Instruments
Our cash and cash equivalents of $9.2 million as at December 31, 2019 are measured at amortized cost and short-term investments, of less than $0.1 million, are measured at amortized cost.
Emerging Growth Company Status
As an “emerging growth company” under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. Additionally, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We may elect to avail ourselves of this exemption and, if we do, while we are an emerging growth company, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We may remain classified as an emerging growth company until the end of the fiscal year in which the fifth anniversary of our initial registered offering in the U.S. occurs, although if the market value of our common shares that is held bynon-affiliates exceeds $700 million as of any December 31 before that time or if we have annual gross revenues of $1.07 billion or more in any fiscal year, we would cease to be an emerging growth company as of June 30 of the following year. We also would cease to be an emerging growth company if we issue more than $1 billion ofnon-convertible debt over a three-year period.
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This section discusses our business assuming the completion of all of the transactions described in this prospectus.
Overview
We are a clinical stage pharmaceutical company developing a pipeline of prescription-based products targeting treatments for diseases with high unmet medical needs as well as developing proprietary manufacturing technologies.
We are developing a proprietary biosynthesis system for the manufacturing of pharmaceutical-grade cannabinoids, as well as multiple product candidates. We are dedicated to delivering new therapeutic alternatives to patients who may benefit from cannabinoid-based medicines. Our approach leverages on the several thousand year history of health benefits attributed to theCannabis plant and brings this anecdotal information into the 21st century by applying tried, tested and true pharmaceutical drug development discipline and a scientific approach to establishnon-plant-derived (synthetically manufactured), individual cannabinoid compounds as clinically proven,FDA-approved medicines. Our APIs, which are the ingredients that give medicines their effects, are synthetically made and, therefore, we have no interaction with theCannabis plant. We do not grow nor utilizeCannabis nor its extracts in any of our products; our products are applied topically (not inhaled nor ingested); and, we do not utilize THC or CBD, the most common cannabinoid compounds that are typically extracted from theCannabis plant, in any of our products. The API under development for our initial two drug candidates,INM-755 for EB andINM-088 for glaucoma, is CBN. Additional uses of bothINM-755 andINM-088 are being explored, as well as the application of additional rare cannabinoids to treat diseases.
We believe we are positioned to develop multiple product candidates in diseases which may benefit from medicines based on rare cannabinoid compounds. Most currently approved cannabinoid therapies are based specifically on CBD and/or THC and are often delivered orally, which has limitations and drawbacks, such as side effects (including the psychoactive effects of THC). Currently, we intend to deliver our rare cannabinoid pharmaceuticals through various topical formulations (cream for dermatology, eye drops for ocular diseases) as a way of enabling treatment of the specific disease at the site of disease while seeking to minimize systemic exposure and any related unwanted systemic side effects, including any drug-drug interactions and any metabolism of the active pharmaceutical ingredient by the liver. THC and CBD can be obtained either from plant extraction or chemically synthesized. We plan to access rare cannabinoids via allnon-extraction approaches, including our proprietary biosynthesis approach, thus negating any interaction with or exposure to theCannabis plant. Therefore, we have no relationship with theCannabis plant.
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Corporate Information
We were originally incorporated in the Province of British Columbia, under the BCBCA, on May 19, 1981 with the name “Kadrey Energy Corporation”. We have undergone a number of corporate name and business sector changes since its incorporation, ultimately changing its name to “InMed Pharmaceuticals Inc.” on October 6, 2014 to signify our intent to specialize in cannabinoid pharmaceutical product development.
Our management team is comprised of highly experienced pharmaceutical and biotechnology executives with successful track records in researching, developing, gaining approval for and commercializing novel medicines to treat serious diseases. Each member of our management team has over 20 to 30 years of industry experience, including our CEO, CFO, and (Sr.) Vice Presidents of Clinical and Regulatory Affairs, of Preclinical Research and Development, and of Chemistry, Manufacturing and Controls. Together, this team has covered the spectrum of pharmaceutical drug discovery, preclinical research, formulation development, manufacturing, human clinical trials, regulatory submissions and approval, and global commercialization. Additionally, the team has significant experience in company formation, capital raises, mergers/acquisitions, business development, and sales and marketing in the pharmaceutical industry. Our Board is constituted by individuals with significant experience in the pharmaceutical and biotechnology industries.
Rationale for Use of CBN in Pharmaceutical Drug Development
CBN is one of several rare cannabinoids naturally produced in theCannabis plant, albeit at significantly lower levels relative to the more commonly known THC and CBD. Despite their common origin, different cannabinoids have been observed to have distinct physiological properties, including therapeutic potential in specific diseases and unique safety profiles. We are specifically exploring these unique effects of CBN, as well as other rare cannabinoids, and their therapeutic potential to treat disease.
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Rare vs. Major Cannabinoids: Types, Prevalence & Application
Our extensive preclinical testing has identified several unique properties of CBN that outperformed both THC and CBD in various disease-related assays and models. CBN can act with higher potency when interacting with some receptor systems in the body, while acting with lower potency for others. While both THC and CBD have established therapeutic benefits in certain instances, our data thus far support CBN having distinct advantages as potential treatments for EB and glaucoma over both THC and CBD.
INM-755, our lead product candidate, is being developed as a topical skin cream formulation containing CBN for the treatment of symptoms related to EB, a rare genetic skin disease characterized by fragile skin that blisters easily from minimal friction that causes shearing of the skin layers. The blisters become open wounds that do not heal well.
In addition to the relief of symptoms, including inflammation, pain, and others, we believeINM-755 may impact the underlying disease by enhancing skin integrity in a subset of EB patients. We have completed more than 30 pharmacology and toxicology studies to investigate the effects of CBN. Several of these nonclinical studies explored the effect of CBN on important patient symptoms such as pain and chronic inflammation that interferes with wound healing and in potentially strengthening skin and reducing blister formation. Inin vitro pharmacology studies, CBN demonstrated activity in reducing markers of inflammation. CBN upregulated expression of K15, which might lead to skin strengthening and reduced blister formation in EBS patients with mutations in K14. The anti-inflammatory activity of CBN may be beneficial in healing chronic wounds caused by prolonged inflammation. The findings from several toxicology studies support the safety of this compound for continued clinical development programs.
A regulatory application to support our first Phase I clinical study in healthy volunteers withINM-755 was submitted November 4, 2019 and approved December 6, 2019. The initial Phase I clinical study evaluates the safety, tolerability, and pharmacokinetics ofINM-755 cream in healthy volunteers with normal, intact skin; the volunteers have cream applied once daily for a period of 14 days. All subjects in this first clinical trial completed treatment and evaluations by March 27, 2020. A regulatory application was submitted on March 23, 2020, for a second Phase I clinical study of healthy volunteers to test the local safety and tolerability of applying sterileINM-755 cream to small wounds once daily for 14 days. Both clinical trials will be conducted with two different drug concentrations and a vehicle control.
Assuming thatINM-755 is well tolerated in the two Phase I clinical studies in healthy volunteers, the next step will be to studyINM-755 in patients with EB (Study755-201-EB). Regulatory applications to support that global trial are planned for 4Q2020.
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CBN is also the active ingredient in our second drug candidate,INM-088, which is in preclinical studies as a potential treatment for glaucoma. We are conducting studies to testINM-088’s ability to provide neuroprotection and reduce intraocular pressure in the eye. We compared several cannabinoids, including CBD and THC, to determine which cannabinoid was the best drug candidate for the treatment of glaucoma. Of all the cannabinoids examined, CBN demonstrated the most optimal neuroprotection effect. Furthermore, CBN also exhibited intraocular pressure reduction capability.INM-088 is in advanced formulation development.
Current treatments for glaucoma primarily focus on decreasing fluidbuild-up in the eye. Our data has shown thatINM-088 may provide neuroprotection in addition to modulating intraocular pressure by improving drainage of fluid in the eye. Thus far, we have conducted numerous preclinical pharmacology studies to demonstrate these effects.
For all current and future Product Candidates we intend to submit NDAs (or their international equivalents) in most major jurisdictions, including the U.S.
We are actively establishing a broad patent portfolio to protect our commercial interests in utilizing CBN and other rare cannabinoids across these and other diseases. We have also filed multiple patent applications for our biosynthesis manufacturing technology. If granted, these patents may confer meaningful protection to the commercial potential for these technologies.
Our Strengths
We are the only clinical-stage company with both multiple cannabinoid drug candidates, in multiple therapeutic categories, that also is developing a proprietary biosynthesis manufacturing capacity to meet the needs of the rapidly evolving pharmaceutical drug needs for rare cannabinoids. Key strengths include:
Experienced executive team and board of directors with proven track records.
One key critical success factor in the field of pharmaceutical drug development is the experience and skill set of the individuals leading the company. We have been successful in attracting and retaining executive and directors with extensive (20+ years) experience in all facets of the pharmaceutical industry, including fundamental research and development, drug formulation, clinical trial execution, regulatory approvals, pharmaceutical commercialization, company and capital formation, business development, legal, and corporate governance. Our leadership team is well-poised to lead use through all facets of drug development and into regulatory approval and commercialization, either internally or externally via partnerships. It is this group of individuals that will help optimize our chances for success.
Proprietary biosynthesis manufacturing system.
Extraction of rare cannabinoids from the plant is economically impractical for commercial applications. To provide access to cost-effective rare cannabinoids at pharmaceutical quality, we are developing a biosynthesis approach to cannabinoid manufacturing with the goal of providingbio-identical, high purity, pharmaceutical grade cannabinoids at a reasonablecost-of-goods. These cannabinoids may be utilized for our own internal pipeline of drug candidates as well as for potential licensing to 3rd party drug developers for their pipelines. We believe this approach has several advantages over other manufacturing methods.
Leading experts in the therapeutic potential of the rare cannabinoid CBN.
We have invested significant time and effort in understanding characteristics and therapeutic potential of our initial rare cannabinoid drug candidate, CBN. As such, we are positioning ourselves to be a world leader in the pharmaceutical development of this cannabinoid. We anticipate that CBN will be the first of several such drug candidates.
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Targeting medical applications of rare cannabinoids to treat diseases with high unmet medical needs.
Significant investment in understanding the therapeutic potential of CBN has provided us with important insight as to how best develop this class of compounds for treating various diseases. We intend to apply thisknow-how across several disease that may benefit from cannabinoid-based medicines.
Diverse portfolio of patent applications covering a spectrum of commercial opportunities.
Success in pharmaceutical markets often rests with the strength of intellectual property, including patents, to protect our commercialization interests. We have filed several patents on its novel findings and expect to continue to do so.
Our Business Strategy
Our goal is to establish rare cannabinoid pharmaceutical products as important medicines for diseases with high unmet medical needs by pursuing the following strategies:
AdvanceINM-755 andINM-088 through preclinical and early clinical development, thereby establishing important humanproof-of-concept in multiple therapeutic applications.
These activities are well underway, at various stages, for bothINM-755 for diseases of the skin andINM-088 for diseases of the eye. We have the internal capabilities to design and execute, together with multiple external vendors, the preclinical data sets and clinical studies required to advance pharmaceutical drugs towards FDA approval and, ultimately, commercialization.
Establishing partnerships for our various technologies, at different stages of development, to expedite their path towards commercialization in a resource-efficient manner.
We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. With respect to the commercialization of each Product Candidate, we may rely on i) a“go-it-alone” commercialization effort; ii)out-licensing to third parties; or iii)co-promotion agreements with strategic collaborators for of our Product Candidates. To develop the appropriate commercial infrastructure internally, we would have to invest financial and management resources, some of which would have to be deployed prior to any confirmation our products will be approved by regulatory authorities. Any decision on a“go-it-alone” commercialization effort versusout-licensing to third parties will depend on various factors including, but not limited to, the complexity, the expertise required and related cost of building any such infrastructure for our Product Candidates. ForINM-755 in EB, it is conceivable that we could oversee the clinical trials, given the relatively small patient sizes expected for such trials, and build the requisite internal commercialization infrastructure to self-market the product to EB clinics, which are limited in number and provide direct access to the vast majority of EB patients. ForINM-088 in glaucoma, because of the potentially large clinical trial patient enrollees (possibly several thousand) and the extensive sales effort required to reach the many thousand prescribing physicians, we may consider exploring partnership opportunities early in the development process.
Develop a low cost manufacturing source for high quality rare cannabinoids as API for our core internal drug candidate pipeline, for licensing opportunities ofnon-core drug candidates, as well as a potential source for low cost cannabinoids in thenon-pharmaceutical space.
We are developing a proprietary, robust, microbial-based biosynthesis process for producing selected rare cannabinoids in a cost-effective manner for use in pharmaceutical products. The cannabinoids that will be produced from our process are targeted to bebio-identical to the naturally occurring cannabinoids in theCannabis plant. Our process is designed to offer superior yield, control, consistency and quality of rare cannabinoids when compared to alternative methods. Through our research and development activities, we have
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identified two manufacturing approaches demonstrating the potential to produce cannabinoids to meet the long-term commercial requirements of our drug products and potentially to supply other pharmaceutical companies. In the current and rapidly emerging cannabinoid pharmaceutical sector, our biosynthesis approaches to produce pharmaceutical-grade andbio-identical cannabinoids are potentially disruptive.
Continue to explore the potential of a wide array of rare cannabinoids to treat diseases based on our significant history in cannabinoid research and lead drug candidate identification.
Individual cannabinoids affect a range of different receptors in the human body, including, but not limited to, known endocannabinoid receptors. As such, they are responsible for a wide variety of pharmacological effects. However, due to the limited research into these varying effects, a full understanding of the role of each cannabinoid compound remains elusive. As a company, we have been formally investigating the utility of cannabinoids in treating disease for over 5 years. Our scientific founder, Dr. Sazzad Hossain (who retired in 2019), spent decades researching therapeutic applications of cannabinoids.
We have numerous options for commercializing our various technologies. At the core of our activities, we are a drug development company focused on commercializing important cannabinoid-based medicines to treat diseases with high unmet medical needs.
Cannabinoid Science Overview
Cannabinoids are a class of compounds that exist throughout nature and can be found in significant numbers and varying quantities in theCannabis plant. The two predominant, or major, cannabinoids in theCannabis plant are THC and CBD. These two exist in relatively large quantities in the plant and can be easily extracted, which has led to significant research into these two compounds over the previous several decades. Nevertheless, there are over 100 additional cannabinoid compounds found in the plant, referred to as minor or rare cannabinoids. Each cannabinoid has one or more specific chemical differences that may confer unique physiological properties in humans. Even slight differences in the structure of these compounds can result in profound differences in activity, safety and potential therapeutic effect in the human body.
Cannabinoid receptors are found throughout the body and are involved in many different functions, such as pain perception, memory, immune function and sleep. Cannabinoids act as messengers that bind to cannabinoid receptors, as well as other receptors, signaling the endocannabinoid system into action. The relevance of the endocannabinoid system on many important physiological processes has made cannabinoids an important target to potentially treat a number of diseases and symptoms.
Two cannabinoid receptors in the human body are the endocannabinoid receptor 1 (CB1), which is more significant to the central nervous system, and endocannabinoid receptor 2 (CB2), which is more common with the immune system. Scientific literature suggests that CBN has a greater effect on the immune system than on the central nervous system; however, information on the effects of CBN on the endocannabinoid system is limited. We continue to research the effects of CBN and how it interacts and modulates receptors in the body.
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The Endocannabinoid System:
Significant investigation is currently underway to determine the role of cannabinoids in affecting other receptor systems in the human body. Extensive preclinical testing undertaken by us has identified several unique properties of CBN that outperformed both THC and CBD in various disease-related assays and models. CBN can act with higher potency when interacting with some receptor systems in the body, while acting with lower potency for others. While both THC and CBD have established therapeutic benefits in certain instances, our data thus far support CBN having distinct advantages as potential treatments for EB and glaucoma over both of these well-known cannabinoids. In addition, CBN is generally considered to benon-psychoactive.
Physical and Chemical Properties of Active Pharmaceutical Ingredient CBN
CBN is a stable, highly lipophilic cannabinoid compound. It is insoluble in water, but soluble in organic solvents.
| InternationalNon-proprietary Name: | Cannabinol (abbreviated CBN) | |
| International Union of Pure and Applied Chemistry Name: | 6,6,9-trimethyl-3-pentyl-benzo[c]chromen-1-ol | |
| Chemical Abstracts Service Registration Number: | 521-35-7 | |
| United States Adopted Name: | Cannabinol | |
The molecular formula is C21H26O2 and the molecular weight is 310.43 g/mol. CBN has no chiral centers.
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| Figure 1 | Structural Formula of CBN |
CBN occurs naturally as a trace component ofCannabis, or as a degradation product ofD9-THC. However, our product candidates utilizing CBN contains highly purified synthetic CBN, rather than a biological extract.
CBN as our Lead API
As the API in our lead therapeutic programs in dermatology(INM-755) and ocular disease(INM-088), CBN has demonstrated several compelling pharmacological, toxicological and commercial features, including:
| • | A rare cannabinoid with unique physiological and safety properties; |
| • | A natural compound, but designated as a new chemical entity, or “NCE” for pharmaceutical development; |
| • | Found in trace amounts in the plant and impractical to extract; and |
| • | Our preclinical studies show therapeutic potential for dermatology and ocular diseases. |
We believe that we offer a differentiated approach to selecting and delivering rare cannabinoidsvis-à-vis other current competitors, many of whom are exclusively focused on THC and/or CBD as their therapeutic agents. We believe that rare cannabinoids in general, and CBN in particular, represent significant opportunities to treat a wide spectrum of diseases with high unmet medical need. In our preclinical testing, CBN has demonstrated therapeutic potential beyond CBD for several symptoms and disease-modifying effects for dermatological conditions and has demonstrated benefits beyond CBD and THC for ocular diseases. We believe that a topical application of CBN is targeted to maximize the clinical benefit at the disease site (skin, eye) while minimizing the systemic exposure and any corresponding adverse effects.
Additionally, our proprietary bacterial biosynthesis manufacturing platform may help unlock access to rare cannabinoids for further pharmaceutical development as a source of low cost, high purity API.
Our Product Candidates and Technologies
Development of a Biosynthesis Process for the Manufacturing of Cannabinoids
Introduction:
While there are over 100 different individual cannabinoids in theCannabis plant, the two most well-known and studied compounds are also the two that occur in the largest quantities: THC and CBD. Due to their relative abundance in theCannabis plant, it is also only THC and CBD that can currently be extracted economically. Among other challenges, the expense of extraction – or that of synthetic manufacturing – of the remaining minor or rare cannabinoids, may be orders of magnitude greater than that of THC and CBD.
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Nevertheless, like the major cannabinoids THC and CBD, these minor cannabinoids may hold very important physiological benefits in humans. The challenge, and opportunity, that we have identified, and seek to solve, is engineering a proprietary manufacturing platform technology, specifically for the production of pharmaceutical-grade cannabinoids – with an immediate focus on the minor cannabinoids – which is pure, cost-efficient, and consistently yieldsbio-identical cannabinoids as compared to the compounds found in nature, among several other benefits. We believe that providing this solution would be a critical success factor not only for our drug development strategy, but also for other biotechnology and pharmaceutical companies as well.
In 2015, we commenced the development of a biosynthesis process for the manufacturing of cannabinoids through a research collaboration with Dr. Vikramaditya Yadav from the Department of Biological and Chemical Engineering at the University of British Columbia. Utilizing the basis of a specific vector created for us, Dr. Yadav initiated a Research and Development Project titled “The Metabolic Engineering of yeast and bacteria for synthesis of cannabinoids andCannabis-derived terpenoids” under a collaborative research agreement.
Our biosynthesis platform technology has the potential for manufacturing any of the 100+ naturally occurring cannabinoids. We believe biosynthesis is unique in that theend-product isbio-identical to plant-sourced cannabinoids and, additionally, benefits from the convenience, control and quality of a laboratory-based manufacturing process without the risk and high-resource requirements of an agriculture growing operation.
Microorganisms do not naturally produce cannabinoids. However, utilizing genome engineering to modify their metabolism, we have systematically introduced theCannabis plant’s metabolic pathways into a bacteria (E. coli), referred to as a host, and have reported what we believe to be thefirst-of-its-kind production of fully differentiated cannabinoids in this bacteria.
Briefly, we identified the specific gene sequences from theCannabis plant that encode the instructions to make specific enzymes that enable cannabinoid synthesis and subsequently transferred these genes intoE. coli. This intervention converts the bacterium into a manufacturing system that produces substantial quantities of the target cannabinoids. This technology provides an opportunity for industrial-scale manufacturing of naturally occurring cannabinoids, which we believe would be a significant improvement over existing manufacturing platforms such as direct extraction fromCannabis plants or chemical synthesis. Specifically, direct extraction is quite cumbersome, time-consuming and relatively low yielding for all but a few of the cannabinoid compounds. In contrast, the use of microorganisms for manufacturing cannabinoids eliminates the need for an agricultural-centric process, including planting, growing, harvesting and extraction. There are also economic and environmental advantages including substantially reduced resource requirements (e.g., water, electricity, manpower, etc.). Furthermore, the agricultural approach has severalhard-to-remove impurities (e.g., pesticides, etc.), potentially presenting safety issues. As with all crops, yield fluctuations influenced by the environment present an additional risk. Only a few of the 100+ cannabinoids can currently be extracted from the plant in sufficient quantities to make the process economically viable. We believe chemical synthesis, by comparison, can be challenging and expensive due to the complexity of these molecules. For these reasons, we believe that microbial biosynthesis may be superior to both of these alternative approaches for cannabinoid production.
Cannabinoids are prenylated polyketides that are derived from fatty acid and terpenoid precursors. The biosynthesis of these molecules involves four metabolic pathways, two of which originate from central carbon metabolism. The first pathway (the Terpenoid pathway referenced in Figure 1 below) culminates with the synthesis of geranyl pyrophosphate, or “GPP”, and neryl pyrophosphate, or “NPP”. These molecules are terpenoid building blocks, or precursors. The second cannabinoid biosynthetic pathway, or the Polyketide pathway, is a truncated version of a polyketide biosynthetic pathway and results in the second requisite precursor, either: olivetolic acid, or “OA”, and/or divarinic acid, or “DVA”. The polyketide precursors subsequently combine with the terpenoid precursors in the third pathway, which comprises a single, specialized gateway enzyme in the plant, to yield the gateway cannabinoids. For instance, OA combines with GPP to yield the gateway cannabinoid cannabigerolic acid, or “CBGA”. The gateway cannabinoids are subsequently modified in
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the fourth pathway to yield cannabinoids such as tetrahydrocannabinolic acid and cannabidiolic acid. We refer to the fourth pathway as the down-stream pathway involving the transformation of the acid form of the cannabinoids into thenon-acid form via enzymes called synthases. Synthesis of CBGA is the most dominant pathway in the plant, resulting in high quantities of the down-stream cannabinoids THC and CBD. Other combinations of the various precursors result in different gateway cannabinoids which, in turn, leads to diversification into the 100+ cannabinoids.
Figure 1:
© InMed Pharmaceuticals, Inc. and University of British Columbia. All rights reserved.
Figure 1: Synthesis of the gateway cannabinoid CBGA is the most prevalent pathway in theCannabis plant, leading to high levels of both THC and CBD. Our technology is designed to mimic the natural biosynthesis of cannabinoids using anE. coli fermentation process.
Initially, we explored the use of several potential hosts for cannabinoid overexpression, including the bacteriumE. coli and the yeastS. cerevisiae. Our preliminary investigations identifiedE. coli as a superior host for production of the primary gateway cannabinoid, CBGA.
We have successfully constructed the terpenoid biosynthetic pathway and the gateway pathway for synthesis of CBGA and the down-stream pathways for synthesis of other cannabinoids. Our proprietary process is significantly more productive than previously patented terpenoid pathways, and we have confirmed the biosynthesis of the cannabinoids using qualified High-Performance Liquid Chromatography methodologies and Proton Nuclear Magnetic Resonance, or“H-NMR”, instrumentation.
We have constructed a series of proprietaryE. coli strains that express variations and/or subsets of the entire biosynthetic pathway and have tested production inlab-scale fermentation apparatus. Continued development and optimization of our manufacturing processes has led to recent modifications, internally referred to as an “alternative process”, that will be instrumental in delivering on the goal of high purity,bio-identical and low cost cannabinoids. Next steps in both the traditional biosynthesis program and alternative process, all of which are currently ongoing, include:
| • | Continue efforts to further diversify the number of cannabinoids produced using our technology; |
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| • | Optimize andscale-up the biosynthesis process to larger vessels, whereby protocols will be developed to optimize the manufacturing parameters; |
| • | Develop the process and protocols for down-stream purification of the biofermented products; and |
| • | Develop our relationships with external contract manufacturing organizations for commercialscale-up of the process. |
Currently, we view our alternatives for achieving GLP and GMP product manufacturing capabilities as three-fold: (a) building our own dedicated biosynthesis facility; (b) accessing existing manufacturing capacity via leases with third parties; or (c) licensing ourprocess/know-how to a CDMO with existing infrastructure to produce the requisite preclinical, clinical and commercial-scale supply of our Product Candidates.
Targeted Benefits of Biosynthesis:
| A. | Cost savings relative to the existingCannabis grow-harvest-extract-purify methods; |
| B. | Enhanced production (for rare cannabinoids), purification, quality control and scalability relative to the agricultural approaches, including avoidance of impurities (e.g., pesticides) in the final product; |
| C. | Increased structural integrity relative to the other chemical (synthetic) manufacturing methods;bio-identical to the plant compounds and no risk of random/inactive isomer production; and |
| D. | Access to minor cannabinoids that are currently economically unfeasible to extract from plant sources. |
Other Applications of our Biosynthesis Technology:
While the main objective in developing our biosynthesis platform technology remains to innovate a novel, efficient and cost-effective method for the production of cannabinoids for use in our pharmaceutical Product Candidates, we remain optimistic that there may exist additional business opportunities for us to monetize this technology, including but not limited to supplying cannabinoid drugs to the broader pharmaceutical industry. We continue to consider this, and other opportunities, in order to optimize value for our company. Success in this strategy will be largely dependent on the ability of biosynthesis to be price competitive with other technologies.
Competitive Conditions:
Other methods of cannabinoid manufacturing that are currently being investigated by several entities include:
| • | Biosynthesis (generation of the final compound inside a single system) using yeast, non-E. coli bacteria, or other approaches (algae, etc.) as a host organism; |
| • | Biocatalysis (generation of enzymes to be used in a subsequent reaction) in either bacteria or yeast; |
| • | Synthetic chemistry; and |
| • | Combinations of these above-listed technologies. |
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Several companies (see chart below) are active in the cannabinoid manufacturing space including Teewinot Life Sciences, CB Therapeutics, BayMedica, Ginko Bioworks, Librede, Cellibre, Intrexon, Hyasynth, BioVectra, and Purisys, among several others. Currently, our approach of utilizingE. coli is unique and we are not aware of any other entity utilizing this approach.
Key Milestones:
On May 21, 2015, we commenced the development of our biosynthesis process for the manufacturing of cannabinoids through a research collaboration with Dr. Vikramaditya Yadav from the Department of Biological and Chemical Engineering at the University of British Columbia under a project titled “The Metabolic Engineering of yeast and bacteria for synthesis of cannabinoids andCannabis derived terpenoids”. On May 31, 2017, we signed a Technology Assignment Agreement with the University of British Columbia whereby we retain sole worldwide rights to all patents emergent from the technology under development in exchange for a royalty on products utilizing cannabinoids manufactured using the technology and onsub-licensing revenues. On May 15, 2018, we extended our Collaborative Research Agreement with the University of British Columbia for an additional three years.
We, in conjunction with our collaboration partners at the University of British Columbia, continue to advance the production platform for the biofermentation of cannabinoids. Optimization of the vector continued in parallel with the identification of optimal fermentation conditions and down-stream purification processes with third party contract manufacturing organizations. Optimization of the fermentation conditions was a project conducted with the National Research Council Canada at their dedicated fermentation facility in Montreal, Quebec. While we do not anticipate any new intellectual property arising from this venture, under the terms of this research agreement, the National Research Council of Canada owns all new IP and we have a sole,fully-paid-up license to all commercialization rights of such IP. This project was initiated in October 2018 and concluded in the second half of 2019.
In February 2019, we entered into a separate process development collaboration by way of a Master Service Agreement with a seasoned GMP pharmaceutical contract development and manufacturing organization to optimize the down-stream purification process that leads to a finalized pharmaceutical-grade product. These activities are being conducted in parallel with the National Research Council of Canada project. Due to contractual obligations with this partner, we cannot make public their identity. Additionally, we engaged the same to assist in the development of an “alternative” manufacturing process for cannabinoids which integrates the best available technologies across the spectrum of pharmaceutical drug production. We retain all rights to this new process; the partner CDMO retains certainrights-of-first refusal on the production of certain precursors, or starting materials, for this alternative process.
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Other Milestones Include:
| • | September 12, 2017 – We announced the filing of a provisional patent application entitled, “Metabolic Engineering ofE. coli for the Biosynthesis of Cannabinoid Products” (#62/554,494) pertaining to our proprietary biosynthesis program for the manufacture of cannabinoids that are identical to those found in nature. We expect that this patent application, since converted into an application pursuant to the Patent Cooperation Treaty, or a “PCT Application”, and pursued in key jurisdictions throughout the world, will provide significant commercial protection for ourE. coli-based expression system to manufacture any of the 100+ cannabinoid compounds that may have a medical impact on important human diseases. This is the first in a series of patent applications directed to various aspects of our biosynthesis program. |
| • | September 19, 2017 – We announced retaining the consulting services of Ben Paterson, P.E., to assist in defining the pathway for thescale-up, purification, and manufacturing strategies for our cannabinoid biosynthesis program. Mr. Paterson has nearly four decades of experience in developing pharmaceutical manufacturing and purification processes. He was previously a Senior Engineering Advisor with Eli Lilly and Company, where he spent 37 years, including 24 years in their biosynthesis division. His expertise includes first defining processes in the lab, then scaling up to pilot and commercial scale. Mr. Paterson has conducted design, construction, operation, optimization, and troubleshooting of both large and small molecule drug facilities including theE. coli biosynthesis of numerous products. He brings experience in the seamless integration of biochemistry, equipment, and process control to successfully define a process at scale. |
| • | September 25, 2017 – We announced an update on the significant advancements in our proprietary technology for the microbial biosynthesis of cannabinoids. We have successfully demonstrated an ability to selectively produce various gateway cannabinoids using genetically engineered microorganisms. These molecules can be functionalized further to produce any of the 100+ down-stream cannabinoids, or those formed from an enzymatic reaction with the gateway cannabinoid CBGA, found naturally in theCannabis plant. We are actively employing this production chassis to synthesize compounds for certain pharmaceutical research programs. Our biosynthesis program has resulted in what we believe to be two significant firsts: |
| • | new metabolic pathway for manufacturing the terpenoid family of cannabinoid precursors that is much more robust than other microbial expression systems tested by us; and |
| • | first-ever production of any fully assembled down-stream cannabinoids inE. coli, beginning with genetic material to produce precursors, enzymes, and synthases. |
| • | September 10, 2018 – We announced the filing of a PCT Application for biosynthesis which claims a priority date from September 5, 2017 (PCT/CA2018/051074). The PCT Application filing is a conversion from the provisional patent filed in September 2017. |
| • | September 11, 2018 – We announced that the University of British Columbia, laboratories of Professor V. Yadav, was awarded a NSERC grant totaling C$136,000 over a three-year period to support its collaborative research and development project entitled “Microbial metabolic engineering for cannabinoid biosynthesis” with us. |
| • | October 3, 2018 – We announced entering into a research agreement with the National Research Council of Canada in Montreal, Canada, for biofermentation process development andscale-up for cannabinoid biosynthesis inE. coli. at the National Research Council of Canada’s dedicated biosynthesis site in Montreal. |
| • | December 4, 2018 – We announced that we signed a contribution agreement with the National Research Council Canada Industrial Research Assistance Program, or National Research Council of Canada IRAP, to receive funding of up to C$500,000 to support our ongoing research and development efforts in cannabinoid biosynthesis. National Research Council of Canada IRAP |
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provides advisory services and funding to Canadian businesses to promote accelerated growth and technology innovation. In particular, funding from National Research Council of Canada IRAP will be applied to improve production of the different components of the terpenoid biosynthetic pathway, apre-cursor of cannabinoid production, as well as research and development supportingup-stream and down-streamscale-up activities conducted by our contract development and manufacture organizations. The funding will be received over the next 18 months. We also continue our efforts to further diversify the number of cannabinoids produced using our technology platform. |
| • | March 18, 2019 – We announced the publication of the first in a series of pending patent applications directed to our biosynthesis platform technology for the manufacturing of pharmaceutical-grade cannabinoids. International Patent Application International Patent Application No. PCT/CA2018/051074, which published as WO2019046941, entitled “METABOLIC ENGINEERING OFE. COLI FOR THE BIOSYNTHESIS OF CANNABINOID PRODUCTS”, addresses the enablement and maximization of cannabinoid production through optimization of the precursor substrates needed to support specific cannabinoid synthesis. This application, as well as two more recently filed U.S. provisional patent applications, covers various elements required to enable functional cannabinoid synthase production in anE. coli system. We will actively seek to convert these twofollow-on provisional applications, and subsequent provisional patents from new patent families, into additional PCT Applications in all major commercial jurisdictions, in due course. |
Research and Development Pipeline of Therapeutic Drug Candidates
INM-755 for the Treatment of EB
Introduction
INM-755 (CBN) cream is being developed as a proprietary, topical, single-cannabinoid product candidate intended as a therapy in dermatological diseases. The first clinical indication under development is EB. EB is a collective name for a group of genetic disorders of connective tissues characterized by skin fragility leading to extensive blistering and wounding. It affects skin and mucous membranes, particularly of the gastrointestinal tract, genitourinary and respiratory systems. EB is a debilitating disease affecting a small proportion of people in the United States, thus earning it an orphan-disease status. The disease has no definitive cure and all current treatments are directed towards symptom relief. There are, however, a number of products, mainly gene therapies, currently in clinical trials, in which a cure is being explored, according to several recent scientific publications. It is well documented that phytocannabinoids, or plant-derived cannabinoid compounds, have unique anti-inflammatory, analgesic and wound healing promoting properties via several mechanisms, thus making them viable candidates for use in alleviating some of the symptoms associated with EB. Our preclinical research has identified a specific cannabinoid, CBN, that may prove beneficial to patients: first, by addressing certain key disease hallmarks (which may include wound healing, infection, pain, inflammation); and second, by regulating the expression of various proteins (keratins) that may compensate for reduced expression of others.
The active ingredient inINM-755, CBN, is an agonist for both cannabinoid (CB) 1 and CB2 receptors, with a higher affinity for CB2, which means it should have a greater effect on the immune system than on the central nervous system. The distribution of CB1 and CB2 receptors in sensory nerves and inflammatory cells in the skin make it an attractive pharmaceutical agent for dermal treatments in medical conditions characterized by inflammation and pain.
In preclinical pharmacology studies, CBN demonstrated activity as an anti-inflammatory and antinociceptive agent. CBN upregulated expression of keratin 15 (K15), which might lead to skin strengthening and reduced blister formation in EBS patients with keratin 14 (K14) mutations. At the cream concentrations
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chosen for clinical development, it does not appear to impede wound healing of partial-thickness wounds. Its anti-inflammatory activity may be beneficial in healing chronic wounds caused by prolonged inflammation.
We have completed 20 safety pharmacology and toxicology studies to investigate the effects of CBN. The findings from these studies support the safety of the planned clinical development program.
The Science Behind EB
At the most basic level, the hallmark of EB is poor anchorage of the epidermis to the dermis such that the skin and mucous membranes of the affected individuals tend to shear and blister on minimal friction. This is due to the genetically inherited defect in certain genes (multiple genes have been shown to be associated with the different subtypes of EB) that code for some specific proteins that are concerned with maintaining the integrity of skin and mucous membranes.
There are four main subtypes of the condition. Each of these subtypes can display a spectrum of phenotypic severity reflecting the types of mutations in different genes, together with modifying environmental factors. The types of mutations also determine the mode of inheritance, either autosomal dominant or autosomal recessive. The following table shows the pattern of inheritance and the defective genes and proteins in each:
Classification of EB Types
| (a) | EBS |
This is the most common form of EB and is characterized by a lack of adhesion of the skin directly above the basement membrane (the basal layer). An estimated 55% of people with EB have EBS resulting from a genetic defect of the keratins K5 and K14, with the incidence between the two defects estimated to be essentially equal. The most common form of EBS manifests itself as blistering confined to the hands and feet while in others blistering can occur all over the body. Blistering generally appears during the neonatal period but it can also manifest itself in later childhood (or even in adult life). Painful skin blisters are accentuated by friction,
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especially on the feet where footwear causes increased irritation. Friction injuries tend to occur more commonly in warm weather and secondary infections are common.
| (b) | Junctional EB |
Junctional EB is characterized by a lack of adhesion of the skin through the basement membrane and affects some 5% of those with EB. The generalized type of junctional disease (about half of cases of junctional EB) is usually fatal in infancy. This is often as a result of anemia and malnutrition due to poor feeding caused by the serious blistering in the pharynx and esophagus. The milder form of the disease can cause life-long pain and disability.
| (c) | Dystrophic EB, or “DEB” |
DEB is characterized by a lack of adhesion of the skin under the basement membrane. Approximately 30% of people with EB have DEB. Patients with DEB tend to develop blisters that heal with fibrosis, leading to joint contracture, fusion of the fingers, contractures of the mouth membranes and narrowing of the esophagus. Often the dominant inherited type of DEB is the least severe type and the patient can lead an almost normal life. However, the severity of the condition does increase with age due to scarring, syndactyly and generalized skin atrophy. Those with recessive DEB have a high chance of developing a squamous cell carcinoma, often before the age of 35.
| (d) | Kindler Syndrome |
This type of EB is rare and usually becomes apparent at birth or soon after. This condition is called mixed type because blisters appear across the skin layers. The condition usually improves with time and can disappear. It is the only type that causes patchy discoloring (mottling) of skin exposed to the sun. Kindler syndrome is recessive.
| (e) | Epidermolysis bullosa acquisita |
Epidermolysis bullosa acquisita is a rare type that is not inherited. The blisters result from the immune system attacking healthy tissue by mistake. It’s similar to another immune system disorder called bullous pemphigoid. It tends to cause blisters on the hands, feet and mucous membranes.
Epidemiology, Morbidity and Mortality
The most reliable figures on prevalence and incidence of EB are derived from the National EB Registry, or “NEBR”, which collected cross-sectional and longitudinal data on about 3,300 EB patients in the United States from 1986 through 2002. The prevalence of EB was estimated to be approximately 11 per million and the incidence approximately 20 per million live births. In the United States, assuming that mild cases of EBS are reported only 10% of the time, the affected population in the United States is approximately 12,500. Other sources cite populations of up to 25,000 in the United States.
Generalized blistering caused by any subtype may be complicated by infection, sepsis, and death especially in infancy. Severe forms of EB increase the mortality risk during infancy. In patients with EB that survive childhood, the most common cause of death is metastatic squamous cell carcinoma. This skin cancer occurs most frequently in patients with recessively inherited DEB who are aged15-35 years. In contrast, dominantly inherited EBS and DEB and milder forms of junctional EB may not affect a patient’s life expectancy adversely. Onset of EB is at birth or shortly after. The exception occurs in mild cases of EBS, which may remain undetected until adulthood or remain undiagnosed. The disease appears to have equal incidences in both sexes.
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Current Treatments
As a genetic disease, EB has no cure and, as a designated orphan-disease, there are no approved products specifically to treat this indication. Effective management of EB patients involves a collaborative approach between several specialists, including surgeons, dermatologists, ophthalmologists, dentists, psychologists, podiatrists, physiotherapists and geneticists. The aim is to provide support to the patient by alleviating symptoms and managing complications; in particular, the patient caregivers must assess and act daily to treat the wound and enable wound healing, address the current level of pain and itch, provide adequate antimicrobial protection, reduce inflammation (as a source of depressed wound healing abilities) and address the emotional state of the patient.
Current medications are employed in control of pain (various types of analgesics including nonsteroidal anti-inflammatory drugs, or “NSAIDS”, tricyclic antidepressants, gabapentin, and narcotics) and pruritus (antihistamines, etc.) and to address complications such as local infection and septicemia (local and systemic antibiotics). Steroids and phenytoin are also used in managing dysphagia-associated pain. Tetracycline is considered to be beneficial in improving the blistering and epithelial disadhesion. The complications of these classes of medications are well known and the drugs are most likely to further complicate the patients’ conditions since they will be used on long-term basis.
The newer products currently in research also have their problems. For example, the use of bone marrow was being researched by the University of Minnesota with some promising results. However, the severe immunosuppression that bone marrow transplantation requires causes a significant risk of serious infections in patients with large scale blisters and skin erosions.
Competitive Landscape
We are studyingINM-755, our proprietary, topical, single cannabinoid product candidate, as a first-line therapy in all EB patients for symptom relief and in EBS as a therapy to potentially strengthen skin integrity viaup-regulation of a keratin.
There are no therapies approved specifically for the treatment of EB. This lack of treatment options creates a significant unmet medical need in this devastating condition. For those products currently envisioned or in clinical trials as topical treatments, wound healing and symptom relief are the primary endpoints.
According to public information, several topical investigational drug formulations are currently at various stages of clinical development for the treatment of EB, including:
| • | Amryt Pharma’s investigational drug,Oleogel-S10, is a topical product incorporating a betulin-based active ingredient formulated with sunflower oil. AP101 causes the keratinocytes to migrate faster and to differentiate into mature epithelial skin cells. This product is currently approved in some jurisdictions for the treatment of partial-thickness wounds in adults. |
| • | Krystal Biotech’s investigational drug, KB103, is a replication-defective,non-integratingHSV-1 that is based on a viral gene therapy platform. In October 2019, Krystal announced positive combined results from their Phase I and II trials looking at ten chronic or recurrent blister wounds being treated with KB103 – 9/10 closed up completely and the tenth closed within 7 days of retreatment. The drug was well-tolerated, Krystal said that no serious adverse events or drug-related adverse events were reported, and there were no reports of inflammation or irritation in the KB103-treated wounds; additionally, Krystal received an expedited review designation from the FDA and EMA. |
| • | Wings Therapeutics (formerly ProQR) has initiated a Phase Ib/II safety study of a topical gel,QR-313, intended to alter the RNA in recessive dystrophic epidermolysis bullosa, or “RDEB”, patients with a mutation in exon 73. |
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| • | RegeneRx Pharmaceuticals is developing its investigational drug,RGN-137, as a topicalTß4-based dermal gel formulation, and has recently commenced treating EB patients in a Phase II clinical trial in the U.S. |
Despite promising preliminary data, in September 2017 the Phase III study of Zorblisa™ (allantoin), another topical investigational drug in development for EB, reported no benefit over placebo and its development has ceased.
Additionally, a clinical trial investigating Castle Creek Biosciences’ Diacerein 1% was terminated after an independent data monitoring committee suggested that the study will not meet statistical objectives; however, Castle Creek announced their intent to investigate more concentrated 2% and 3% formulations. Stanford University investigated the use of topical sirolimus 2% to ameliorate plantar lesions in patients with EBS and recently posted results that show no statistical difference from placebo.
Other approaches have shown promise and are under investigation for the treatment of EB:
| • | Skin grafts with gene-modified epidermal sheets; |
| • | Stem cell transplants; |
| • | Intravenous replacement of recombinant collagen VII (for RDEB); |
| • | Topical/intradermal gentamicin to restore laminin beta3 (JEB/DEB with nonsense mutations); |
| • | Granulocyte colony-stimulating factor (DEB); and |
| • | Gene therapy for recessive DEB;FCX-007 (gene-modified dermal fibroblasts for recessive DEB). |
Additionally, several companies are pursuing the symptomatic relief for EB patients, including the patient advocacy organization DEBRA, which is sponsoring a trial using oral cannabinoids (THC, CBD) to mitigate pain and itch.
Regulatory Perspectives
According to the National Epidermolysis Bullosa Registry, the overall incidence is about 20 per million live births and prevalence is 11 per million in the United States. EB is designated as an “orphan disease”, and we plan to seek regulatory designation ofINM-755 as such in the U.S. and similar designations in various jurisdictions. The FDA defines orphan products as “those intended for the safe and effective treatment, diagnosis or prevention of rare diseases/disorders that affect fewer than 200,000 people in the United States, or that affect more than 200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug”. The EMA has its own definition of orphan disease and, under the European definition, EB is also an orphan disease.
The mission of the FDA Office of Orphan Products Development, or “OOPD”, is to advance the evaluation and development of products (drugs, biologics, devices, or medical foods) that demonstrate promise for the diagnosis and/or treatment of rare diseases or conditions. This arm of the agency evaluates scientific and clinical data to identify and designate products as promising for rare diseases and to further advance scientific development of such promising medical products. The OOPD also works on rare disease issues with the medical and research communities, professional organizations, academia, governmental agencies, industry, and rare disease patient groups. The OOPD provides incentives for sponsors to develop products for rare diseases. The Orphan-Drug Designation program, which is administered by the OOPD, provides orphan status to drugs and biologics which are defined using the FDA definition above. The Orphan Products Grants Program, which is administered by the OOPD, provides funding for clinical research that tests the safety and efficacy of drugs, biologics, medical devices and medical foods in rare diseases or conditions.
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It is worth noting that there is a common pathway for application of orphan status for a product to both the FDA and EMA, and applicants to the FDA are advised to use the common application platform. With regards to the data to be used in the application, it is expected that applicants demonstrate that there is “promise” that the drug will be effective in treating said disease. “Promise” is interpreted to include either data from clinical trials, data from case studies/reports, data from appropriate animal models or, on rare occasions where there is no appropriate animal, data fromin vitro experiments in addition to supporting information.
Regulatory Incentives for Orphan Product Development
Data Summary of Preclinical Studies forINM-755
INM-755 is a topical, single cannabinoid cream formulation that has been specifically selected to: (i) strengthen skin integrity in some patients with EBS (the most common form of EB), and (ii) to treat symptoms of the disease in all patients with EB.
We have conducted several preclinical studies to identify potential drug development pathways for a product in EB. The following data has been generated in support of these cannabinoids as a potential therapy in EB:
| (a) | Enhancing skin integrity and skin regeneration: |
A desirable treatment outcome for all subtypes of EB would be enhanced skin integrity to prevent new wounds from forming. For patients with EBS, an estimated half of them will have a mutation in K14. The goal of modifying keratin production is to target the upregulation of a potentially compensatory K15. Under normal conditions, K5 and K14 combine (dimerize) to form adhesion at the basal layer within the epidermis. In EBS, one or both of these keratins are damaged. Our investigational hypothesis is that K15 may be able to compensate by replacing K14 in this equation and combining with K5 to form the adhesive properties needed for normal skin structure.
CBN was studied in a panel of cannabinoids to determine its ability to regulate keratin expression. CBN induced a statistically significant upregulation of K15in 2 of the 3 experiments. Concentrations of 0.1 µM and 1 µM produced similar effects (approximately 6 to17-fold increase in K15 expression). The highest concentration of 10 µM did not increase the size of the effect (approximately 3 to13-fold increase). Lack of a dose-response may mean a threshold was exceeded, above which no further effect can occur.
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Relative K15 Expression in Human Keratinocytes (HaCaT), Post-Confluence (48 hours)
Study 1 did not exhibit an important effect. The reason for this is uncertain, with one hypothesis being that the cells tested had been through too many passages. Despite the variation observed across these three studies, these results are encouraging asINM-755 cream may help create stronger skin by upregulating K15.
Hemidesmosome formation also occurs during normal differentiation of keratinocytes as they mature from the basal layer, not only in a wound-healing situation. Through the upregulation of K15,INM-755 cream applied to intact skin might gradually strengthen the skin and reduce the number of blisters and eventual wounds. For this effect, it could also be applied to wounds that have completed the initialre-epithelialization stage.
| (b) | Effects on Wound Healing |
Cutaneous wound healing is a complex process with four main phases: inflammation,re-epithelialization, tissue formation, and tissue remodeling. In EB wounds, all four phases of cutaneous wound healing can be impacted, leading to chronicnon-healing wounds. The wounds of EB patients are found primarily at or close to the junction of the epidermal and dermal layers. In these partial-thickness wounds, wound closure is achieved primarily byre-epithelialization rather than through granulation.
One major disease symptom in EB is the extensive wounds that can be generated throughout any day by simple friction on the skin, even as simple as clothes rubbing the skin. In addition to increasing the skin integrity via K15up-regulation, another key goal would be facilitating accelerated wound healing via rapid skin regeneration and wound closure.E-Cadherin is major component of epithelium integrity. During wound healing, transforming growth factor beta, orTGF-ß, causes a reduction inE-Cadherin, allowing keratinocyte migration across the open wound. This is then followed by a return to normal levels ofE-Cadherin to rebuild the integrity of the skin.INM-755 CBN may play a role in the second phase of wound healing by accelerating the normalization ofE-Cadherin expression. Additional studies are warranted to further explore this effect.
On July 10, 2017, we announced that we had entered into a research and development collaboration with ATERA SAS of France, a leading tissue engineering company specializing in the development of advanced human tissue models. On April 6, 2018, under the terms of the Agreement, we and ATERA agreed to transfer the execution of the collaborative research to the Fraunhofer Institute in Germany. Under the terms of the agreement,
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Fraunhofer will develop 3D human skin models of EB to evaluate thein vitro drug efficacy of CBN. Fraunhofer will also investigate the beneficial effects of topically appliedINM-755 at ultra-structural cellular and molecular levels onin vitro 3D reconstructed human full thickness (dermis-epidermis) skin models composed of both normal andEB-derived skin cells. This project with Fraunhofer is designed to assess the potential ofINM-755 to have an impact in enhancing skin integrity to support our current data indicating anup-regulation in specific keratins in the skin.
Inflammation is an important early step in wound healing and several of our studies demonstrated CBN has anti-inflammatory activity. Therefore, we conducted studies to evaluate the effect of CBN on the normal wound healing process. While an earlyin vitro assay indicated that high concentration of CBN could cause delays or prevent one of the first steps in wound healing, a subsequent study conducted with theINM-755 cream formulation did not hinder cell viability, cell migration, or wound closure. This was demonstrated in a wound-healing experiment conducted in3-dimensional reconstructed human epidermis, or “RHE”, models with fully differentiated skin layers. Punch biopsy wounds were treated withINM-755 creams at three strengths, which included the intended cream concentrations for the first studies in healthy volunteers. No delay or inhibition ofre-epithelialization was shown inCBN-treated models; the untreated control healed slightly slower in the first 5 days.
A composite of pictures showing 2D photographic images (n=25) of the punch biopsy wounds as they heal over time. There-epithelialization of the wound is shown by migration and growth of keratinocytes from the outside edge of the wound over time, migrating/growing to the center of the wound until the wound is closed:
One more study was conducted to explore the potential of CBN to interfere with early stage wound healing. In this study, superficial partial thickness wounds were introduced by a dermatome in anin vivo animal model and treated for 7 days withINM-755 creams at the same three strengths as used in the RHE models. Wound healing assessments included clinical observations, quantitative wound area measurements on photographic images and histopathologic examination. Treatment withINM-755 creams at the strengths intended for clinical development did not cause any delays in wound healing.
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| (c) | Reducing inflammation: |
CBN was tested on two important markers of inflammation:IL-8 andMMP-9, because of their suspected links with blister formation in EBS and chronic cutaneous inflammation.
Interleukin-8, orIL-8, is the most potent chemoattractant for blood neutrophils and important mediator of angiogenesis, or the formation of new blood vessels. ChronicIL-8 production and neutrophil activation in a skin wound is an unfavorable element of skin pathology as it leads to extensive inflammation.
Matrix metalloproteinases, or “MMPs”, are part of thezinc-dependent endo-proteases family which modulate homeostasis of the extracellular matrix in skin. In response to skin damage and inflammation, metalloproteinases, includingMMP-9, are oftenup-regulated. Specifically, exposure of keratinocytes, such as HaCaT cells, toTNF-α induces expression of the inflammatory-related factors such asIL-8 andMMP-9.
IL-8 andMMP-9 are upregulated in blisters of EBS patients and both are suspected to be contributing to blister formation. BothIL-8 andMMP-9 have been identified as targets for treatment of cutaneous inflammation in EBS. Therefore, reducing one or both might be helpful for controlling/reducing chronic skin inflammation in EBS.
While inflammation is an important first step in healing a new cutaneous wound, prolonged inflammation will interfere with the later stages of wound healing. Persistent inflammatory activity, which may occur with infection orre-injury, often interferes with healing EB wounds.
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Dose-Related Reduction in RelativeIL-8 Expression in Human Keratinocytes (HaCaT)
Insult = Tumor Necrosis Factor α (TNFα) and Interferong (IFNg)
ForIL-8: CBN produced a clear dose response with 35% reduction ofIL-8 expression at 4 µM, 42% at 8 µM and 52% at 16 µM. Therefore, the IC50 was 16 µM. By comparison, hydrocortisone at 10 µM caused a 54% reduction inIL-8 expression. CBN was similar to hydrocortisone with respect to anti-inflammatory activity in this model.
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Dose-Related Reduction in RelativeMMP-9 Expression in Human Keratinocytes (HaCaT)
Insult = Tumor Necrosis Factor α (TNFα) and Interferong (IFNg)
ForMMP-9: Consistent results in both studies with a dose-related reduction ofMMP-9 expression. The consistency in direction and magnitude of effect provides convincing evidence for down regulation ofMMP-9 by CBN under insult conditions. The reduction was 22% at 4 µM and about 40% at both 8 and 16 µM. CBN showed a little less anti-inflammatory activity than hydrocortisone in this model, but still an important reduction.
| (d) | Pain reduction: |
One pharmacodynamic endpoint that was studied was pain. Pain is one of the key symptoms in EB and requires significant effort to monitor and treat. CBN has demonstrated positive pain-relieving effects inNGF-induced in anin vivo pain model. To further demonstrate this, we utilizedin vivo electrophysiology where CBN blocked the pain signals in the neurons.
In anin vivo of myofascial pain, nerve growth factor, or “NGF”, was injected into the masseter muscle, resulting in local mechanical sensitization lasting about 5 days. On Day 3, CBN was injected into the masseter muscle and the mechanical withdrawal threshold was assessed with a rigid von Frey hair. The mechanical force was gradually increased until the animal moved its head away from the stimulus.
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Behavioral Effects of CBN inIn vivo Model of Myofascial Pain
Adapted from Wong H, Cairns BE. Arch. Oral Biol.2019;104:33-9.
CBN injected into the masseter muscle significantly reversed NGF induced mechanical sensitization at 10 minutes post-injection. (Behavioral study)
In parallel, electrophysiology recordings of single ganglion neurons that innervate the craniofacial muscles were performed (33 masticatory muscle mechanoreceptors). The electrophysiology effects parallel the behavioral effects. CBN significantly increased the relative mechanical threshold at30- and60-minutes post-injection. The results of this study have been published.
Electrophysiological Effects of CBN inIn vivo Models of Myofascial Pain
Adapted from Wong H, Cairns BE. Arch. Oral Biol.2019;104:33-9.
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| (e) | Antimicrobial activity: |
In the literature, certain cannabinoid compounds have been shown to have potent antibacterial properties including against various strains of multidrug-resistant bacteria, including methicillin-resistantS. aureus, or “MRSA”. We have screened a number of cannabinoid compounds by standard methods against a broad range of Gram-positive and Gram-negative aerobic and anaerobic bacteria. Results of this third-party research demonstrated potent antimicrobial activity for all tested cannabinoid compounds, particularly against Gram-positive isolates. While these cannabinoids may provide some localized antibacterial benefit, it is unlikely that such effects would encourage cessation of broad-spectrum, systemic antibiotic usage.
| (f) | EBS formulation prototype development: |
Careful attention must be paid to any topical product to be administered for the treatment of EB for several reasons. Our target product is designed to be applied over major portions of the body (if not the entire body), once each day. As such, the patients, who are often children, will be exposed to the active drug as well as the excipients of the skin cream, possibly for the duration of their lives. Accordingly, great care must be given that these components will be safe over the long-term and that they will not add to the already painful condition that the patients are suffering.
Particular attention has been given to the following criteria in the formulation development forINM-755:
| • | The excipients are safe for extensive body surface area exposure for a long duration of time; |
| • | The API (cannabinoid) is dosed at the appropriate level – high enough to provide optimal clinical effect at the treatment site but low enough to minimize any systemic exposure; and |
| • | The final formulation can be administered daily with minimal friction to the skin. |
We have utilized the Franz Cell diffusion method to assess skin penetration rates and depth for a proposed topical formulation forINM-755. The formulation is applied to skin samples and measurements are taken of how much drug penetrates to which depths in the skin. Using this method, a preliminary formulation ofINM-755 achieved drug delivery to the epidermis and dermis layers as needed. Working with well-characterized excipients, we have tested several slight variations in formulation to achieve the desired concentration of drug in the skin while simultaneously avoiding high drug concentrations in systemic circulation (in the blood). We announced the selection of a final excipient formulation on November 12, 2018.
Starting inmid-2017 to present, we worked with several leading, international preclinical contract research organization to: (i) develop a final formulation used inINM-755; and (ii) initiate work of an Investigational New Drug Application, or “IND” enabling pharmacology and toxicology studies that are required beforeINM-755 could be used in future clinical studies.
Toxicology and Safety Pharmacology Studies of CBN
The investigational medicinal product,INM-755 (CBN) cream is for topical application on the skin. The cream base has a simple formulation with known pharmaceutical-grade excipients. It is a pluronic lecithin organogel. Pluronic lecithin organogels have been widely used by compounding pharmacists for topical preparations since the early 1990s. Therefore, the focus of the toxicology program has been to characterize effects of the active agent.
CBN is a new molecular entity, or “NME”, not yet approved for medical use in any country. Therefore, we are required to perform thorough safety testing prior to human administration. The intended route of administration forINM-755 is topical and is anticipated to result in low systemic exposure via the bloodstream. Despite only nominal risk of meaningful systemic exposure, regulatory authorities still require that we examine
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the consequences of systemic exposure on key biological functions and organ systems. For this purpose, the drug was administered by subcutaneous (SC) injection to achieve high in blood circulation. Topical safety studies using the intended route of administration and the clinical cream formulation were also conducted. All studies met the GLP standards. These nonclinical toxicology studies included:
| • | Topical28-day safety,in vivo; |
| • | Systemic28-day safety study,in vivo, with SC administration; |
| • | Genotoxicity – standard battery of required tests for NMEs, including: |
| • | In vitro bacterial mutagenicity study (classically the Ames assay) [Organisation for Economic Cooperation and Development test guideline 471 (OECD 471)], |
| • | In vitro micronucleus study in Chinese Hamster Ovary cells [OECD 487], and |
| • | In vivo mammalian erythrocyte micronucleus study [OECD 474]; |
| • | Phototoxicity – required because CBN has some absorbance in the UVB range; in vitro neutral red dye uptake study in cells from BALB/c 3T3 mice [OECD 432]; |
| • | EpiOcular,in vitro eye irritation study [OECD 492]; |
| • | Non-adjuvant Buehler method skin sensitization study,in vivo [OECD 406]; |
| • | In vivo drug distribution study with SC injection of radiolabeled drug; and |
| • | In vitro andin vivo wound healing studies relevant for treating open wounds. |
In the28-dayin vivo dermal toxicity study,INM-755 cream was given as topical daily doses applied to 10% body surface area. The quantity of cream applied resulted in a thick layer of cream, much more than a typical clinical application. After each daily cream application, the application sites were covered with a hypoallergenic, waterproof, breathable dressing for 24 hours and then scored for local tolerance. In this GLP study, systemic toxicity was also fully investigated by standard parameters. Based on clinical and histopathologic review, noCBN-related dermal toxicity was demonstrated in this study. Systemic exposure was minimal due to the topical route of administration and no systemic toxicities occurred either. The No Adverse Effect Level, or “NOAEL”, was determined to be the highest concentration of cream tested.
In the28-dayin vivo systemic toxicity study, CBN was given as daily SC injections up to the solubility-driven maximum feasible dose. No adverse drug-related effects were noted on clinical signs, clinical pathology parameters, ophthalmic evaluations, gross necropsy, organ weights, or histopathology. CBN was well tolerated at all doses, despite considerable systemic exposure. The NOAEL was determined to be the highest dose tested.
The standard battery of genotoxicity studies was conducted with CBN (2in vitro and 1in vivo) and all were negative. CBN did not cause phototoxicityin vitro.INM-755 cream at low and mid dose levels did not cause eye irritationin vitro.INM-755 cream at the highest tested dose did not cause a sensitization reaction in thein vivo sensitization model.
In summary, the toxicology studies conducted to date support the initial clinical investigations in healthy volunteers with up to 14 days of topical application on the skin and will support a subsequent study in patients with EB in which treatment will be applied for up to 28 days.
Toxicity to Central Nervous System
Due to the well-documented psychoactivity of THC, all cannabinoid compounds need to be tested for their psychoactive potential. In a standardized safety pharmacology study, we tested exceptionally high dose
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levels of CBN (more than 10,000 times the expected systemic exposure after topical dosing). No central nervous system adverse effects were observed even at the highest dose. 108 different central nervous system criteria were measured.
The toxicology and safety pharmacology data package covered a broad range of drug concentrations and would be able to support other clinical programs to treat topical skin conditions.
Summary of Contemplated Clinical Development Plans
A regulatory application to support our first Phase I clinical trial in healthy volunteers withINM-755 was submitted November 4, 2019 and approved December 6, 2019. The initial Phase I clinical trial evaluates the safety, tolerability, and pharmacokinetics ofINM-755 cream in healthy volunteers with normal, intact skin; the volunteers have cream applied once daily for a period of 14 days. All subjects in this first clinical trial completed treatment and evaluations by March 27, 2020. A regulatory application was submitted on March 23, 2020, for a second Phase I clinical trial of healthy volunteers to test the local safety and tolerability of applying sterileINM-755 cream to small wounds once daily for 14 days. Both clinical trials will be conducted with two different drug concentrations and a vehicle control.
Assuming thatINM-755 is well tolerated in the two Phase I clinical trials in healthy volunteers, the next step will be to studyINM-755 in patients with EB (Study755-201-EB). Regulatory applications to support that global trial are planned for 4Q2020.
We can make certain scope-estimates in terms of potential clinical trial sizes, timing and endpoints based on the recent clinical pathway followed by another phytochemical-based topical product for EB, ZorblisaTM (Amicus Therapeutics). The key finding from our review of publicly available information for the ZorblisaTM development program is that a clinical program is very focused for an orphan indication and the clinical trials do not include large numbers of patients. It would not be feasible to conduct large trials for such a rare disease. Therefore, the clinical studies need to be carefully designed and controlled to allow suitable assessment of the safety and efficacy of a new therapy in a small number of patients. Broad multicenter trials would be needed to recruit patients as quickly as possible. We will work closely with regulatory authorities and clinical experts in developing the clinical program forINM-755.
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On average, it takes at least ten years to complete the development of an investigational drug from its initial discovery to the marketplace, with clinical trials alone taking six to seven years on average. It is not possible with any degree of certainty to estimate how long it will take to complete clinical trials and potentially obtain marketing approval forINM-755. To the extent thatINM-755 may potentially be designated as either a Fast Track drug, a Breakthrough Therapy, or eligible for Priority/Accelerated Review, our timeline to any potential marketing approval may be shorter than might otherwise be the case.
Commercial Opportunity for EB Products
Commercial attractiveness and valuations of therapies under development (prior to market launch) can be measured several ways. In EB, there are research reports from reputable investment banking firms regarding the potential peak annual sales for the products themselves, which may serve as a baseline estimate for the value of a successfully marketed end product:
| • | Cowen and Company – In a September 2015 research report on Amicus Therapeutics, Cowen estimated the market potential for a drug that provides partial symptomatic relief in EB (ZorblisaTM) as having potential maximum annual revenues of $1.2B. |
| • | JP Morgan – In a similar research report from 2015 on Amicus, JP Morgan estimated peak annual sales of ~$900M for ZorblisaTM, if approved for sale. |
In addition, there have been a couple of relatively recent, prominentin-licensing transactions and/or whole-company acquisitions aroundEB-focused products/companies, that may also serve as a baseline estimate of the value of successful EB products:
| • | In February 2013, Shire PLC acquired Lotus Tissue Repair, Inc., for total consideration of approximately $174 million, consisting of $49 million in upfront consideration and contingent consideration of $125 million. At the time of the transaction, Lotus had a preclinical program developing recombinant human collagen Type VII as a protein replacement therapy for Dystrophic EB, a subset of EB (approximately 30% of EB cases). |
| • | In September 2015, Amicus Therapeutics, Inc. completed the acquisition of Scioderm, Inc., or Scioderm, for total consideration of approximately $847 million, consisting of $229 million in upfront payments of cash and stock, $361 million upon the achievement of certain clinical and regulatory milestones and $257 million upon the achievement of certain sales milestones. Further, if a Priority Review Voucher, or “PRV”, would have been awarded for ZorblisaTM, the lesser of |
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$100 million or 50% of the PRV market value would have been delivered to Scioderm shareholders. Scioderm’s sole clinical asset at the time of the transaction was ZorblisaTM, a PhaseIII-ready clinical product in development for the treatment of EB. The acquisition was based on results from 42 patients in a Phase IIb clinical study of ZorblisaTM. |
| • | In September 2019, Castle Creek Pharmaceutical Holdings Inc. acquired Fibrocell Sciences, Inc. for total consideration of approximately $63.3M in cash. Fibrocells’ portfolio includesFCX-007, and investigational late-stage stage gene therapy product candidate for the treatment of RDEB, a congenital and progressive orphan skin disease caused by the deficiency of the protein COL7.FCX-007 is a genetically modified autologous fibroblast that encodes the gene for COL7. A Phase III trial was initiated, and if successful, a Biologics License Application filing is expected in 2021. The portfolio also includesFCX-013, an investigational, gene therapy candidate for the treatment of moderate to severe localized scleroderma.FCX-013 is currently enrolling for the Phase I portion of a Phase I/II clinical trial. |
Valuation of development stage technologies, as well as the eventual market success, can be influenced by multiple factors including but not limited to the approved labeling (“indication”) for a product, efficacy and safety profile relative to competition, speed to market relative to competition, pricing/reimbursement.
Key Milestones for the EB Program:
| • | August 6, 2015 – We reported positive response from preclinical research on several cannabinoids (one of which was CBN), tested in variousin vitro assays. By modulating the expression of various keratin genes that are responsible for cytoskeleton intermediate filaments and/or wound healing using different cannabinoids, we sought to alleviate the EBS symptoms. We believe that these preliminary results validated our approach as the cannabinoids displayed modulation of expression of various keratin genes. |
| • | November 4, 2015 – We released additional preliminary preclinical data for thetwo-cannabinoid productINM-750 (which contained CBN as one of the APIs) demonstrating positive effects in both wound healing/skin regeneration and in reducing inflammation, two key hallmarks of EB. |
| • | May 18, 2016 – We reported additional preclinical results demonstrating positive pain-relieving effects of cannabinoids in animal models. This animal data demonstrated a reduction in both acute and chronic pain (CBN was one of the cannabinoids tested in this study). |
| • | May 4, 2017 – We filed an application with the Canadian Intellectual Property Office a PCT Application, Serial No. CA2017050546 titled, “A Cannabinoid-Based Topical Therapy for Diseases and Conditions Associated with Intermediate Filament Dysfunction”. |
| • | July 10, 2017 – We announced that we entered into a research and development collaboration with ATERA SAS of France, or “ATERA”, a leading tissue engineering company specializing in the development of advanced human tissue models. Under the terms of the agreement, ATERA would develop 3D human skin models of EB to evaluate thein vitro drug efficacy of atwo-cannabinoid combination (one of which was CBN). ATERA would also investigate the beneficial effects of topically applied cannabinoids at ultra-structural cellular and molecular levels onin vitro 3D reconstructed human full thickness (dermis-epidermis) skin models composed of both normal andEB-derived skin cells. On April 6, 2018, under the terms of the agreement, we and ATERA agreed to transfer the execution of the collaborative research to the Fraunhofer Institute in Germany. |
| • | Sincemid-2017 to present, we have worked with several leadingGLP-certified preclinical contract research organizations, and other internationally recognized contractors to: (i) develop a final formulation for our CBN cream; and (ii) complete work on safety pharmacology and toxicology studies that are required before CBN could be used in clinical studies. |
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| • | November 12, 2018 – We announced that the selected formulation demonstrated good drug penetration and adequate drug concentrations in the epidermis, which is the target tissue forINM-750, atwo-cannabinoid formulation containing CBN as one API. Also, two types of genotoxicity studies demonstrated no mutagenicity with thetwo-cannabinoid formulation. Two7-day dose-range-finding and pharmacokinetic studies were conducted for assessment of systemic toxicity. The lack of any negative results from these studies support continued development ofINM-750. |
| • | February 12, 2019 – We announced favorable results forINM-750, atwo-cannabinoid topical formulation, in two topical,7-day dose-range-finding studies that evaluated skin irritation, plasma pharmacokinetics, histology and skin/drug concentrations. There were no drug-related adverse effects on the skin and the extent of systemic cannabinoid exposure was minimal after topical administration of the cream despite a dosing level100-1,000-fold higher than the anticipated clinical dose. |
| • | March 13, 2019 – We announced that we will conduct all future development with a single cannabinoid skin cream, now designatedINM-755. We determined that the clinical development path forward with its investigational drug candidate for the treatment of EB, previously referred to asINM-750, will be optimized by transitioning to an alternative formulation.INM-755 is formulated based on one of the two cannabinoids that comprisedINM-750. We believe that pursuing a single-agent formulation, rather than a combination product, will ultimately improve the probability of development and regulatory success in this complex and rare disease. |
| • | November 5, 2019 – We submitted clinical trial application to initiate a Phase I human clinical trial forINM-755 in healthy volunteers in the Netherlands. |
| • | December 9, 2019 – We received clinical trial application approval for study755-101-HV, a randomized, double-blind, vehicle-controlled Phase I study designed to evaluate the local and systemic safety, tolerability, and pharmacokinetics ofINM-755 applied daily on intact skin in healthy volunteers. Two strengths ofINM-755 cream, plus vehicle-only, will be evaluated in 22 adult subjects over a14-day treatment period. |
| • | January 20, 2020 – We revealed that the active ingredient inINM-755 andINM-088 is the rare cannabinoid, CBN. We are the first company to conduct human clinical trials with CBN. Extensive preclinical program to support theINM-755 program was exhibited at the EB2020 World Congress in London UK. |
| • | March 10, 2020 – We reported completed enrollment in Study755-101-HV. Treatment is expected to conclude towards the end of March and final study results are anticipated to be announced in the second half of calendar 2020. |
| • | March 20, 2020 – We provided an update on operational impact of the response to theCOVID-19 pandemic which included discussions with the clinical site conducting the755-101-HV Phase I trial in the Netherlands (Center for Health and Drug Research). |
| • | March 24, 2020 – We announced the filing of a Clinical Trial Application, or “CTA”, in the Netherlands to initiate a second Phase I human clinical trial forINM-755 in healthy volunteers.755-102-HV is a randomized, double-blind, vehicle-controlled, Phase I study designed to evaluate the safety and tolerability ofINM-755 cream applied daily on epidermal wounds in healthy volunteers. Two strengths ofINM-755 cream will be evaluated in 8 adult subjects over a14-day treatment period. |
| • | April 1, 2020 – We announced that all subjects participating in the755-101-HV Phase I clinical trial had completed treatment and clinical evaluation. |
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Additional Indications forINM-755
Once a company has gone to the significant investments of bringing a new chemical entity into human clinical trials, the traditional approach is to investigate as many therapeutic uses of that product in different indications, or specific diseases. We intend to pursue this strategy as a way to leverage our knowledge of CBN and investment in the development ofINM-755 as a topical skin cream. Under the assumption that we would use the same formulation for other dermatological indications, there should be no need for further Phase I safety studies allowing us to proceed directly to Phase II safety and preliminary efficacy studies in humans, since the toxicology and initial human safety studies have been completed. We intend to engage with dermatologists to discuss which diseases might best benefit fromINM-755, outside of EB.
INM-088 for the Treatment of Glaucoma
Introduction
Glaucoma is a chronic optic neuropathy that is typically characterized by high intraocular pressure. The cause of glaucoma is understood to be inadequate or obstructed drainage of the fluid in the eye, or “aqueous humor”, through a drainage membrane called the trabecular meshwork, or “TM”, increasing the fluid pressure within the front part of the eye, or “anterior chamber”, and subsequently leading to pressure at the back part of the eye, or “posterior chamber”. The increased intraocular pressure exacts a toll on the nerve cells, called neurons, located at the back of the eye in the retina, thinning the mesh-like tissue in this region and resulting in damage to the neurons and specifically to the optic nerve, which provides the impulses of sight to the brain. This damage leads to blindness. Glaucoma is currently the second leading cause of blindness world-wide and is estimated to affect a population of about 76 million worldwide
Current glaucoma therapies generally act to lower intraocular pressure either by reducing the aqueous humor production by the cells around the eye, or the “ciliary epithelial cells”, or by increasing fluid drainage through the TM. Nevertheless, we believe that there is considerable room for improvement of existing drugs, most of which are formulated as eye drops, in terms of increasing the amount of drug that can be safely delivered to increase its effect, improving the delivery of the drug into the eye, and the reducing the common effect in currently used therapies that, over time, their efficacy diminishes as the body becomes tolerant to these classes of drugs. Studies have shown that when drugs are delivered as eye drops, less than 5% of the dose penetrates into the eye, indicating that 95% of the administered drug never reaches its desired target as it is wiped away upon blinking. Thus, there is much room for improvement on the drug delivery as a means of increasing clinical efficacy.
CBN is the key API in our second drug candidate,INM-088, which is in preclinical studies as a potential treatment for glaucoma. We are conducting studies to test the ability of CBN to provide protection to the neurons at the back of the eye, referred to as “neuroprotection”, and reduce the intraocular pressure in the eye. We compared several cannabinoids, including CBD and THC, to determine which cannabinoid was the best
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drug candidate for the treatment of glaucoma. Of all of the cannabinoids examined, CBN demonstrated the most optimal effect of neuroprotection. Furthermore, CBN also exhibited intraocular pressure reduction capability.
Science behind Glaucoma
Glaucoma is a group of eye diseases which results in degeneration of neurons, damage to the optic nerve and vision loss. The most common type is open-angle glaucoma, or “OAG”, with less common types including closed-angle glaucoma, or “CAG”, and normal-tension (i.e., no increase in intraocular pressure) glaucoma. OAG develops slowly over time and the patients normally don’t experience pain. If left untreated, side vision may begin to decrease followed by central vision, resulting in blindness. CAG can present gradually or suddenly. The sudden presentation may involve severe eye pain, blurred vision,mid-dilated pupil, redness of the eye and nausea. Vision loss from glaucoma, once it has occurred, is permanent.
Risk factors for glaucoma include increased pressure in the eye, thinness of the cornea, a family history of the condition, age over 40 years in African Americans, and age over 60 years for other ethnic groups (especially Mexican Americans). High intraocular pressure (those with a value of greater than 21 mmHg or 2.8 kPa) is often associated with a greater risk of glaucoma. However, some people may have high eye pressure for years and never develop damage. Conversely, neurodegeneration and optic nerve damage may occur with normal pressure, known as normal-tension glaucoma. The mechanism of OAG is believed to be slow exit of aqueous humor through the trabecular meshwork while in CAG the iris blocks the TM. Diagnosis is typically made by a dilated eye examination.
If treated early, it is possible to slow or stop the progression of the disease with medication, laser treatment, or surgery. Currently, the goal of these treatments is to decrease eye pressure. A number of different classes of glaucoma medication are available. Laser treatments may be effective in both OAG and CAG. Several of types of glaucoma surgeries may be used in people who do not respond sufficiently to other measures. Treatment of CAG is a medical emergency.
Epidemiology
The global prevalence of glaucoma for population aged 40–80 years is 3.54%, of which 75% is OAG. As of 2010, there were 44.7 million people in the world with OAG of which 2.8 million were in the United States. By 2020, the prevalence is projected to increase to 80 million worldwide and 3.4 million the United States. It occurs more commonly among older people. CAG is more common in women. Both internationally and in the United States, glaucoma is the second-leading cause of blindness.
Current Treatments in Glaucoma
Current treatments for glaucoma include medication, laser treatment and surgery. The goals of glaucoma management are to avoid glaucomatous damage, nerve damage and preserve visual field and total quality of life for patients, with minimal side effects. This requires appropriate diagnostic techniques andfollow-up examinations, and judicious selection of treatments for the individual patient. Although intraocular pressure is only one of the major risk factors for glaucoma, lowering it via various pharmaceuticals and/or surgical techniques is currently the mainstay of glaucoma treatment.
Current prescription eyedrop medications targeting intraocular pressure reduction include:
| • | Prostaglandins and prostaglandin analogs such as latanoprost, bimatoprost and travoprost to increase the outflow of fluid from the eye and reduce ocular pressure. These can sting the eyes, darken the iris and eyelashes, and blur vision; |
| • | Beta blockers such as timolol and betaxolol reduce ocular pressure by reducing the production of fluid in the eye. Possible side effects include wheezing or difficulty breathing, slowed heart rate, lower blood pressure, impotence and fatigue; |
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| • | Alpha-adrenergic agonists such as apraclonidine and brimonidine, both reduce the production of aqueous humor and increase the outflow of fluid from the eye. Side effects may include dry mouth, red eyes or eyelids, fatigue, low or high blood pressure, blurred vision and light sensitivity; and |
| • | Carbonic anhydrase inhibitors such as dorzolamide and brinzolamide reduce the production of fluid in the eye, but they are associated with blurred vision, bitter metallic taste in the mouth, dry eyes, red/irritated eyes, headache, and upset stomach. |
Often patients need to take combination of different drugs and multiple eye drops throughout the day. Given side effect profiles, many patients don’t take their medications properly or at all. Surgery and laser therapies are intended to physically improve the drainage of fluid from the eyes and lowering of the intraocular pressure. Patients with OAG can have clogged channels in the TM opened with laser therapy, filtering surgery (trabeculectomy) or electrocautery. In other cases, small drainage tubes may be implanted in the eye. Possible complications include pain, redness, infection, inflammation, bleeding, abnormally high or low eye pressure and loss of vision. Some types of eye surgery may accelerate the development of cataracts. Additional procedures may be needed if eye pressure continues to increase.
Treatment Considerations based on Glaucoma Severity
Competition forINM-088 in Glaucoma
Due to the large medical need and potentially significant commercial opportunity, the competitive landscape of glaucoma is intense. As such, there are currently over 10 medications approved by the FDA for the treatment of glaucoma, which are summarized in the table below, according to drug class. In addition to the currently approved medications, there are a multitude of other therapies being evaluated in clinical trials, and many others at the preclinical stage. Finally, it should be noted that there are several laser surgeries, and other forms of surgical procedures that are currently being performed to treat glaucoma, which also serve as a source of competition to the therapeutic alternatives.
In December 2017, the FDA approved RHOPRESSA® as the first in a new class of glaucoma treatments known as Rho Kinase inhibitors. RHOPRESSA® is indicated for the reduction of elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension.
Most treatments for glaucoma are designed to lower and/or control intraocular pressure. Glaucoma eye drops often are the first choice over glaucoma surgery and can be very effective initially at controlling intraocular pressure to prevent eye damage. Glaucoma eye drop formulations are often prescribed in combination to achieve an additive or synergistic effect for the best intraocular pressure control. However, some people are poor candidates for various glaucoma eye drops; in particular, those who may react negatively to drug product that may reach other parts of the body. A certain percentage of the active ingredient of the medication, though small, will enter the bloodstream via eye vasculature and may adversely affect other organ functions such as heart rate and breathing.
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INM-088 is envisioned as a once- ortwice-a-day eye drop medication to compete with treatment modalities in the medicines category if approved for commercialization.
In addition toINM-088, we are only aware of one other pharmaceutical-grade cannabinoid-based therapy being evaluated for the treatment of glaucoma. Specifically, Emerald Biosciences is developing NB1111(THC-Val-HS) for the treatment of glaucoma. NB1111 is a THC prodrug, which has demonstrated intraocular pressure-lowering efficacy in preclinical models.
Medicines for Glaucoma Treatment (Intraocular Pressure-Lowering Drugs)
Investigational Glaucoma Treatments
Despite the treatments available for lowering the intraocular pressure, there are some individuals for whom these treatments are either not tolerated due to side effects or in whom the intraocular pressure is not sufficiently lowered. In these situations, both glaucoma patient and physician look for alternative therapies.
While some experimental glaucoma medications explore new ways of controlling intraocular pressure, other treatments are directed at protecting the optic nerve (neuroprotection) to prevent eye damage, potential vision loss or even blindness. Many ongoing clinical studies are trying to find neuroprotective agents that might benefit the optic nerve and certain retinal cells in glaucoma.
Some investigational treatments are undergoing FDA clinical trials to prove safety and effectiveness. Other potential glaucoma treatments are strictly in experimental stages and may be years away from the possibility of being available on the marketplace.
Cannabis (THC) to treat Glaucoma
Decades of anecdotal evidence suggests that the use ofCannabis may play a role in lowering intraocular pressure in glaucoma. However, no such products have been formally investigated in clinical trials and none is currently approved for the treatment of this disease. The neuroprotective role of cannabinoids has not heretofore been utilized as a therapeutic strategy in glaucoma, primarily due to great difficulties associated with the targeted delivery of cannabinoids to intraocular tissues. This class of compound is also relatively poorly bioavailable due to its low aqueous solubility.
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Previously reported attempts for topical delivery of cannabinoids, in particular, the psychoactive drug THC, to the ocular tissues used formulations based on mineral oil. Until very recently, studies on novel topical ophthalmic formulations of cannabinoids have been largelynon-existent. Nevertheless, the use of marijuana to treat glaucoma has extensive anecdotal evidence and some supporting clinical data. It has been definitively demonstrated and widely appreciated, that smoking marijuana lowers intraocular pressure in both normal individuals and in those with glaucoma. Certain drawbacks are associated with the use of (smoked) marijuana to treat glaucoma:
| • | Marijuana has a short duration of action (only3-4 hours), meaning that to lower the intraocular pressure around the clock it would have to be smoked every three hours; |
| • | Marijuana’s mood-altering effects, almost exclusively via the chemical THC, would prevent the patient who is using it from driving, operating heavy machinery, and functioning at maximum mental capacity; and |
| • | Marijuana cigarettes also contain hundreds of compounds that damage the lungs, and the deleterious effect of chronic, frequent use of marijuana upon the brain is well established. |
Other means of administering THC include oral, sublingual, and eye drop instillation. The first two modalities avoid the deleterious effect of marijuana smoke on the lungs but are limited by the other systemic side effects. Other side effects associated with systemic use of THC for glaucoma include: impaired lung function, psychosis, anxiety dependence, tolerance, acute cardiac events and central nervous system-related adverse effects. In one study in which doctors offered some of their patients with worsening glaucoma the option of pills containing THC and/or smoking marijuana, all of them experienced side effects and 4 of 9 patients had discontinued use by either or both methods within 9 months due to side effects. Given that glaucoma is a lifelong disease, commonly requiring treatment for decades, these results strongly suggest that systemic use of THC is not a reasonable treatment option for such patients. The use of eye drops containing THC, or related compounds, has been investigated, but it has not yet been possible to formulate an eye drop that is able to introduce the drug into the eye in sufficient concentrations due to the low poor water solubility of the active ingredients.
Although marijuana may lower the intraocular pressure temporarily, that intraocular pressure-lowering effect is only one consideration in slowing the optic nerve damage of glaucoma. For instance, there is a growing body of evidence that inadequate blood supply to the optic nerve may contribute to glaucoma-related damage. Since marijuana given systemically is known to lower blood pressure, it is possible that such an effect could be damaging to the optic nerve in glaucoma, possibly reducing or eliminating whatever beneficial effect that would be conferred by lowering intraocular pressure. For this reason, marijuana, or its components administered systemically, cannot be recommended without a long-term trial which evaluates the health of the optic nerve.
An exciting finding is the discovery of receptors for cannabinoids in the tissues of the eye itself, suggesting that local administration has the possibility of being effective. Furthermore, there is evidence from research in the brain that there may be properties of the cannabinoids that protect nerve cells like those in the optic nerve. This raises the hope that cannabinoids could protect the optic nerve not only through intraocular pressure-lowering but also through a neuroprotective mechanism. However, unless a well-tolerated formulation of a marijuana-related compound with a much longer duration of action is demonstrated in rigorous clinical testing to reduce optic nerve damage and preserve vision, there is no scientific basis for use of these agents in the treatment of glaucoma.
The wide variety of topically effective anti-glaucoma drugs that are available today, and a few others in the developmental stage, represent significant advancement in ocular therapeutics. While these topical ophthalmic preparations have reduced the risk of systemic toxicity to some extent, their long-term use causes systemic as well as ocular toxicity. Many ophthalmologists generally select the drugs individually and replace them regularly in order to prevent the habituation phenomenon (reduction in effect of the drug over time due to tolerance) and negative side effects.
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Drug Discovery Process
To date, we have utilized several preclinical investigations to:
| • | Compile a list of genes that are associated with development of glaucoma disease from our ownin-house curated disease analysis. We grouped these selected genes based on the glaucoma disease hallmarks such as trabecular meshwork remodeling, retinal ganglion cell survival and genes involved in extracellular matrix; and |
| • | Better understand the relationship among selected glaucoma disease genes, we constructed a protein-protein interaction network and the graphic view of the interaction network was built for further discovery. |
Glaucoma is a neurodegenerative disease in which various triggers (such as elevated intraocular pressure) induce cascades of events, which ultimately lead to apoptotic retinal ganglion cell death and result in irreversible loss of vision. However, as mentioned above, the goal of all current glaucoma therapies is to reduce intraocular pressure without including any strategies of neuroprotective treatment. In fact, some patients often fail to show much improvement even after intraocular pressure reduction, whereas others develop glaucoma in the absence of elevated intraocular pressure.
KeyIn vitro Results for CBN in Glaucoma
INM-088 is aneye-drop CBN formulation being developed for the treatment of glaucoma.
We have conducted a number of studies comparing CBN against other cannabinoids, including THC and CBD. CBN was observed to have a significant neuroprotective,pro-survival effect on differentiated retinal ganglion cells, or “RGCs”, a thin layer of neurons responsible for relaying visual signals in the eye, when cultured under both normal and elevated atmospheric pressure. The elevated atmospheric pressure model was developed to mimic the conditions observed with high IOP.
Notably, exposure of RGCs to increasing concentrations of cannabinoids resulted in dose dependent cytotoxicity, or cell death, over time. Importantly, however,CBN-exposed RGCs demonstrated the lowest level of toxicity among the cannabinoids used in these experiments. In addition, exposure of the RGCs to elevated pressure (without exposure to cannabinoids) for 72 hours resulted in high level of cytotoxicity, whereas exposure of these cells to both an elevated pressure(20-40 mmHg) and to CBN, within the same time-period, resulted in a high level of cell survival in a dose dependent fashion. This data confirms the neuroprotective effect of CBN. The neuroprotective effect of CBN was also observed under elevated pressure conditions in the pressurized chamber that mimics the clinical situation of increased intraocular pressure in glaucoma: CBN was superior to both CBD and THC under identical testing conditions.
Using the model described above, we also looked at a specific, natural self-destruction process called programed cell death, or apoptosis. We verified that CBN has a significant anti-apoptotic effect on differentiated RGCs when subjected to elevated hydrostatic pressure. Exposure of these cells to high-pressure levels of(20-25 mmHg) in the pressure chamber apparatus, without exposure to cannabinoids, for 6 hours resulted in significant induction of apoptosis ranging from30-60%. Exposure of these cells under the same conditions concurrently with CBN prevented apoptosis and resulted in a significantly higher level of cell survival.
The key risk factor for the development and progression of glaucoma is elevated IOP, the result of increased resistance to aqueous humor outflow through the TM. Therefore, evaluation of CBN effects on TM observed under elevated pressure conditions mimics the clinical presentation of IOP in glaucoma and is therefore relevant in the clinical context of the disease. Increased outflow resistance has been strongly correlated with aberrantly elevated levels of Transforming Growth Factor beta 2(TGF-ß2), a cytokine used to alter extracellular matrix metabolism of the TM of glaucoma patients compared to healthy individual.
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Using human primary TM cells derived from various donors and propagatedin vitro at different cell passages, we were able to demonstrate that several extra-cellular matrix proteins, or “ECM”, markers were upregulated either by elevated pressure or byTGF-ß2. Furthermore, CBN treated TM cells under normal, elevated pressure andTGF-ß2 induced conditions resulted in reduction in the expression of several of these ECM protein markers. These results strongly suggest that CBN may have potential to reduce IOP through improvement in the AH outflow in the trabecular meshwork.
KeyIn vivo Results for CBN in Glaucoma
Recently, we conducted severalin vivo experiments to understand the pharmacokinetics and efficacy of CBN in the eye as a potential treatment for glaucoma. Our first study was to understand the pharmacokinetic profile of CBN in preclinical models, specifically measuring CBN levels in the eye and plasma following direct bilateral intravitreal injection, or “IVT”. This means that individual injections were made directly into the vitreous humor (fluid of the central cavity of the eye). Following IVT delivery, CBN levels in the preclinical eye model can persist for an extended period of time with a projected half-life (t1/2) in the eye of approximately 33 hrs.
We have conducted an efficacy study to evaluate neuroprotective & IOP lowering effects of CBN following IVT injection in a preclinical episcleral vein laser photocoagulation model of glaucoma. To determine the health of the neurons inside the eye, a diagnostic tool called pattern electroretinogram (pERG) was used to measure electrical activity generated by the neuron in response to light. The baseline pERG measurements were initially made and treatment groups were randomized based on their baseline pERG amplitudes. High intraocular pressure (IOP) was induced unilaterally by laser photocoagulation of episcleral veins on day 0 and day 7. The untreated eye served as a control. CBN was delivered by IVT injection after episcleral laser photocoagulation on three occasions, on days 0, 7 and 15. The topical brimonidine ocular clinical formulation Alphagan® served as reference compound and was administered twice daily by topical administration starting 3 days prior to laser photocoagulation and throughout the entire study duration. IOP and pERG were monitored at specific time points throughout the study. Reduction in IOP and improvement of pERG amplitudes were used to demonstrate effectiveness of CBN as glaucoma treatment. Data from the study demonstrated a reduction of IOP and improvement of pERG function following IVT injection of CBN in this preclinical episcleral vein laser photocoagulation model of glaucoma.
Ocular Formulation Development forINM-088
There are wide variety of topically effective anti-glaucoma drugs that are available today and others in the developmental stage that represent significant advancements for ocular therapeutics. Ophthalmologists typically prescribe drugs individually and then switch to different classes of drugs on a regular basis in order to prevent the habituation phenomenon (reduction in effect of the drug over time) and negative side effects. There is an opportunity for new therapies with low systemic toxicity and those which may not exhibit habituation.
Until very recently, studies on novel topical ophthalmic formulations of cannabinoids have been largelynon-existent. Designing an ideal delivery system for any ocular disease depends on molecular properties of the drug substance and incorporating it into the formulation while taking into consideration parameters such as size, charge, and affinity towards various ocular tissues and pigments.
One of the delivery technologies under development as a potential delivery vehicle for CBN in ocular disease is our proprietary, stimulus-responsive, nanoparticle-laden hydrogel vehicle for spatiotemporal and dosage-controlled release of cannabinoids into the aqueous humor of the eye. This hydrogel is envisioned to be packaged as a liquid and is intended for application as an eye drop. We are currently investigating the compatibility and effectiveness of our hydrogel formulation with CBN as compared to other third-party ocular drug delivery technologies.
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For all delivery technologies under examination as candidates forINM-088, key design criteria include, among others:
| • | Biocompatibility and biodegradability of the formulation; |
| • | Viscous fluid behavior while inside the container (to facilitate ease of manufacturing, handling and dosing); |
| • | Characterized and defined drug release, absorption and subsequent carrier degradation; |
| • | Optimized particle size and surface charge to avoid irritation upon application to the eye and to facilitate ocular penetration; and |
| • | Stable final drug product to ensure drug product quality storage over time. |
Key Milestones:
| • | May 10, 2017 – We announced the filing of a patent (US62/503,258) entitled, “Ocular Drug Delivery Formulation” forINM-085 as a cannabinoid-based topical (hydrogel) therapy for glaucoma, which is an important step in providing intellectual and commercial protection for this therapy. We should note that the patent is for the hydrogel formulation and does not depend on which cannabinoid is used. We are developing a stimulus-responsive, nanoparticle-laden vehicle for controlled delivery of ophthalmic drugs into the aqueous humor of the eye. |
| • | October 24, 2017 – We announced results from a studyco-sponsored by us (Dr. Sazzad Hossain, our Chief Scientific Officer at the time) and University of British Columbia (laboratories of Professors Vikramaditya Yadav and Ujendra Kumar). We believe that this InMed-University of British Columbia study is the first ever to report hydrogel-mediated cannabinoid nanoparticle delivery into the eye, resulting in enhanced drug uptake via the cornea and lens. This study further evidences our capacity to conduct a wide spectrum of drug development activities, including: |
| • | packaging the cannabinoid as a nanoparticle; |
| • | formulation of a cannabinoid drug candidate into a novel, tissue specific delivery vehicle; and |
| • | confirmation of drug delivery and diffusion into a target tissue. |
In this study, our proprietary hydrogel delivery method offered unique rheological characteristics permitting it to form a thin, uniform coating - essentially agel-like lens - over the cornea through blinking of the eyelid. This lens holds the drug in place and allows for trans-corneal absorption of the drug, which can then diffuse within the eye to the retina. Total drug delivered using this hydrogel nanoparticle formulation was three-times higher than the control formulation.
| • | March 6, 2018 – We announced the publication of data on our glaucoma/hydrogel formulation program in the peer-reviewed journal Drug Delivery and Translational Research. The article, titled “A stimulus-responsive, in situ forming, nanoparticle-laden hydrogel for ocular drug delivery”, presents results from preclinical studiesco-sponsored by us and wasco-authored by Dr. Sazzad Hossain, our Chief Scientific Officer at the time of publication, and conducted at the labs of Drs. Vikramaditya Yadav and Ujendra Kumar at the University of British Columbia. In these studies, the investigators successfully validated the efficient transport of the formulated product inwhole-eye experiments. The work seamlessly combined product design, synthetic biology, polymer rheology, and analysis of mass transport within ocular tissue. The hydrogel was formulated as a composite of hyaluronic acid and methylcellulose. Both polymers are biocompatible and highly mucoadhesive, making them ideal candidates for an ocular formulation. The amphiphilic nanoparticles were composed of a block copolymer composed of poly-ethylene oxide and poly-lactic acid, designed to facilitate enhanced cannabinoid drug delivery into the eye |
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via the cornea. Results from the experiment verified the performance of a stimulus-responsive switching between thixotropy (thinning of the gel upon a shearing force, such as blinking) and temperature-dependent rheopexy (reforming as a gel after blinking), resulting in a thin, uniformgel-like lens that holds the drug in place to allow for trans-corneal transport. Envisioned as aonce-per-day (at bedtime) administration, this formulation is designed to address many of the issues associated with current glaucoma medications. |
| • | May 14, 2018 – We announced the filing of a PCT Application (PCT/CA2018/050548) for a cannabinoid-based topical therapy for glaucoma, which includes the protection of our technology in several countries, including the United States, and claims a priority date from May 8, 2017 (PCT/CA2018/050548). The PCT Application filing is a conversion from the provisional patent filed in May 2017. |
| • | Jan. 20, 2020 – We revealed that the active ingredient inINM-755 andINM-088 is the rare cannabinoid, CBN and that we are the first company to conduct human clinical trials with CBN. |
Additional indications in ocular disease
Similar to the strategy being pursued withINM-755, we intend to fully investigate the potential for CBN inINM-088 to treat a wide array of ocular diseases, in particular, the potential for CBN to provide neuroprotection across several diseases where blindness is the ultimate outcome. We are currently pursuing preclinical models to more closely study this effect and will leverage the toxicology and Phase I safety studies across these new indications, if deemed applicable.
Other Development Programs
There is a need to find alternatives to treat chronic and severe pain that arenon-addictive and have limited side effects. We have conducted limited preclinical investigations of the potential ofnon-THC cannabinoids to treat pain using a topical approach. In September 2018, we filed a PCT Application in the United States forINM-405 as cannabinoid-based topical therapies for the treatment of pain, which is an important step in protecting our intellectual and commercial property. The foundation of this patent is the unreported data, cited above, onnon-THC cannabinoids and their ability to modulate pain. The patent cites a range of cannabinoids, alone or in combination, applied topically to treat various types of pain—muscle, nerve, arthritis-induced joint pain, etc.
KeyIn Vivo Results for our Pain Program
Important data from our research program for pain medications were published in the European Journal of Pain (2017) and the Archives of Oral Biology (2019). Both publications specifically cited data on the use of THC and certain other cannabinoids, alone and in combination, at varying ratios, in a preclinical pain model. Findings from the published studies include:
| • | Expression of cannabinoid receptors on masseter ganglion neurons. Both CB1 and CB2 receptor expression was observed in the trigeminal ganglion neurons that innervate the masseter muscle, as well as in the neuronal fibers in the muscle itself. This confirms that these peripheral nerves may be appropriate targets for a cannabinoid therapy; |
| • | Effect of intramuscular injections of THC and certain other cannabinoids, alone and in combination, on nerve growth factor, or “NGF”, induced sensitization. NGF, if injected into a target tissue (muscle), makes the tissue more sensitive to pain, as can be measured by a mechanical threshold, or “MT”, scale. On this scale, a lower number represent a lower pain threshold, or a lower ability to tolerate a painful stimulus. NGF injection resulted in a lowering of the MT score. Applications of THC and certain other cannabinoids, either alone or in combination, were associated with an increase of MT, meaning a higher ability to tolerate pain. It |
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should be noted that theNGF-induced reduction in MT model mimics the type of pain reported by sufferers of TMD. Importantly, these cannabinoids only affected the muscle into which it was injected; there was no effect on surrounding tissue; and |
| • | In a behavioral analysis in these studies, test subjects treated with peripheral application of THC, the leading psychoactive component in marijuana, and certain other cannabinoids did not exhibit any effect on motor function. This indicates that the dose of THC used did not achieve sufficient circulatory distribution to reach the brain where it may exhibit psychoactivity. However, repeat applications of THC may still have potential to induce significant undesirable central effect. |
OurINM-405 research program is at an early stage and its continued development is subject to available resources and/or our ability to find funding or strategic partners. Continued investment in ourINM-405 research program is under review and we will make a determination as to its future development based on several strategic factors, including other research priorities, in due course.
We have conducted a broad range of research and development activities to explore other uses of cannabinoids in treating human diseases with unmet medical needs. Areas of our research focus have included Chronic Obstructive Pulmonary Disease, or “COPD”, neurodegenerative diseases such as Huntington’s Disease, and breast cancer.
These programs are at various early stages of development and, asnon-core assets, their continued development is subject to available resources and/or our ability to find funding or strategic partners. Continued investment in each program is under review and we will make determinations as to which programs to continue based on several strategic factors. In addition, we may choose to partner some or all of these programs with external parties.
Manufacturing
The CBN used inINM-755 andINM-088 is currently sourced from either contract manufacturers or, for smaller quantities, from research material suppliers, that typically utilize synthetic chemistry. This is intended to be an interim step to enable us to proceed with developing its formulations, execute preclinical toxicology studies and progress through Phase I and IIa clinical trials, after which time we anticipate that we may able to successfullyscale-up our biosynthesis program so that it will be commercial-scale ready. Bridging studies consisting of chemical analysis and, possibly, animal bioavailability studies may be required in order to switch our API from the current external manufacturing sources to our internal biosynthesized products.
We expect that the final formulations (API + excipients + packaging) ofINM-755 topical cream and theINM-088 eye drop formulation will be manufactured by contract manufacturers andsub-component fabricators. The contract manufacturers andsub-component fabricators will be selected based on their specific competencies in manufacturing, quality standards, and materials. FDA regulations require that products be produced under current cGMP.
Intellectual Property
A patent is a monopoly granted by a government for a period of up to 20 years. A patent provides an enforceable legal right to prevent others from exploiting an invention being a product, device, system, substance, process or method in the country of grant. For an invention to be patentable, it must be novel, involve an inventive step and useful at the time of filing the initial patent application for that invention. At 18 months from the initial patent application, the detailed description of the invention is published. In order to secure patent protection, a patent application is filed with the patent office in each country of interest, the application is considered under the patent laws of that country, and a patent will issue if the application meets the patentability criteria of that country. After a patent expires or lapses, anyone can then use the invention.
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The grant of a patent does not guarantee validity and a patent may be challenged by third parties at a patent office byre-examination in some countries or through the courts by revocation proceedings. The grant of a valid patent does not mean that the invention may be exploited in a given country without infringing third party intellectual property rights in that country.
The owner of a patent has the exclusive right to prevent others from making, selling, importing or otherwise using the patented invention for the life of the patent. Patent infringement occurs when someone makes, hires, uses, imports or sells the patented invention, or a product made by a patented method, or offers to do these things, within the country covered by the patent without the permission of the owner of the patent.
Patent applications and patents are subject to payment of renewal fees over the life of the patent in order to maintain patent rights. If the renewal fees are not paid then the application or patent may lapse.
Adequate protection of intellectual property is a means to ensure that we can commercialize our intellectual property and reduce the likelihood of imitation by competitors. We intend to utilize patents available to protect its IP wherever possible. While we cannot patent the naturally occurring individual cannabinoids used in our products, there are a number of other approaches to protect our inventions. These include:
| • | patents on individual or combinations of cannabinoids that provide novel methods for treating diseases; |
| • | formulations designed specifically to increase the safety and efficacy of drug treatments; |
| • | cannabinoid delivery technology; and |
| • | manufacturing processes for cannabinoids. |
The patent methodologies listed above will be designed in a way to thoroughly protect our multi-faceted approach to develop novel cannabinoid medicines.
Plan of Operation
We expect that the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to fund our operations and capital requirements for the next [ ] months. We believe that these available funds will be sufficient to
| (i) | For ourINM-755 program: complete Phase I clinical trials forINM-755, substantially complete preparation for anINM-755 Phase I/II clinical trial in EB and investigate potential new indications; |
| (ii) | For our biosynthesis program: complete thescale-up to GMP batch size and conduct additional research into new enzymes for various cannabinoids; and |
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| (iii) | For ourINM-088 program: complete ongoing delivery technology studies, potentiallyin-licensing a delivery technology, initiate and, potentially, complete advancedin vivo glaucoma models utilizing the selected delivery technology. |
We are not expecting to materially increase our number of employees nor make any material acquisitions of plants or equipment during this period. The progress of our development programs is uncertain due to numerous factors, including, without limitation, the rate of progress of clinical trials, the results of preclinical studies and clinical trials for such indication, the costs and timing of seeking and obtaining regulatory approvals for clinical trials and regulatory guidance regarding clinical trials for such indication. In addition, it is difficult to predict our required spending for our product candidates prior to obtaining regulatory approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.
Properties
Our corporate headquarters are located at Suite 310 - 815 W. Hastings Street, Vancouver, British Columbia V6C 1B4, Canada. This office occupies approximately 4,477 square feet with a monthly basic rental rate and operating charges of an estimated C$17,363 for the first two years, C$17,736 for the third and fourth years, and C$18,483 for the fifth year. This lease expires on August 31, 2024.
We believe that our current facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space is available to accommodate any expansion of our operations, but such space may not be available in the same building, if and when such space is needed.
Legal Proceedings
From time to time, we may become involved in ordinary routine litigation incidental to the business. However, as of the date of this registration statement, we are not involved in any material pending legal or governmental proceedings.
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The development of innovative new drugs is a time-consuming, expensive, and risky process. Despite these challenges, the pharmaceutical industry has been remarkably successful in developing a broad range of important new medicines. It is also a heavily regulated industry. Drugs are evaluated for safety, efficacy, and manufacturing quality as a condition of market access, and promotional messages must adhere to approved product characteristics. Drug prices also are regulated in most countries with national health insurance systems. Regulation of market access and promotion derives from uncertainty about drug safety and efficacy. These product characteristics can only be determined from accumulated experience over large numbers of patients in carefully designed trials or observational studies. The 1962 Amendments to the United States Food and Drug Agency Act extended the powers of the FDA to review safety, efficacy, manufacturing quality and promotion. Subsequent studies concluded that the safety and efficacy requirements added to the intrinsically high cost of research and development, led to launch delay of new drugs and favored large over small firms.
However, more recently the biotechnology revolution has transformed the nature of drug discovery and the structure of the industry. Increasingly, new drugs originate in small firms, which oftenout-license their products to more experienced firms for later-stage drug development, regulatory review, and commercialization. In any given year, the biotechnology industry may comprise a couple of thousand firms, but the identities of these firms change as newstart-ups are formed and established firms grow, merge, or are acquired by other established companies.
Government Regulation and Product Approval
As a preclinical to early clinical stage pharmaceutical company that intends to test, register and commercialize products in the United States and other jurisdictions, we are subject to extensive regulation by various regulatory authorities. The primary regulatory agency in FDA, in Canada it is HC, and in Europe it is the EMA. Along with these three, there are other federal, state, and local regulatory agencies. In the United States, the Federal Food, Drug, and Cosmetic Act, or the “FDCA”, and its implementing regulations set forth, among other things, requirements for the research, testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our products. Although the discussion below focuses on regulation in the United States, we anticipate seeking approval for, and marketing of, our products in other countries.
Generally, our activities outside the United States will be subject to regulation that is similar in nature and scope as that imposed in the United States, although there can be important differences. Approval in the United States Canada, or Europe does not assure approval by other regulatory agencies, although often test results from one country may be used in applications for regulatory approval in another country. Additionally, some significant aspects of regulation in Europe are addressed in a centralized way through the EMA but country specific regulation remains essential in many respects. A major difference in Europe, when compared to Canada and the United States, is with the approval process. In Europe, there are different procedures that can be used to gain marketing authorization in the European Union. The first procedure is referred to as the centralized procedure and requires that a single application be submitted to the EMA and, if approved, allows marketing in all countries of the European Union. The centralized procedure is mandatory for certain types of medicines and optional for others. The second procedure is referred to as national authorization and has two options; the first is referred to as the mutual recognition procedure and requires that approval is gained from one member state, after which a request is made to the other member states to mutually recognize the approval, whilst the second is referred to as the decentralized procedure which requires a member state to act as the reference member state through a simultaneous application made to other member states.
The process of obtaining regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and may not be successful. See “Risk Factors”.
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U.S. Government Regulation
The FDA is the main regulatory body that controls pharmaceuticals in the United States, and its regulatory authority is based in the United States Federal Food, Drug, and Cosmetic Act. Pharmaceutical products are also subject to other federal, state and local statutes. A failure to comply explicitly with any requirements during the product development, approval, or post approval periods, may lead to administrative or judicial sanctions. These sanctions could include the imposition by the FDA or an Institutional Review Board of a hold on clinical trials, refusal to approve pending marketing applications or supplements, withdrawal of approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution.
The steps required before a new drug may be marketed in the United States generally include:
| • | completion of preclinical studies, animal studies and formulation studies in compliance with the FDA’s GLP regulations; |
| • | submission to the FDA of an IND application to support human clinical testing in the United States; |
| • | approval by an IRB at each clinical site before each trial may be initiated; |
| • | performance of adequate and well-controlled clinical trials in accordance with federal regulations and with GCP regulations to establish the safety and efficacy of the investigational product candidate for each target indication; |
| • | submission of an NDA to the FDA; |
| • | satisfactory completion of an FDA Advisory Committee review, if applicable; |
| • | satisfactory completion of an FDA inspection of the manufacturing facilities at which the investigational product candidate is produced to assess compliance with cGMP, and to assure that the facilities, methods and controls are adequate; and |
| • | FDA review and approval of the NDA. |
Clinical Trials
An IND is a request for authorization from the FDA to administer an investigational product candidate to humans. This authorization is required before interstate shipping and administration of any new drug product to humans in the United States that is not the subject of an approved NDA. A30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational product candidate to healthy volunteers or patients with the disease under study, under the supervision of qualified investigators following GCPs, an international standard intended to protect the rights and health of patients with the disease under study and define the roles of clinical trial sponsors, administrators and monitors. Clinical trials are conducted under protocols that detail the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. Each protocol involving testing on patients in the United States and subsequent protocol amendments must be submitted to the FDA as part of the IND. We have not yet submitted an IND in the United States for any clinical programs.
The clinical investigation of an investigational product candidate is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or some may be combined. The three phases of clinical investigation are as follows:
| • | Phase I. Phase I includes the initial introduction of an investigation product candidate into humans. Phase I clinical trials may be conducted in patients with the target disease or condition, or |
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in healthy volunteers. These studies are designed to evaluate the safety, metabolism, pharmacokinetics, or “PK”, and pharmacologic actions of the investigational product candidate in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness. During Phase I clinical trials, sufficient information about the investigational product candidate’s PK and pharmacological effects may be obtained to inform the design of Phase II clinical trials. The total number of participants included in Phase I clinical trials varies but is generally in the range of 20 to 80. |
| • | Phase II. Phase II includes the controlled clinical trials conducted to evaluate the effectiveness of the investigational product candidate for a particular indication(s) in patients with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the product candidate. Phase II clinical trials are typically well controlled, closely monitored, conducted in a limited subject population and usually involving no more than several hundred participants. |
| • | Phase III. Phase III clinical trials are controlled clinical trials conducted in an expanded subject population at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the investigational product candidate has been obtained, are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the product candidate, and to provide an adequate basis for drug approval. Phase III clinical trials usually involve several hundred to several thousand participants. In most cases, the FDA requires two adequate and well controlled Phase III clinical trials to demonstrate the efficacy of the drug. |
The decision to terminate development of an investigational product candidate may be made by either a health authority body, such as the FDA or IRB/ethics committees, or by a company for various reasons. The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. In some cases, clinical trials are overseen by an independent group of qualified experts organized by the trial sponsor or the clinical monitoring board. This group provides authorization for whether or not a trial may move forward at designated check points. These decisions are based on the limited access to data from the ongoing trial. The suspension or termination of development can occur during any phase of clinical trials if it is determined that the participants or patients are being exposed to an unacceptable health risk. In addition, there are requirements for the registration of ongoing clinical trials of Product Candidates on public registries and the disclosure of certain information pertaining to the trials as well as clinical trial results after completion.
New Drug Applications
In order to obtain approval to market a drug in the United States, a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the product candidate for the proposed indication. The application includes all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company sponsored clinical trials intended to test the safety and effectiveness of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational product candidate to the satisfaction of the FDA. In most cases, the NDA must be accompanied by a substantial user fee; there may be some instances in which the user fee is waived. The FDA will initially review the NDA for completeness before it accepts the NDA for filing. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. After the NDA submission is accepted for filing, the FDA begins anin-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review Product Candidates are reviewed within ten to
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twelve months. The FDA can extend this review by three months to consider certain late submitted information or information intended to clarify information already provided in the submission. The FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP. The FDA may refer applications for novel Product Candidates that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. Product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of certain FDA regulated products, including prescription drugs, are required to register and disclose certain clinical trial information (though not specifically required for Phase I trials) on a public website maintained by the U.S. National Institutes of Health, or “NIH”. Information related to the product, patient population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made public as part of the registration. Sponsors are also obligated to disclose the results of these trials after completion. Disclosure of the results of these trials can be delayed until the product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the design and progress of our development programs. A short summary of our Phase I study in healthy volunteers was posted on the Netherlands Trial Register.
Advertising and Promotion
The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standards and regulations fordirect-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet. A product cannot be commercially promoted before it is approved. After approval, product promotion can include only those claims relating to safety and effectiveness that are consistent with the labeling (package insert) approved by the FDA. Healthcare providers are permitted to prescribe drugs for“off-label” uses — that is, uses not approved by the FDA and, therefore, not described in the drug’s labeling — because the FDA does not regulate the practice of medicine. However, FDA regulations impose stringent restrictions on manufacturers’ communications regardingoff-label uses.
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Post-Approval Regulations
After regulatory approval of a drug is obtained, a company is required to comply with a number of post-approval requirements. For example, as a condition of approval of an NDA, the FDA may require post-marketing testing, including Phase IV clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. In addition, as a holder of an approved NDA, a company would be required to report adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of its products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to assure and preserve the long-term stability of the drug or biological product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural and substantive record keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon a company and any third-party manufacturers that a company may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
Controlled Substances
The CSA and its implementing regulations establish a “closed system” of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and reporting, storage, manufacturing, distribution, importation and other requirements under the oversight of the DEA, which is the federal agency responsible for regulating controlled substances, and requires those individuals or entities that manufacture, import, export, distribute, research, or dispense controlled substances to comply with the regulatory requirements in order to prevent the diversion of controlled substances to illicit channels of commerce.
Facilities that research, manufacture, distribute, import or export any controlled substance must register annually with the DEA. The DEA registration is specific to the particular location, activity(ies) and controlled substance schedule(s). For example, separate registrations are required for importation and manufacturing activities, and each registration authorizes which schedules of controlled substances the registrant may handle. However, certain coincident activities are permitted without obtaining a separate DEA registration, such as distribution of controlled substances by the manufacturer that produces them.
The DEA categorizes controlled substances into one of five schedules — Schedule I, II, III, IV, or V— with varying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for abuse, have no currently “accepted medical use” in treatment in the United States and lack accepted safety for use under medical supervision. They may be used only in federally approved research programs and may not be marketed or sold for dispensing to patients in the United States. Pharmaceutical products having a currently accepted medical use 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. The regulatory requirements are more restrictive for Schedule II substances than Schedule III substances. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist in most situations, and cannot be refilled. Our products are highly purified (>95%) cannabinoid compounds. In December 2016, the DEA issued a new classification code to cover marijuana extracts, and with this ruling all highly pure cannabinoids extracted from the plant are Schedule I drugs. Once FDA has approved a medical use for Schedule I drugs, the DEA must reschedule the drug. For example, after FDA approval for Epidiolex®, a purified CBD oil, for the treatment of two rare forms of epilepsy, DEA placed it in Schedule V. Further, on April 6, 2020, GW Pharma announced that Epidiolex® was descheduled by the DEA and is no longer considered a controlled substance. The descheduling applies only to Epidiolex® for the indications approved by FDA, not CBD or other cannabinoid compounds generally.
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The DEA inspects all manufacturing facilities to review security, record keeping, reporting and handling prior to issuing a controlled substance registration. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances handled. The most stringent requirements apply to manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background checks on employees and physical control of controlled substances through storage in approved vaults, safes and cages, and through use of alarm systems and surveillance cameras. Manufacturing facilities must maintain records documenting the manufacture, receipt and distribution of all controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III narcotic substances, and other designated substances. In addition to an importer or exporter registration, importers and exporters must obtain a permit for every import or export of a Schedule I and II substance or Schedule III, IV and V narcotic, and submit import or export declarations for Schedule III, IV and Vnon-narcotics.
For drugs manufactured in the United States, the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II that may be manufactured or produced in the United States based on the DEA’s estimate of the quantity needed to meet legitimate medical, scientific, research and industrial needs. The quotas apply equally to the manufacturing of the API and production of dosage forms.
The passage of the Farm Bill in December 2018 legalized the cultivation of hemp in the United States and the production of hemp-derived CBD and othernon-THC cannabinoids, removing these products from the CSA. (Note that hemp contains only miniscule, trace quantities of CBN.) However, the bill explicitly retains the FDA’s regulatory authority over products containingCannabis orCannabis-derived compounds that fall under the authority of the FDCA (e.g., drugs, foods and dietary supplements) At the same time, there has been a proliferation ofCannabis products for medical and recreational use approved at the state level. It is unclear whether the FDA will propose or implement new or additional regulatory pathways to address this disparity between federal and state legal status.
The states also maintain separate controlled substance laws and regulations, including licensing, recordkeeping, security, distribution, and dispensing requirements. State Authorities, including Boards of Pharmacy, regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could have a material adverse effect on our business, operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.
CBN as a Controlled Substance
CBN, like any cannabinoid, is subject to the United Nations Single Convention on Narcotic Drugs (1961) which prohibits the production and supply of specific drugs, except for scientific and research purposes. Under the current UN definition,Cannabis extracts and tinctures are controlled substances. Individual countries (and sometimes jurisdictions within countries) are rapidly changing how they interpret and apply the international rules. Currently there is a broad spectrum of legal statuses based on strength, source and intended use. We are closely monitoring these changes as we prepare for our global Phase I/II clinical trial in EB patients. We expect that there may be different requirements in each region where we have clinical sites.
SeveralCannabis-derived drugs have been placed in lower schedules once they were approved as drugs. For example, the US DEA reduced Epidiolex® (CBD) to Schedule V after it was approved for treatment of two rare forms of childhood epilepsy. Note that a scheduling change is specific to an approved drug and the disease for which it was approved; it does not lower the scheduling for any product containing that drug.
Before any pharmaceutical treatment becomes approved for use, it must go through a rigorous research process to ensure its safety and effectiveness for patients. We chose a traditional regulatory path to investigate
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and validate its treatment candidates. While the regulatory path is rigorous, time-consuming and expensive, it ensures that any resulting marketed compound we develop has proven to be safe and effective for patients.
Potential sources of API forINM-755 andINM-088 are in the United States, Canada, Israel, Germany, Switzerland, United Kingdom, and other European countries. We may choose to conduct clinical trials for any of our drug candidates outside the United States subject to regulatory approval. We may decide to develop, manufacture or commercialize our Product Candidates in additional countries. As a result, we will also be subject to controlled substance laws and regulations from the various other regulatory agencies in other countries where we develop, manufacture or commercializeINM-755 andINM-088 in the future.
Marketing Exclusivity
Upon NDA approval of a new chemical entity, which for this purpose is defined as a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot approve any abbreviated new drug application, or “ANDA”, seeking approval of a generic version of that drug. Certain changes to the scope of an approval for a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA for a generic drug that includes the change. A Section 505(b)(2) NDA may be eligible for three-year marketing exclusivity, assuming the NDA includes reports of new clinical studies (other than bioequivalence studies) essential to the approval of the NDA.
An ANDA may be submitted one year before marketing exclusivity expires if a Paragraph IV certification is filed. In this case, the 30 months stay, if applicable, runs from the end of the five-year marketing exclusivity period. If there is no listed patent in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.
Additionally, six months of marketing exclusivity in the United States is available under Section 505A of the FDCA if, in response to a written request from the FDA, a sponsor submits and the agency accepts requested information relating to the use of the approved drug in the pediatric population. Thissix-month pediatric exclusivity period is added to any existing patent ornon-patent exclusivity period for which the drug product is eligible.
Patent Term Extension
The term of a patent that covers an FDA approved drug may be eligible for patent-term extension, which provides patent-term restoration as compensation for the patent term lost during the FDA regulatory review process. The United States Federal Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent-term extension of up to five years beyond the expiration of the patent. The length of the patent-term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug.
European and Other International Government Regulation
In addition to regulations in the United States and Canada, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. 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. Some countries outside of the United States have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials.
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In Europe, for example, a clinical trial application must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the clinical trial application is approved in accordance with a country’s requirements, clinical trial development may proceed. In addition to our recently concluded healthy volunteer treatment and clinical evaluation in the first Phase I trial, we also recently submitted a clinical trial application in the Netherlands for a second Phase I clinical study in healthy volunteers.
The UK is currently in a transition period until Dec. 31, 2020, during which it will continue to abide by the EU regulatory processes; however, they may adopt different or additional procedures following the transition period.
To obtain regulatory approval to commercialize a new drug under EU regulatory systems, we must submit a MAA. The MAA is similar to the NDA, with the exception of, among other things, country-specific document requirements.
For other countries outside of the EU, 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. Internationally, clinical trials are generally required to be conducted in accordance with GCP, applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origin in the Declaration of Helsinki.
Compliance
During all phases of development(pre- and post-marketing), failure to comply with applicable regulatory requirements may result in administrative or judicial sanctions. These sanctions could include the FDA’s imposition of a clinical hold on trials, refusal to approve pending applications, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, product detention or refusal to permit the import or export of products, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect.
Other Special Regulatory Procedures
Fast Track Designation
Under the Fast Track program, the sponsor of an IND may request the FDA to designate the drug candidate as a Fast Track drug if it is intended to treat a serious condition and fulfill an unmet medical need. The FDA must determine if the drug candidate qualifies for Fast Track designation within 60 days of receipt of the sponsor’s request. Once the FDA designates a drug as a Fast Track candidate, it is required to facilitate the development and expedite the review of that drug by providing more frequent communication with and guidance to the sponsor.
In addition to other benefits such as the ability to use surrogate endpoints and have greater interactions with the FDA, the FDA may initiate review of sections of a Fast Track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s review period for filing and reviewing an application does not begin until the last section of the NDA has been submitted. Additionally, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Breakthrough Therapy Designation
The FDA may provide the Breakthrough Therapy designation to drugs to expedite the development and review of a candidate that is planned for use to treat a serious or life-threatening disease or condition when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing
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therapies on one or more clinically significant endpoints. A Breakthrough Therapy designation includes all of the Fast Track program features, as well as more intensive FDA guidance on an efficient drug development program. The FDA also has an organizational commitment to involve senior management in such guidance.
Orphan-Drug Designation
The FDA may grant orphan-drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or, if the disease or condition affects more than 200,000 individuals in the United States, if there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan-drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union community. Additionally, the orphan-drug designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug.
In the United States, orphan-drug designation entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product receives the first FDA approval for the indication for which it has orphan-drug designation, the product is entitled to seven years of market exclusivity, which means the FDA may not approve any other application for the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan-drug exclusivity. Orphan-drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. In the European Union, orphan-drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the orphan-drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Orphan-drug designation must be requested before submission of an application for marketing approval. Orphan-drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Priority Review (United States) and Accelerated Assessment (European Union)
Based on results of the Phase III clinical trial(s) submitted in an NDA, upon the request of an applicant, a priority review designation may be granted to a product by the FDA, which sets the target date for FDA action on the application at six months from the FDA’s decision on priority review application, or eight months from the NDA filing. Priority review is given where preliminary estimates indicate that a product, if approved, has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists, or a significant improvement compared to marketed products is possible. If criteria are not met for priority review, the standard FDA review period is ten months from the FDA’s decision on priority review application, or 12 months from the NDA filing. The priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.
Under the Centralized Procedure in the European Union, the maximum timeframe for the evaluation of a MAA is 210 days (excluding “clock stops,” when additional written or oral information is to be provided by the applicant in response to questions asked by the Committee for Medicinal Products for Human Use, or “CHMP”). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, which takes into consideration: the seriousness of the disease (e.g., disabling or life-threatening diseases); the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, EMA ensures that the opinion of the CHMP is given within 150 days.
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Accelerated Approval
Under the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit. This approval mechanism is provided for under 21CRF314 Subpart H and 21CRF601 Subpart E. In this case, clinical trials are conducted in which a surrogate endpoint is used as the primary outcome for approval. A surrogate endpoint is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. This surrogate endpoint substitutes for a direct measurement of how a patient feels, functions, or survives and is considered reasonably likely to predict clinical benefit. Such surrogate endpoints may be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. When the Phase IV commitment is successfully completed, the biomarker is deemed to be a surrogate endpoint. Failure to conduct required post-approval studies or confirm a clinical benefit during post-marketing studies, could lead the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.
Rare Pediatric Disease Priority Review Voucher
The FDA has an incentive program to stimulate development of new drugs for rare pediatric diseases that are serious or life-threatening. The drug must be a new active ingredient that has never been approved in any prior application (including any ester or salt of the active ingredient) and the rare pediatric disease application must meet the criteria for a priority review itself.
If a sponsor (a company) gets a new drug approved for such a rare and serious or life-threatening pediatric disease, they are eligible to receive a pediatric rare disease priority review voucher. The holder of such a voucher is entitled to a priority review of a different NDA at a future date, subject to certain conditions. Priority reviews are to be completed within six months instead of the usual 10 months after the60-day filing period and acceptance of an NDA for review. The voucher can be used by the original sponsor or transferred (including by sale) to another party. Such vouchers are considered quite valuable. The EB indication would meet the criterion for being either serious or life-threatening and it might meet the criteria for a rare pediatric disease if current prevalence data for the United States indicates that 50% or more of the patients with EB are age 18 years or younger. An NDA filed for that indication might meet the requirements for receiving a priority review voucher upon approval, depending on the quality of efficacy and safety demonstrated in well-controlled clinical studies.
These vouchers, once awarded to a sponsor, are fully transferable to third parties who, in turn, can use it for priority review of any drug application, not specifically for a rare pediatric disease. Accordingly, there is a financial incentive for companies to pursue rare pediatric diseases.
Other Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to additional regulation by various federal, state and local authorities in addition to the FDA, including, among others, the Centers for Medicare and Medicaid Services, other divisions of HHS, the DOJ, and individual United States Attorney offices within the DOJ and state and local governments.
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The following table provides information regarding our executive officers and directors as of March 31, 2020:
Name | Age | Position(s) | ||
| Executive Officers: | ||||
Eric A. Adams, MIBS(1) | 56 | President, Chief Executive Officer, Director | ||
Bruce Colwill, CPA, CA | 55 | Chief Financial Officer, Corporate Secretary | ||
Eric C. Hsu, PhD | 49 | Sr. Vice President, Preclinical Research & Development | ||
Alexandra D.J. Mancini, MSc | 67 | Sr. Vice President, Clinical & Regulatory Affairs | ||
Michael Woudenberg, PEng | 50 | Vice President, Chemistry, Manufacturing and Controls | ||
| Non-Employee Directors | ||||
Adam Cutler (2) (3) (5) | 45 | Director | ||
William J. Garner, MD(2) (4) (5) | 53 | Chairman, Director | ||
Andrew Hull(2) (3) (4) (5) | 56 | Director | ||
Catherine A. Sazdanoff, JD(2) (3) (4) (5) | 63 | Director | ||
| (1) | Not an independent director under Nasdaq listing standards and Canada’s National Instrument58-101 – Disclosure of Corporate Governance Practices because he is an executive officer of our company. |
| (2) | Independent director under Nasdaq listing standards and Canada’s National Instrument58-101 – Disclosure of Corporate Governance Practices. |
| (3) | Member of the Audit Committee. |
| (4) | Member of the Compensation Committee. |
| (5) | Member of the Nomination & Governance Committee. |
The following is a biographical summary of the experience of our executive officers, other senior management and directors. There are no family relationships among any of our executive officers, other senior management or directors.
Executive Officers
Eric A. Adams, MIBS – President, Chief Executive Officer and Director
Mr. Adams is a seasoned biopharmaceutical executive with over 30 years’ experience in company and capital formation, global market development, mergers and acquisitions, licensing and corporate governance. Mr. Adams has been our President and Chief Executive Officer, and a Director, since 2016. During the period from 2011 to 2016, Mr. Adams served as a mentor and senior consultant to several biopharmaceutical and innovative technology companies, including interim CEO for Ronin8, Inc. in 2015. He previously served as Chief Executive Officer at EnGene Inc. between 2004 and 2011. Prior to EnGene, he held senior roles in global market development with QLT Inc., Advanced Tissues Science Inc., Abbott Laboratories, and Fresenius AG. He is a dual citizen of Canada and the United States and holds a Master of International Business degree from the University of South Carolina and a Bachelor’s degree in Chemistry from the University of Southern Indiana. Mr. Adams makes valuable contributions to the Board based on his extensive international business development experience in a wide range of disease categories and contributions to growing several organizations across the pharmaceutical and medical device arenas.
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Bruce S. Colwill, CPA, CA – Chief Financial Officer and Corporate Secretary
Mr. Colwill, who has served as our Chief Financial Officer since August 9, 2019, has over 25 years of financial leadership experience in both public and private companies. Prior to serving as our Chief Financial Officer, Mr. Colwill served as Chief Financial Officer of General Fusion Inc., a private clean energy company, from March 2016. Previously, Mr. Colwill was Chief Financial Officer at Entrée Resources Inc., a mineral exploration company, from February 2011 to March 2016. He has also held Chief Financial Officer roles at Neuromed Pharmaceuticals Ltd., Response Biomedical Corp, Forbes Medi-Tech Inc. and Euronet Worldwide Inc. In addition to has experience with equity, debt and other structured financings, Mr. Colwill has experience in bothin-licensing andout-licensing biopharmaceutical products as well as in mergers and acquisitions. Mr. Colwill, having completed the Governance Professionals of Canada Education Program, holds a GPC.D designation. He holds a Bachelor of Business Administration from Simon Fraser University and is a member of the Chartered Professional Accountants of BC.
Eric Hsu, PhD – Senior Vice President, Preclinical Research & Development
Dr. Hsu has over 18 years of scientific leadership experience in the field of gene therapy and drug development. He has been our Senior Vice President, Preclinical Research & Development since March 2018. Prior to joining our company, he held various positions within EnGene Inc. from 2002 to 2018, including V.P. of Research and V.P. of Scientific Affairs and Operations. His experience includes a wide array of activities, including preclinical research, formulation development and manufacturing process development, as well as patent prosecution, vendor contract negotiations and execution, and research partnerships. He received his Doctorate degree from the Department of Medical Biophysics at University of Toronto, his Bachelor’s degree from McGill University and completed his post-doctoral training at Amgen Inc.
Alexandra D.J. Mancini, MSc – Senior Vice President, Clinical & Regulatory Affairs
Ms. Mancini has over 30 years of global biopharmaceutical research and development experience with a particular emphasis on clinical development and regulatory affairs. She has been our Senior Vice President, Clinical & Regulatory Affairs, since 2016, responsible for the full scope of theINM-755 development program for EB. Ms. Mancini has been an executive with several biotech companies, overseeing a wide range of drug development activities. From 2012 to 2016, she was a consultant to several biopharmaceutical companies via her consulting firm, True North Synergy, Inc. From 2008 to 2012, Ms. Mancini served as SVP of Clinical & Regulatory Affairs at Sirius Genomics. She also held leadership positions at Inex Pharmaceuticals and QLT Inc. While at QLT, she played a significant role in the development and regulatory approvals of VISUDYNE® and PHOTOFRIN®. Ms. Mancini holds a Master of Science degree from the University of Toronto.
Michael Woudenberg, PEng – Vice President, Chemistry, Manufacturing & Controls
Mr. Woudenberg joined our company with over 20 years of engineering, leadership and cGMP Regulations-compliant manufacturing andscale-up experience with regards to the development, technology transfer and commercialization of APIs and drug products. Prior to joining our company in November of 2018, Mr. Woudenberg held various positions within 3M from 1995 to 2000, Cardiome Pharma from 2005 to 2007, Arbutus Biopharma (formerly Inex and Tekmira Pharmaceuticals) from 2000 to 2005 and from 2007 to 2010 and most recently as the Managing Director of Phyton Biotech, LLC from 2010 to 2018. His experience includes process and formulation development from lab / preclinical products through the various stages of clinical development to validated and successfully approved and inspected commercial APIs and drug products. Mr. Woudenberg received his Bachelor of Science, Chemistry and Bachelor of Engineering Science, Chemical degrees at Western University of London, Ontario, Canada.
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Non-Employee Directors
William J. Garner, MD – Director, Chairman of the Board
Dr. Garner is the founder of EGB Ventures, where he has focused on advancing technologies and companies to significant value inflection points, leading to monetization of assets via licensing, M&A or IPO transactions, a position he has held since 2002. Dr. Garner has served asNon-Executive Chairman & Founder of Race Oncology since 2016 and as Founder and Chairman at Isla Pharmaceuticals since 2017. Dr. Garner brings additional medical affairs experience from his tenure at Hoffmann LaRoche’s oncology division in 1999. Prior to Roche, Dr. Garner was a healthcare merchant banker in New York City. He has a Master of Public Health from Harvard and earned his M.D. at New York Medical College. Dr. Garner did residency training in Anatomic Pathology at Columbia-Presbyterian and is currently a licensed physician in the State of New York. Dr. Garner makes valuable contributions to the Board based on his extensive director-level and executive-management experience, as well as his medical background. Mr. Garner has been a director of our company since June 2016.
Adam Cutler – Director
Mr. Cutler is currently Chief Financial Officer at Molecular Templates, a position he has held since 2017. Previously, he was Senior Vice President of Corporate Affairs at Arbutus Biopharma from 2015 until 2017 and, prior to that, was Managing Director at The Trout Group LLC from 2012 until 2015, where he executed financings and advised a wide range of life science companies on investor relations, business development, and capital raising strategies. Mr. Cutler spent almost 12 years as a sell-side analyst with firms including Credit Suisse, Canaccord Genuity, JMP Securities, and Bank of America Securities. He also worked in healthcare consulting as an Analyst at The Frankel Group and a Consultant for Ernst & Young LLP. Mr. Cutler holds a Bachelor of Arts degree in Economics from Brandeis University. Mr. Cutler serves as a Director of Navidea Biopharmaceuticals, Inc. Mr. Cutler makes valuable contributions to the Board based on his over 20 years of experience in the global healthcare industry, where he successfully held senior leadership positions in various roles from equity research, corporate affairs and strategy, investor relations and consulting. Mr. Cutler has been a director of our company since November 2015.
Andrew Hull – Director
Mr. Hull most recently served as Vice President of Global Alliances for Takeda Pharmaceuticals from 2014 to 2018, where he was responsible for maximizing the success of Takeda’s growing number (40+) of commercial and research and development partnerships with many of the industry’s leading pharmaceutical and biotech companies. In previous roles, he led marketing and commercial development of Takeda’s U.S. portfolio of over $3 billion. Additionally, he held positions of increasing responsibility at Immunex and Abbott Laboratories. Mr. Hull received a Bachelor’s Degree in Biology from Kenyon College in 1985. He also recently served as a member of the Board of the Illinois Biotechnology Industry Organization and recently was a member of the Kenyon College Board of Trustees. Mr. Hull recently served as a Director of Zucara Therapeutics. Mr. Hull makes valuable contributions to the Board based on his over 30 years of experience in various commercial and business development roles with leading pharmaceutical and biotech companies. Mr. Hull has been a director of our company since September 2016.
Catherine A. Sazdanoff, JD – Director
Ms. Sazdanoff, who joined our Board effective July 1, 2019, is a35-year veteran of the global pharmaceutical industry and currently serves as President and CEO of Sazdanoff Consulting LLC, founded in 2014, where she works with healthcare companies on strategy and corporate/business development. Prior to Sazdanoff Consulting, Ms. Sazdanoff held various global VP roles in corporate/business development and finance at Takeda Pharmaceuticals, where she joined in 2006. Prior to Takeda, Ms. Sazdanoff served in senior management positions at Abbott Laboratories since 1984, including litigation, commercial and transactional legal roles, marketing, compliance, and business development. At both Takeda and Abbott, she completed numerous transformational deals, including Abbott’s acquisition of Knoll (with Humira®), and Takeda’s acquisitions of
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Millennium and Nycomed. Ms. Sazdanoff is a Board member of Meridian Bioscience. She earned a BA degree from the University of Notre Dame and a JD degree from Northwestern University School of Law. Ms. Sazdanoff makes valuable contributions to the Board based on her over 30 years of experience in various legal, compliance, commercial and business development roles with leading pharmaceutical companies.
Director Independence
Our Board is currently composed of five directors, of whom Messrs. Cutler, Garner, Hull, and Sazdanoff meet the independence standards under the listing standards of Nasdaq and NI52-110. Each year the Board reviews the composition of the Board and assesses whether a member of the Board is “independent”. Mr. Eric A. Adams, our President and Chief Executive Officer, is not an independent director because of his role in our management team.
Compensation Committee Interlocks and Insider Participation
Prior to March 23, 2018, Eric A. Adams was a member of our compensation committee. He resigned from the compensation committee on March 23, 2018. No other member of our compensation committee has ever been an executive officer or employee of ours. None of our officers currently serves, or has served during the last completed year, on the Board, compensation committee or other committee serving an equivalent function, of any other entity that has one or more officers serving as a member of our Board or compensation committee.
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Overview
The following discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially from currently planned programs as summarized in this discussion.
As an “emerging growth company,” we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act of 1933. This section provides an overview of the compensation awarded to, earned by, or paid to each individual who served as our principal executive officer during our fiscal year 2019, and our next two most highly compensated executive officers in respect of their service to our company for fiscal year 2019. We refer to these individuals as our “NEOs”. Our NEOs for fiscal year 2019 are:
| • | Eric A. Adams, our President and Chief Executive Officer; |
| • | Michael Woudenberg, our Vice President, Chemistry, Manufacturing & Controls; and |
| • | Eric Hsu, Ph.D., our Senior Vice President of Preclinical Research and Development. |
Our executive compensation program is based on a pay for performance philosophy. Compensation for NEOs is composed primarily of the following main components: base salary, bonus, and equity incentives in the form of stock options to purchase common shares. Like all full-time employees, our executive officers are eligible to participate in our health and welfare benefit plans.
Annual Cash Incentive Awards
An annual cash incentive plan has been developed by us to encourage the achievement of our critical success factors, or goals. The target award level is determined by position and typically ranges from30%-40% of base salary for our executives. Goals are determined by the direct supervisor of each employee, in discussion with the CEO and, ultimately, the Compensation Committee and Board.
The goals for each position are split into two segments: Task Achievement and Personal Effectiveness. The Task Achievement portion is heavily weighted (75%) and aligns with the overall corporate objectives. The Personal Effectiveness (25%) portion analyzes several criteria for each employee such as initiative, problem solving, teamwork, integrity, and leadership, among other criteria. Scoring for both sections are combined to determine what percentage of the employee’s target bonus will be paid, if any.
An example:
Task Achievement (50/75) + Personal Effectiveness (23/25) = Goal Achievement Score (73%);
Goal Achievement Score (73%) x Target Bonus (30%) x Base Salary ($100,000) = Cash Bonus ($21,900)
In addition to the goals described above, the payment of cash incentive awards to employees, if any, is subject to the following conditions as determined by the Board:
| • | Our financial position. As determined solely by the Board, our current cash positionvis-à-vis the anticipated research and development expenditures, markets for raising capital and other factors play an overriding role in the payment of any bonuses to any employees. |
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| • | Achievement of critical corporate strategic goals. Should we fail to reach our key corporate strategic goals, as defined by the Board at the beginning of each fiscal year, then the payment of any cash incentive awards to any employee, regardless of their specific role within the company, may be negatively impacted such that the Board may determine that no awards be paid to anyone. |
Additionally, the Board has the sole discretion to award a bonus to any individual employee beyond the target bonus amount based on significantly exceeding their goals, or through accomplishment of objectives well beyond the scope of their role.
Long-Term Equity Incentive Awards
Pursuant to the stock option plan, approved by our shareholders at our special meeting on March 24, 2017, our Board may, from time to time, in its discretion and in accordance with the TSX requirements, grant to our directors, officers, employees and consultants,non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed twenty percent (20%) of the issued and outstanding common shares at the date the options are granted (on anon-diluted basis), exercisable for a period of up to ten (10) years from the date of grant.
The exercise price and the term of options are determined by the Board and are subject to approval by the TSX. However, the exercise price cannot be lower than the greater of the closing market price of the common shares on the trading day prior to the date of grant of the options and the date of grant of the options.
The vesting dates or performance-based milestones that trigger vesting will be as specified by the Board at the time of granting the option.
In the event an optionee dies prior to the expiration of his option, his legal representatives may, by the earlier of:
| a) | one year from the date of the optionee’s death (or such lesser period as may be specified by the Board at the time of granting the option); and |
| b) | the expiration date of the option; |
exercise any portion of such option.
If an optionee ceases to be a director, officer, employee or consultant for any reason other than death, his option shall terminate as specified by the Board at the time of granting the option, and all rights to purchase common shares under such option shall cease and expire and be of no further force or effect.
Subject to TSX policies, if any option granted under the plan shall expire or terminate for any reason without having been exercised in full, such unexercised options shall become available for future option grants under the plan.
The Board may amend the plan, subject to, as the case may require, the approvals of the TSX, shareholders or the optionees who have been granted options.
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Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of December 31, 2019:
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (1) | |||||||||
Equity compensation plans approved by security holders | 19,360,000 | C$ | 0.45 | 15,096,727 | ||||||||
Total | 19,360,000 | C$ | 0.45 | 15,096,727 | ||||||||
| (1) | The maximum number of shares issuable under our stock option plan is limited to 20% of the total number of common shares issued and outstanding from time to time. The figures in this column are based upon 172,283,633 common shares issued and outstanding as at December 31, 2019. |
2019 Summary Compensation Table
Name and principal position | Fiscal year | Salary & Consulting ($) | Share- based awards ($) | Option- based awards1 ($) | Non-equity incentive plan compensation ($) | Pension value ($) | All other compensation ($) | Total compensation ($) | ||||||||||||||||||||||||||
| Annual incentive plans | Long- term incentive plans | |||||||||||||||||||||||||||||||||
Eric A. Adams President and CEO | 2019 2018 | | 287,128 238,014 |
| | — — |
| | 726,548 396,071 |
| | 94,148 88,783 |
| | — — |
| | — — |
| | — — |
| | 1,107,824 722,868 |
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Michael Woudenberg2 Vice President, Chemistry, Manufacturing & Controls | 2019 2018 | | 134,463 — |
| | 91,029 — |
| | 37,692 — |
| | 263,184 — |
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Eric Hsu3 Senior Vice President of Preclinical Research and Development | 2019 2018 | | 175,299 33,057 |
| | — — |
| | 319,382 162,944 |
| | 62,008 13,125 |
| | — — |
| | — — |
| | — — |
| | 556,689 209,126 |
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| 1 | The amounts reported represent the aggregate grant date fair value of the stock options awarded to thenon-employee directors in the fiscal year 2019, calculated in accordance with FASB ASC Topic 718. Such grant date fair values do not take into account any estimated forfeitures. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in note 7 of our consolidated financial statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received by thenon-employee directors upon the exercise of the stock options or any sale of the underlying common shares. |
| 2 | Michael Woudenberg was appointed Vice President, Chemistry, Manufacturing & Controls on November 5, 2018. |
| 3 | Eric Hsu was appointed Vice President of Preclinical Research and Development on March 8, 2018. |
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Narrative to 2019 Summary Compensation Table
Base Salaries: We use base salaries to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our NEOs employed by us. Base salaries are generally reviewed annually, typically in connection with our annual performance review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. For fiscal year 2019, the annual base salaries for Mr. Adams and Mr. Woudenberg were $287,128 and $204,012, respectively. Dr. Hsu’s salary for the period from July 1, 2018 through August 31, 2018 based on a 50% time commitment, was $105,784, from September 1, 2018 through February 28, 2019 based on an 80% time commitment, was $135,404 which was increased to $219,124 on March 1, 2019 when Dr. Hsu increased his time commitment to 100%.
Annual Bonuses: During fiscal year 2019, Mr. Adams, Mr. Woudenberg and Dr. Hsu earned bonuses as set forth in the 2019 Summary Compensation Table above based on company and individual performance metrics.
Equity Compensation: Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, we believe that equity grants provide our executives with a strong link to our long-term performance and help to align the interests of our executives and our shareholders. Our Board periodically reviews the equity incentive compensation of our NEOs and from time to time may grant equity incentive awards to them. During fiscal year 2019, we granted an option to purchase our common shares to Mr. Adams, Mr. Woudenberg and Dr. Hsu, as described in more detail in the “Outstanding Equity Awards at Fiscal 2019 Year End” table.
Executive Employment Agreements
The following are descriptions of the employment agreements with our NEOs. For a discussion of the severance pay and other benefits to be provided in connection with a termination of employment and/or a change in control under the arrangements with our NEOs, please see“Non-Employee Director Compensation—Termination and Change of Control Benefits” below.
Eric A. Adams: On June 15, 2016 we entered into an employment agreement with Eric A. Adams with an effective date of June 16, 2016 providing for compensation at an initial annual base salary C$120,000. The employment agreement provided that Mr. Adams’ base salary would increase upon the achievement of certain capital raising initiatives. Upon achievement of these milestones, Mr. Adams’ base salary increased to C$220,000 effective November 1, 2016 and further increased to C$280,000 effective March 1, 2017. Effective January 1, 2018, the Board approved an increase in Mr. Adams’ base salary to $241,792 per annum. After the Board completed a compensation assessment, effective April 1, 2018, Mr. Adams’ base salary was increased to $287,128 per annum and was again reviewed and increased to $290,906 effective July 1, 2019. Mr. Adams’ agreement also provides that he is eligible to be considered for an annual discretionary bonus which will be subject to the approval of the Board and the compensation committee of, in their sole discretion, on an annual basis in accordance with our annual performance and compensation review process. Furthermore, in accordance with the Adams Contract, equity compensation included for the issuance of 1,000,000 common shares upon execution of the Adams Contract and 2,000,000 stock options granted in accordance with our stock option plan. Additionally, other benefits included eligibility to participate in our insurance benefits plan, if any, and vacation entitlement of 30 days per calendar year.
Mr. Michael Woudenberg: We entered into an employment agreement with Mr. Woudenberg effective November 5, 2019 providing for compensation at an initial annual base salary of $204,012. Mr. Woudenberg’s agreement also provides that he is eligible to be considered for an annual discretionary bonus which will be subject to the approval of the Board and the compensation committee, in their sole discretion, on an annual basis in accordance with our annual performance and compensation review process. Furthermore, the employment agreement provides for an initial grant of 700,000 stock options granted in accordance with our stock option plan
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and which vest over 24 months (granted, see details in “Outstanding Option-Based and Share-Based Awards” table). Additionally, other benefits included eligibility to participate in our insurance benefits plan, if any, and vacation entitlement of 30 days per calendar year, which will bepro-rated for any period in which Mr. Woudenberg is not a full-time employee.
Dr. Eric Hsu: Effective March 8, 2018, we entered into an employment agreement with Dr. Eric Hsu providing for an initial base salary of $105,784 for 50% time commitment. After the Board completed a compensation assessment and after Dr. Hsu agreed to increase his time commitment to 80%, effective September 1, 2018, Dr. Hsu’s base salary was increased to $135,404 per annum for his 80% time commitment. Effective March 1, 2019, Dr. Hsu agreed to increase his time commitment to full-time (100%) at an increased base salary of $219,124 per annum. Dr. Hsu’s agreement also provides that he is eligible to be considered for an annual discretionary bonus which will be subject to the approval of the Board and the compensation committee, in their sole discretion, on an annual basis in accordance with our annual performance and compensation review process. Furthermore, in accordance with the Hsu Contract, equity compensation included an initial grant of 450,000 stock options granted in accordance with our stock option plan and which vest over 24 months (granted, see details in “Outstanding Option-Based and Share-Based Awards” table). Additionally, other benefits included eligibility to participate in our insurance benefits plan, if any, and vacation entitlement of 30 days per calendar year, which will bepro-rated for any period in which Dr. Hsu is not a full-time employee.
Outstanding Equity Awards at FiscalYear-End
The following table presents information regarding outstanding equity awards held by our NEOs as of June 30, 2019.
| Option Awards
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Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price (C$) | Option Expiration Date | |||||||||||||||
Eric A. Adams | 2,000,000 | (1) | — | — | $ | 0.08 | 5/16/2021 | |||||||||||||
| 2,000,000 | (2) | — | — | $ | 0.11 | 6/15/2021 | ||||||||||||||
| 450,000 | (3) | — | — | $ | 0.45 | 6/2/2022 | ||||||||||||||
| 225,000 | (4) | 225,000 | (4) | — | $ | 1.55 | 3/8/2023 | |||||||||||||
| 750,000 | (5) | 750,000 | (5) | — | $ | 1.02 | 5/16/2023 | |||||||||||||
| — | 940,000 | (6) | — | $ | 0.435 | 5/27/2024 | ||||||||||||||
Eric C. Hsu, PhD | 250,000 | (7) | 200,000 | (7) | — | $ | 1.55 | 3/8/2023 | ||||||||||||
| 62,500 | (5) | 62,500 | (5) | — | $ | 1.02 | 5/16/2023 | |||||||||||||
| 67,500 | (8) | 202,500 | (8) | — | $ | 0.82 | 8/31/2023 | |||||||||||||
| — | 255,000 | (9) | — | $ | 1.02 | 5/16/2023 | ||||||||||||||
| — | 450,000 | (6) | — | $ | 0.435 | 5/27/2024 | ||||||||||||||
Michael Woudenberg | 175,000 | (10) | 525,000 | (10) | — | $ | 0.445 | 12/5/2023 | ||||||||||||
| — | 325,000 | (6) | — | $ | 0.435 | 5/27/2024 | ||||||||||||||
| 1. | These options vested over the 18 month period following the May 16, 2016 grant date. |
| 2. | 1,000,000 of these options vested over the 12 month period following the June 15, 2016 grant date and 1,000,000 of these options vested on completion of a financing related milestone that was achieved on January 3, 2018. |
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| 3. | These options vest as to 25% after 6 months from the June 2, 2017 grant date, 25% after 12 months from the June 2, 2017 grant date, 25% after 18 months from the June 2, 2017 grant date and 25% after 24 months from the June 2, 2017 grant date. |
| 4. | These options vest as to 25% after 6 months from the March 8, 2018 grant date, 25% after 12 months from the March 8, 2018 grant date, 25% after 18 months from the March 8, 2018 grant date and 25% after 24 months from the March 8, 2018 grant date. |
| 5. | These options vest as to 25% after 6 months from the May 16, 2018 grant date, 25% after 12 months from the May 16, 2018 grant date, 25% after 18 months from the May 16, 2018 grant date and 25% after 24 months from the May 16, 2018 grant date. |
| 6. | These options vest as to 25% after 6 months from the May 27, 2019 grant date, 25% after 12 months from the May 27, 2019 grant date, 25% after 18 months from the May 27, 2019 grant date and 25% after 24 months from the May 27, 2019 grant date. |
| 7. | 50,000 of these options vest 60 days after the effective date of an employment agreement between us and Dr. Hsu. 100,000 vest 6 months after the effective date of an employment agreement between us and Dr. Hsu. 100,000 vest 12 months after the effective date of an employment agreement between us and Dr. Hsu. 100,000 vest 18 months after the effective date of an employment agreement between us and Dr. Hsu. and 100,000 vest 24 months after the effective date of an employment agreement between us and Dr. Hsu. Dr. Hsu signed an employment agreement with us having an effective date of March 8, 2018. |
| 8. | These options vest as to 25% after 6 months from the August 31, 2018 grant date, 25% after 12 months from the August 31, 2018 grant date, 25% after 18 months from the August 31, 2018 grant date and 25% after 24 months from the August 31, 2018 grant date. |
| 9. | These options vest as to 25% after 6 months from the March 4, 2019 grant date, 25% after 12 months from the March 4, 2019 grant date, 25% after 18 months from the March 4, 2019 grant date and 25% after 24 months from the March 4, 2019 grant date. |
| 10. | These options vest as to 25% after 6 months from the December 5, 2018 grant date, 25% after 12 months from the December 5, 2018 grant date, 25% after 18 months from the December 5, 2018 grant date and 25% after 24 months from the December 5, 2018 grant date. |
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NON-EMPLOYEE DIRECTOR COMPENSATION
The following table provides information regarding the total compensation that was earned by or paid to each of ournon-employee directors during fiscal year 2019. During fiscal year 2019, Eric A. Adams, our President and Chief Executive Officer, served as a member of our Board, as well as an employee, and received no additional compensation for his services as a member of our Board. See the section titled “Executive Compensation” for more information about Mr. Adams’ compensation for our fiscal year 2019. Directors may be reimbursed for travel and other expenses directly related to their activities as directors.
Director compensation is limited strictly tonon-employee directors. Our director compensation philosophy is as follows:
| • | To provide a compensation level that will attract exceptionally experienced and skilled candidates and encourage them to play an active role in our strategic development; |
| • | To compensate for work on the Board and work on the committees of the Board; and |
| • | To provide share-based compensation to align director compensation with increases in long-term shareholder value. |
Share-Based Compensation
New directors will be granted stock options to purchase 100,000 common shares, priced at the closing price on the grant date, vesting monthly over a three-year period and expiring five years after the grant date. On an annual basis and, subject to any trading blackout restrictions, immediately after election of directors at each Annual General Meeting, eachnon-management director is granted stock options to purchase 35,000 common shares, priced as of the close of market on the date of our AGM, vesting 100% on the one year anniversary of the grant date or immediately prior the following year’s AGM, whichever is sooner, and expiring five years after date of grant. Unless otherwise approved by the Board, any options that are unvested at the date of retirement or resignation of a director will be forfeited effective that date.
Annual Cash Retainers
Eachnon-employee director received an annual retainer of $25,000 per year paid quarterly in arrears. Additionally, the Chair of the Board receives an additional $25,000 per year paid quarterly in arrears.
For committee participation, directors are eligible to receive up to an additional $15,000 per year paid quarterly in arrears, assuming a minimum of two committee memberships. There are no incremental fees for chairing a committee.
There were no other compensation elements for directors such as meeting fees, per diems, etc. If a Director traveled on behalf of our company, they are reimbursed for any reasonableout-of-pocket expenses.
The following table sets forth the total compensation for ournon-employee directors for the fiscal year ended June 30, 2019.
| Name | Fees earned ($) | Share- based awards ($) | Option-based awards ($)(1) | Non-equity incentive plan compensation ($) | Pension value ($) | All other compensation ($) | Total compensation ($) | |||||||||||||||||||||||||
| Annual incentive plans
| Long- term incentive plans
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William J. Garner | 65,000 | — | 9,150 | — | — | — | — | 74,150 | ||||||||||||||||||||||||
Martin Bott | 40,000 | — | 9,150 | — | — | — | — | 49,150 | ||||||||||||||||||||||||
Adam Cutler | 40,000 | — | 9,150 | — | — | — | — | 49,150 | ||||||||||||||||||||||||
Andrew Hull | 40,000 | — | 9,150 | — | — | — | — | 49,150 | ||||||||||||||||||||||||
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| 1. | The amounts reported represent the aggregate grant date fair value of the stock options awarded to thenon-employee directors in the fiscal year 2019, calculated in accordance with FASB ASC Topic 718. Such grant date fair values do not take into account any estimated forfeitures. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in note 7 of our consolidated financial statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received by thenon-employee directors upon the exercise of the stock options or any sale of the underlying common shares. |
Pension and Other Retirement Benefits
We do not have a defined benefit plan, a deferred contribution plan, a deferred compensation plan or a pension plan.
Termination and Change of Control Benefits
We have not provided compensation, monetary or otherwise, during the most recently completed financial year June 30, 2019, to any person who now or previously has acted as an “named executive officer” of the company, in connection with or related to the retirement, termination or resignation of such person, and we have provided no compensation to any such person as a result of a change of control of the company. In the case of resignation, retirement or termination of employment with cause, every Named Executive Officer contract provides there will be no severance payment made. However, the NEOs would be entitled to any vacation due.
We have employment agreements with our NEOs which include termination and change of control provisions as described herein below. The change of control provisions recognize the critical nature of these positions and the individuals involved and the requirement to protect the individuals from disruption to their engagement in the event of a change of control of the company. The change of control provisions are designed to treat the individuals in a manner consistent with industry standards for executives in similar positions.
For the purposes of the employment agreements with the NEOs, “Change in Control” is defined as (i) the sale of all or substantially all of our assets to an unrelated person or entity; (ii) a merger, reorganization, or consolidation involving the company in which the common shares outstanding immediately prior to the transaction represent or are converted into or exchanged for securities of the surviving or resulting entity that immediately upon completion of the transaction, represents 51% or less of the outstanding voting power of the surviving or resulting entity; (iii) the acquisition of all or a majority of our outstanding voting shares in a single transaction or a series of related transactions by a person or group of persons; or (iv) any other acquisition of our business, as determined by the Board (but any public offering by our company or another capital raising event, or a merger effected solely to change our domicile does not constitute a Change of Control).
For the purposes of the employment agreements with the NEOs and in the context of a Change of Control, “Good Reason” is defined as the occurrence of any of the following events without the prior written consent of the named executive officer: (i) a change in the named executive officer’s position which materially reduces the named executive officer’s responsibilities from the responsibilities in effect immediately prior to the Change of Control; (ii) a reduction by us of the named executive officer’s base salary or target bonus percentage, except for anacross-the-board salary reduction affecting all of our senior executives; or (iii) a relocation of the named executive officer’s principal place of employment by more than 30 kilometers.
The employment agreements with the NEOs provide that if, following a Change of Control, we terminate the named executive officer’s employment with us without cause or the named executive officer resigns from his/her employment with us for Good Reason, then the “named executive officer” will be entitled to a Change in Control Severance Amount.
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The actual amounts that a named executive officer would receive upon termination of employment can only be determined at the time of termination and is based on the number of months of base salary at that time. The following table provides a description of the severance requirements and the estimated corresponding value that the NEOs that were employed by us at the end of the financial year would have received if the termination had occurred on June 30, 2019:
Termination without cause (1) | Change of Control (1) | |||
Eric A. Adams President and CEO Director | 24 month’s salary plus “average bonus payment” | 24 month’s salary plus “average bonus payment” | ||
Michael Woudenberg VP, Chemistry, Manufacturing & Controls | 6 month’s salary plus “average bonus payment” | 12 month’s salary plus “average bonus payment” | ||
Eric Hsu Senior Vice President of Preclinical Research and Development | 4 month’s salary plus “average bonus payment” | 12 month’s salary plus “average bonus payment” | ||
| (1) | “average bonus payment” is equal to the average of the actual bonus payments, if any, made to the NEO from the previous 3 years preceding the date of termination,pro-rated for the then current year up to and including the date of termination. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except compensation arrangements for our directors and executive officers, which are described elsewhere in this prospectus, there have been no related party transactions in our two most recently completed financial years that required disclosure under any applicable Canadian or U.S. securities laws.
Indemnification Agreements
Our amended and restated certificate of incorporation contains provisions limiting the liability of directors, and our amended and restated bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted under law. In addition, we have entered into an indemnification agreement with each of our directors and our Chief Financial Officer, which requires us to indemnify them.
Policies and Procedures for Transactions with Related Persons
Prior to completion of this offering, we intend to adopt a written policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common shares and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the approval or ratification of our Board or our audit committee. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common shares, or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest, must be presented to our Board or our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our Board or our audit committee is to consider the material facts of the transaction, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
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The table below sets forth information known to us regarding the beneficial ownership of our common shares as of [ , 2020] for:
| • | each person we believe beneficially holds more than 5% of our outstanding common shares; |
| • | each of our directors and NEOs; and |
| • | all our directors and executive officers as a group. |
The number of common shares beneficially owned by a person includes shares subject to options held by that person that are currently exercisable or that become exercisable within 60 days of March 31, 2020. Percentage calculations assume, for each person and group, that all common shares that may be acquired by such person or group pursuant to options currently exercisable or that become exercisable within 60 days of March 31, 2020 are outstanding for the purpose of computing the percentage of common shares owned by such person or group. However, such unissued common shares described above are not deemed to be outstanding for calculating the percentage of common shares owned by any other person.
Except as otherwise indicated, the persons in the table below have sole voting and investment power with respect to all common shares shown as beneficially owned by them, subject to community property laws where applicable. We do not know of any arrangement, the operation of which may at a subsequent date result in a change in control of us.
| Name and Address of Beneficial Owner | Number of Common Shares Beneficially Owned | Percentage of Common Shares Beneficially Owned (%) | ||||||
Five Percent Shareholders: | ||||||||
N/A | N/A | N/A | ||||||
NEOs and Directors: | ||||||||
Eric A. Adams, MIBS(1) | 8,118,807 | 4.4 | % | |||||
Adam Cutler(2) | 1,035,000 | * | ||||||
William J. Garner, MD(3) | 835,000 | * | ||||||
Andrew Hull(4) | 1,660,000 | * | ||||||
Catherine Sazdanoff, JD(5) | 27,798 | * | ||||||
Michael Woudenberg(6) | 705,000 | * | ||||||
All other executive officers as a group(7) | 3,597,000 | * | ||||||
All executive officers and directors as a group (9 persons) | 15,978,605 | 8.6 | % | |||||
| * | Less than 1% |
| (1) | Eric A. Adams’ beneficial ownership consists of 530,725 common shares and 225,225 warrants owned directly, 6,870,000 common shares issuable pursuant to presently exercisable options, and 492,857 common shares owned by his spouse. Mr. Adams disclaims beneficial ownership in the 492,857 common shares held by his spouse; |
| (2) | Adam Cutler’s beneficial ownership consists of 1,035,000 common shares issuable pursuant to presently exercisable options; |
| (3) | William J. Garner’s beneficial ownership consists of 835,000 common shares issuable pursuant to presently exercisable options; |
| (4) | Andrew Hull’s beneficial ownership consists of 625,000 common shares owned directly and 1,035,000 common shares issuable pursuant to presently exercisable options; |
| (5) | Catherine Sazdanoff’s beneficial ownership consists of 27,798 common shares issuable pursuant to presently exercisable options; |
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| (6) | Michael Woudenberg’s beneficial ownership consists of 17,500 common shares owned directly and 687,500 common shares issuable pursuant to presently exercisable options; |
| (7) | The beneficial ownership of all other executive officers as a group consists 292,000 common shares owned directly and 3,305,000 common shares issuable pursuant to presently exercisable options. |
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General
Our authorized share capital consists of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value. As at December 31, 2019, we had 172,283,633 common shares issued and outstanding and no preferred shares issued and outstanding. As at the date of this registration statement, we had 172,283,633 common shares issued and outstanding and no preferred shares issued and outstanding.
The description of our securities contained herein is a summary only and may be exclusive of certain information that may be important to you. For more complete information, you should read our Amended and Restated Articles (the “Articles”), which have been filed with the SEC as an exhibit to this registration statement.
Common Shares
Each common share entitles the holder thereof to one vote at all meetings of shareholders.
In the event of our liquidation, dissolution orwinding-up, whether voluntary or involuntary, or other distribution of our assets among shareholders for the purpose of winding up our affairs, subject to the rights, privileges and restrictions attaching to our securities, the shareholders shall be entitled to receive our remaining property. In the event of an insufficiency of property and assets to pay in full the amounts which the shareholders are entitled to receive upon such liquidation, dissolution orwinding-up, the shareholders shall participate ratably among themselves in accordance with the amounts to which they are respectively entitled upon such liquidation, dissolution orwinding-up.
The shareholders are entitled to receive dividends, as and when declared by our Board, subject to the rights, privileges and restrictions attaching to our securities, which may be paid in money, property or by the issue of fully paid shares in our capital.
However, we do not anticipate paying any cash dividends for the foreseeable future, and instead intend to retain future earnings, if any, for use in the operation and expansion of our business.
Certain Takeover Bid Requirements
Unless such offer constitutes an exempt transaction, an offer made by a person to acquire outstanding shares of a Canadian entity that, when aggregated with the offeror’s holdings (and those of persons or companies acting jointly with the offeror), would constitute 20% or more of the outstanding shares, would be subject to the take-over provisions of Canadian securities laws. The foregoing is a limited and general summary of certain aspects of applicable securities law in the provinces and territories of Canada, all in effect as of the date hereof.
In addition to the take-over bid requirements noted above, the acquisition of shares may trigger the application of additional statutory regimes including amongst others, the Investment Canada Act and the Competition Act.
This summary is not a comprehensive description of relevant or applicable considerations regarding such requirements and, accordingly, is not intended to be, and should not be interpreted as, legal advice to any prospective purchaser and no representation with respect to such requirements to any prospective purchaser is made. Prospective investors should consult their own Canadian legal advisors with respect to any questions regarding securities law in the provinces and territories of Canada.
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Actions Requiring a Special Majority
Under the BCBCA, unless otherwise stated in the Articles, certain corporate actions require the approval of a special majority of shareholders, meaning holders of shares representing 66 2/3% of those votes cast in respect of a shareholder vote addressing such matter. Those items requiring the approval of a special majority generally relate to fundamental changes with respect to our business, and include amongst others, resolutions: (i) removing a director prior to the expiry of his or her term; (ii) altering the Articles, (iii) approving an amalgamation; (iv) approving a plan of arrangement; and (v) providing for a sale of all or substantially all of our assets.
Transfer Agent and Registrar
The transfer agent and registrar for our common shares is Computershare Investor Services Inc., 100 University Avenue, 9th Floor, Toronto, Ontario, Canada M5J 2Y1.
Reports to Shareholders
We intend to comply with the periodic reporting requirements of the Exchange Act. We plan to furnish our shareholders with an annual report for each fiscal year beginning for the fiscal year ending June 30, 2019 containing financial statements audited by our independent registered public accounting firm. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Market Price of and Dividends on the Our Common Shares
Our common shares are quoted under the symbol “IMLFF” on the OTCQX® Best Markets, and under the symbol “IN” on the TSX. OTCQX® quotations reflect inter-dealer prices, without retailmark-up, mark-down or commission and may not necessarily represent actual transactions. We will apply to have our common shares approved for listing on Nasdaq under the symbol “INM” and assuming as successful approval, we will cease trading on the OTCQX®. There is no assurance that our common shares will be approved for trading on Nasdaq or that we will continue to trade on the TSX, or that any liquidity for our shareholders will exist.
While there are no restrictions on the payment of dividends, we have never declared nor paid any cash dividends on our common shares, and we presently have no intention of paying any cash dividend in the foreseeable future. Our current policy is to retain earnings, if any, to finance the expansion of our business. The future payment of dividends will depend on our results of operations, financial condition, capital expenditure plans and other factors that we deem relevant and will be at the sole discretion of our Board.
Holders
As of , 2020, there were [ ] holders of record of our issued and outstanding common shares. There are greater than [ ] beneficial holders owning at least 100 common shares.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of the common shares acquired pursuant to this prospectus.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the acquisition of common shares pursuant to this offering. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, andnon-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, andnon-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
No opinion from legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax considerations applicable to U.S. Holders as discussed in this summary. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed) promulgated under the Code, published rulings of the IRS, published administrative positions of the IRS, and U.S. court decisions, that are in effect and available as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares acquired pursuant to this prospectus that is for U.S. federal income tax purposes:
| • | a citizen or individual resident of the United States; |
| • | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
| • | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| • | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
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U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including U.S. Holders that: (a) aretax-exempt organizations, qualified retirement plans, individual retirement accounts, or othertax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are brokers or dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply amark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are partnerships and other pass-through entities (and investors in such partnerships and entities); (i) are subject to special tax accounting rules with respect to common shares; (j) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of our outstanding shares; (k) are U.S. expatriates or former long-term residents of the U.S.; or (l) are subject to taxing jurisdictions other than, or in addition to, the United States. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, andnon-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
If an entity or arrangement that is classified as a partnership (or other pass-through entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such entity or arrangement and the owners of such entity or arrangement generally will depend on the activities of such entity or arrangement and the status of such partners (or other owners). This summary does not address the tax consequences to any such entity or arrangement or partner (or other owner). Partners (or other owners) of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisor regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares.
Passive Foreign Investment Company Rules
If we are considered a “passive foreign investment company” within the meaning of Section 1297 of the Code at any time during a U.S. Holder’s holding period, the following sections will generally describe the potentially adverse U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares.
We believe that we were classified as a PFIC for our tax year ended June 30, 2019, and based on the nature of our business and the projected composition of our gross income, we expect that we may be a PFIC for the tax year ending June 30, 2020 and may be a PFIC in future tax years. No opinion of legal counsel or ruling from the IRS concerning our status as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, our PFIC status for the current year and future years cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any PFIC determination made by us. Each U.S. Holder should consult its own tax advisor regarding our status as a PFIC and the PFIC status of each of ournon-U.S. subsidiaries.
In any year in which we are classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period
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during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.
We generally will be a PFIC for any tax year in which (a) 75% or more of our gross income for such tax year is passive income (the “PFIC income test”) or (b) 50% or more of the value of our assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). “Gross income” generally includes sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
For purposes of the PFIC income test and PFIC asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if we (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and PFIC asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by us from certain related persons, to the extent such items are properly allocable to the income of such related person that is not passive income.
Under certain attribution rules, if we are a PFIC, U.S. Holders will be deemed to own their proportionate share of any of our subsidiaries which is also a PFIC (a “Subsidiary PFIC”), and will generally be subject to U.S. federal income tax under the “Default PFIC Rules Under Section 1291 of the Code” discussed below on their proportionate share of any (i) distribution on the shares of a Subsidiary PFIC and (ii) disposition or deemed disposition of shares of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received and no redemptions or other dispositions of common shares are made. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares.
Default PFIC Rules Under Section 1291 of the Code
If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the purchase of common shares and the acquisition, ownership, and disposition of common shares will depend on whether such U.S. Holder makes a “qualified electing fund” or “QEF” election under Section 1295 of the Code (a “QEF Election”) or makes amark-to-market election under Section 1296 of the Code (a“Mark-to-Market Election”) with respect to common shares. A U.S. Holder that does not make either a QEF Election or aMark-to-Market Election (a“Non-Electing U.S. Holder”) will be taxable as described below.
ANon-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of common shares and (b) any excess distribution received on the common shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for the common shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares of a PFIC (including an indirect disposition of shares of a Subsidiary PFIC), and any excess distribution received on such common shares (or a distribution by a Subsidiary PFIC to its shareholder that is deemed to be received by a U.S. Holder) must be ratably allocated to each day in aNon-Electing U.S. Holder’s holding period for the common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any,
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would be taxed as ordinary income (and not eligible for certain preferential tax rates, as discussed below). The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. ANon-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.
If we are a PFIC for any tax year during which aNon-Electing U.S. Holder holds common shares, we will continue to be treated as a PFIC with respect to suchNon-Electing U.S. Holder, regardless of whether we cease to be a PFIC in one or more subsequent tax years. If we cease to be a PFIC, aNon-Electing U.S. Holder may terminate this deemed PFIC status with respect to common shares by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code, as discussed above) as if such common shares were sold on the last day of the last tax year for which we were a PFIC.
QEF Election
A U.S. Holder that makes a QEF Election for the first tax year in which its holding period of its common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) our net capital gain, which will be taxed as long-term capital gain to such U.S. Holder, and (b) our ordinary earnings, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us. However, for any tax year in which we are a PFIC and have no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely QEF Election generally (a) may receive atax-free distribution from us to the extent that such distribution represents “earnings and profits” that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in income or allowed as atax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” for purposes of avoiding the default PFIC rules discussed above if such QEF Election is made for the first year in the U.S. Holder’s holding period for the common shares in which we were a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, we cease to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which we qualify as a PFIC.
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For each tax year that we qualify as a PFIC, we: (a) intend to make available to U.S. Holders, upon their written request, a PFIC Annual Information Statement as described in Treasury RegulationSection 1.1295-1(g) (or any successor Treasury Regulation) and (b) upon written request, use commercially reasonable efforts to provide such additional information that such U.S. Holder is reasonably required to obtain in connection with maintaining such QEF Election with regard to us. We may elect to provide such information on our website. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return. However, if we do not provide the required information with regard to us or any of our Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code, discussed above, that apply toNon-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make aMark-to-Market Election with respect to common shares only if the common shares are marketable stock. The common shares generally will be “marketable stock” if the common shares are regularly traded on (a) a national securities exchange that is registered with the SEC, (b) the national market system established pursuant to Section 11A of the Exchange Act or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be considered “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Provided that the common shares are “regularly traded” as described in the preceding sentence, the common shares are expected to be marketable stock. There can be no assurance that the common shares will be “regularly traded” in the current or any subsequent calendar quarters. U.S. Holders should consult their own tax advisors regarding the marketable stock rules.
A U.S. Holder that makes aMark-to-Market Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make aMark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for the common shares and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the common shares.
A U.S. Holder that makes aMark-to-Market Election will include in ordinary income, for each tax year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares, as of the close of such tax year over (b) such U.S. Holder’s tax basis in the common shares. A U.S. Holder that makes aMark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in the common shares, over (ii) the fair market value of such common shares (but only to the extent of the net amount of previously included income (as reduced by the amounts previously allowed as deductions) as a result of theMark-to-Market Election for prior tax years).
A U.S. Holder that makes aMark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in gross income or allowed as a deduction because of suchMark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes aMark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of suchMark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of suchMark-to-Market Election for prior tax years).
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A U.S. Holder makes aMark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return. A timelyMark-to-Market Election applies to the tax year in which suchMark-to-Market Election is made and to each subsequent tax year, unless the common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, aMark-to-Market Election.
Although a U.S. Holder may be eligible to make aMark-to-Market Election with respect to the common shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning because such stock is not marketable. Hence, theMark-to-Market Election will not be effective to eliminate the interest charge and other income inclusion rules described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC to its shareholder.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that has not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise betax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.
If finalized in their current form, the proposed Treasury Regulations applicable to PFICs would be effective for transactions occurring on or after April 1, 1992. Because the proposed Treasury Regulations have not yet been adopted in final form, they are not currently effective, and there is no assurance that they will be adopted in the form and with the effective date proposed. Nevertheless, the IRS has announced that, in the absence of final Treasury Regulations, taxpayers may apply reasonable interpretations of the Code provisions applicable to PFICs and that it considers the rules set forth in the proposed Treasury Regulations to be reasonable interpretations of those Code provisions. The PFIC rules are complex, and the implementation of certain aspects of the PFIC rules requires the issuance of Treasury Regulations which in many instances have not been promulgated and which, when promulgated, may have retroactive effect. U.S. Holders should consult their own tax advisors about the potential applicability of the proposed Treasury Regulations.
Certain additional adverse rules will apply with respect to a U.S. Holder if we are a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.
In addition, a U.S. Holder who acquires common shares from a decedent will not receive a “step up” in tax basis of such common shares to fair market value.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules (including the applicability and advisability of a QEF Election andMark-to-Market Election) and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
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General Rules Applicable to U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares
The following discussion describes the general rules applicable to the ownership and disposition of the common shares but is subject in its entirety to the special rules described above under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current and accumulated “earnings and profits”, as computed under U.S. federal income tax principles. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if we are a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds our current and accumulated “earnings and profits”, such distribution will be treated first as atax-free return of capital to the extent of a U.S. Holder’s tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares (see “Sale or Other Taxable Disposition of Common Shares” below). However, we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may be required to assume that any distribution by us with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares generally will not be eligible for the “dividends received deduction” generally applicable to corporations. Subject to applicable limitations and provided we are eligible for the benefits of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended, or the common shares are readily tradable on a United States securities market, dividends paid by us tonon-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that we are not classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such common shares sold or otherwise disposed of. Gain or loss recognized on such sale or other taxable disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the common shares have been held for more than one year. Preferential tax rates may apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Income Tax Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency or on the sale, exchange or other taxable disposition of common shares generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign
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tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on adollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on ayear-by-year basis and applies to all foreign taxes paid or accrued (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.
Information Reporting; Backup Withholding Tax
Under U.S. federal income tax laws certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by anon-U.S. person. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file IRS Form 8938.
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of the common shares generally may be subject to information reporting and backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish its correct U.S. taxpayer identification number (generally on FormW-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that it has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons, such as U.S. Holders that are corporations, generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE INCOME TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.
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We have entered into an underwriting agreement with Roth Capital Partners, LLC, acting as the representative of the several underwriters named below, with respect to the common shares subject to this offering. Subject to certain conditions, we have agreed to sell to the underwriters, and the underwriters have severally agreed to purchase, the number of common shares provided opposite their respective names.
Underwriter | Number of Common Shares | |||
Roth Capital Partners, LLC | ||||
Laidlaw & Company (UK) Ltd. | ||||
Total | ||||
|
| |||
The underwriters are offering the common shares subject to their acceptance of the common shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the common shares offered by this prospectus is subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the common shares if any such securities are taken. However, the underwriters are not required to take or pay for the common shares covered by the underwriters’ over-allotment option described below.
Over-Allotment Option
We have granted the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to an aggregate of [·] common shares (equal to 15% of the number of common shares sold in this offering) to cover over-allotments, if any, at the public offering price per share set forth on the cover page of this prospectus, less the underwriting discount. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the common shares offered by this prospectus. If the underwriters exercise this option, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares proportionate to that underwriter’s initial purchase commitment as indicated in the table above for which the option has been exercised.
Discount, Commissions and Expenses
The underwriters have advised us that they propose to offer the common shares to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $[·] per common share. After this offering, the public offering price and concession to dealers may be changed by the underwriters. No such change will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The common shares are offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters have informed us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.
The following table shows the underwriting discount payable to the underwriters by us in connection with this offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option to purchase additional common shares.
| Per share | Total Without Exercise of Over- Allotment Option | Total With Exercise of Over- Allotment Option | ||||||||||
Public offering price | $ | $ | $ | |||||||||
Underwriting discount (8.0%) | $ | $ | $ | |||||||||
146
We have agreed to reimburse the underwriters forcertain out-of-pocket expenses, including the fees and disbursements of their counsel, up to an aggregate of $75,000. We estimate that the total expenses payable by us in connection with this offering, other than the underwriting discount referred to above, will be approximately $ .
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Lock-Up Agreements
We and our officers and directors have agreed, subject to limited exceptions, for a period of 90 days after the date of the underwriting agreement, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, directly or indirectly any common shares or any securities convertible into or exchangeable for our common shares either owned as of the date of the underwriting agreement or thereafter acquired without the prior written consent of the representative. The representative may, in its sole discretion and at any time or from time to time before the termination ofthe lock-up period, without notice, release all or any portion of the securities subjectto lock-up agreements.[NTD: CONFORM TO FINAL FORM OF LOCK UP AGREEMENT]
Other Relationships
If we decide to make an offering of our equity or equity-linked securities at any time prior to the fifteen month anniversary of the closing date of this offering, we have granted the underwriters the right to act as a placement agent or underwriter, subject to certain fee limitations and this offering providing minimum net proceeds of $5 million, as applicable.
Price Stabilization, Short Positions and Penalty Bids
In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act:
| • | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
| • | Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. |
| • | Syndicate covering transactions involve purchases of common shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
147
| • | Penalty bids permit a syndicate representative to reclaim a selling concession from a syndicate member when the common shares originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids, to the extent applicable, may have the effect of raising or maintaining the market price of our common shares or preventing or retarding a decline in the market price of the common shares. As a result, the price of our securities may be higher than the price that might otherwise exist in the open market. Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common shares. In addition, neither we nor the underwriters make any representations that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
NASDAQ Listing Application
Our common shares are currently listed on the TSX under the trading symbol “IN”, and under the trading symbol “IMLFF” on the OTCQX® Best Market. We have applied to list our common shares on the Nasdaq under the symbol “INM.”
Electronic Distribution
This preliminary prospectus in electronic format may be made available on websites or through other online services maintained by the underwriters, or by their affiliates. Other than this preliminary prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by such underwriter is not part of this preliminary prospectus or the registration statement of which this preliminary prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Other
From time to time, the underwriters and/or their affiliates have provided, and may in the future provide, various investment banking and other financial services for us for which services they have received and, may in the future receive, customary fees. In the course of their businesses, the underwriters and their affiliates may actively trade our securities or loans for their own account or for the accounts of customers, and, accordingly, the underwriters and their affiliates may at any time hold long or short positions in such securities or loans. Except for services provided in connection with this offering, no underwriter has provided any investment banking or other financial services to us duringthe 180-day period preceding the date of this prospectus and we do not expect to retain any underwriter to perform any investment banking or other financial services for at least 90 days after the date of this prospectus.
Selling Restrictions
No action may be taken in any jurisdiction other than the United States that would permit a public offering of the common shares or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the securities offered hereby may not be offered or sold, directly or indirectly, and neither the prospectus nor any other offering material or advertisements in connection with such securities may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.
148
Dorsey & Whitney LLP, which has acted as our United States counsel in connection with this offering, will pass on certain legal matters with respect to United States federal law in connection with this offering. Farris LLP, which has acted as our Canadian counsel in connection with this offering, will pass on certain legal matters with respect to Canadian law in connection with this offering. Ellenoff Grossman & Schole LLP has acted as counsel to the underwriters in connection with this offering.
The consolidated financial of InMed Pharmaceuticals Inc. as of June 30, 2019 and 2018, and for each of the years in thetwo-year period ended June 30, 2019, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
We have filed with the SEC a registration statement on FormS-1 under the Securities Act with respect to the common shares offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common shares, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website iswww.sec.gov.
On the closing of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC.
We also maintain a website at www.inmedpharma.com. Information contained in, or accessible through, our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is only as an inactive textual reference.
149
Consolidated Financial Statements of
InMed Pharmaceuticals Inc.
For the Year Ended June 30, 2019
Suite 310 – 815 West Hastings Street
Vancouver, BC, Canada, V6C 1B4
Tel:+1-604-669-7207
F-1
(Expressed in U.S. Dollars)
June 30, 2019
| Page | ||||
Financial Statements | ||||
| F-3 | ||||
| F-4 | ||||
• Consolidated Statements of Operations and Comprehensive Loss | F-5 | |||
• Consolidated Statements of Changes in Shareholders’ Equity | F-6 | |||
| F-7 | ||||
| F-8-31 | ||||
F-2
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604)691-3000
Fax (604)691-3031
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
InMed Pharmaceuticals Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of InMed Pharmaceuticals Inc. and subsidiaries (the Company) as of June 30, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in thetwo-year period ended June 30, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for each of the years in thetwo-year period ended June 30, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Chartered Professional Accountants
We have served as the Company’s auditor since 2017.
Vancouver, Canada
March 27, 2020
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
F-3
InMed Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at June 30, 2019 and 2018
Expressed in U.S. Dollars
| Note | 2019 | 2018 | ||||||||||
| $ | $ | |||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | 14 | 9,837,213 | 18,327,975 | |||||||||
Short-term investments | 14 | 3,946,736 | 1,779,021 | |||||||||
Accounts receivable | 64,940 | 40,533 | ||||||||||
Prepaids and advances | 324,195 | 154,524 | ||||||||||
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Total current assets | 14,173,084 | 20,302,053 | ||||||||||
Non-Current assets: | ||||||||||||
Property and equipment, net | 3 | 42,660 | 42,324 | |||||||||
Intangible assets, net | 4 | 1,221,371 | 1,307,003 | |||||||||
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Total Assets | 15,437,115 | 21,651,380 | ||||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable and accrued liabilities | 5 | 1,194,211 | 712,150 | |||||||||
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SHAREHOLDERS’ EQUITY | ||||||||||||
Common shares, no par value, unlimited authorized shares 172,283,633 (2018- 170,851,069) shares issued and outstanding | 6 | 53,065,240 | 52,680,712 | |||||||||
Additionalpaid-in capital | 6, 7 | 16,769,932 | 14,655,605 | |||||||||
Accumulated deficit | (55,710,232 | ) | (46,461,737 | ) | ||||||||
Accumulated other comprehensive income | 117,964 | 64,650 | ||||||||||
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Total Shareholders’ Equity | 14,242,904 | 20,939,230 | ||||||||||
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Total Liabilities and Shareholders’ Equity | 15,437,115 | 21,651,380 | ||||||||||
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Commitments and Contingencies (Note 13)
Subsequent Events (Note 16)
Approved on behalf of the Board of Directors by:
/s/ Eric A. Adams | /s/ Adam Cutler | |||
Eric A. Adams, Director | Adam Cutler, Director |
The accompanying notes form an integral part of these consolidated financial statements
F-4
InMed Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the years ended June 30
Expressed in U.S. Dollars
| Note | 2019 | 2018 | ||||||||
| $ | $ | |||||||||
Operating Expenses: | ||||||||||
Research and development and patents | 8 | 5,126,408 | 1,934,473 | |||||||
General and administrative | 9 | 4,296,520 | 6,055,739 | |||||||
Amortization and depreciation | 3, 4 | 119,399 | 117,928 | |||||||
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Total operating expenses | 9,542,327 | 8,108,140 | ||||||||
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Other Income (loss): | ||||||||||
Interest income | 327,720 | 69,552 | ||||||||
Foreign exchange (loss) gain | (33,888 | ) | 226 | |||||||
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Net loss for the year | (9,248,495 | ) | (8,038,362 | ) | ||||||
Other comprehensive income (loss): | ||||||||||
Foreign currency translation gain (loss) | 53,314 | (232,536 | ) | |||||||
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Comprehensive loss for the year | (9,195,181 | ) | (8,270,898 | ) | ||||||
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Net loss per share for the year | ||||||||||
Basic and diluted | 10 | (0.05 | ) | (0.06 | ) | |||||
Weighted average outstanding common shares | ||||||||||
Basic and diluted | 10 | 171,338,793 | 142,451,768 | |||||||
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The accompanying notes form an integral part of these consolidated financial statements
F-5
InMed Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended June 30, 2019 and June 30, 2018
Expressed in U.S. Dollars
| Note | Common Shares | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) – Foreign Exchange | Total | |||||||||||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance June 30, 2017 | 127,649,466 | 36,734,349 | 7,900,109 | (38,423,375 | ) | 297,186 | 6,508,269 | |||||||||||||||||||
Net loss for the year | — | — | — | (8,038,362 | ) | (232,536 | ) | (8,270,898 | ) | |||||||||||||||||
Shares issued for cash, net of issue costs | 6 | 30,039,815 | 10,110,836 | 5,921,138 | — | — | 16,031,974 | |||||||||||||||||||
Share-based payments for services | 6 | 35,718 | 32,903 | — | — | — | 32,903 | |||||||||||||||||||
Share-based compensation | 7 | — | — | 3,821,378 | — | — | 3,821,378 | |||||||||||||||||||
Exercise of warrants | 6 | 5,895,775 | 1,386,080 | (818,097 | ) | — | — | 567,983 | ||||||||||||||||||
Fair value of agent’s warrants | 6 | — | — | 969,809 | — | — | 969,809 | |||||||||||||||||||
Fair value of agent’s warrants exercised | 6 | — | 106,594 | (106,594 | ) | — | — | — | ||||||||||||||||||
Exercise of stock options | 6 | 7,230,295 | 4,309,950 | (3,032,138 | ) | — | — | 1,277,812 | ||||||||||||||||||
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Balance June 30, 2018 | 170,851,069 | 52,680,712 | 14,655,605 | (46,461,737 | ) | 64,650 | 20,939,230 | |||||||||||||||||||
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| Note | Common Shares | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) – Foreign Exchange | Total | |||||||||||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||||||||||
Balance June 30, 2018 | 170,851,069 | 52,680,712 | 14,655,605 | (46,461,737 | ) | 64,650 | 20,939,230 | |||||||||||||||||||
Net loss for the year | — | — | — | (9,248,495 | ) | 53,314 | (9,195,181 | ) | ||||||||||||||||||
Share-based compensation | 7 | — | — | 2,294,057 | — | — | 2,294,057 | |||||||||||||||||||
Exercise of warrants | 6 | 7,564 | 6,116 | (6,116 | ) | — | — | — | ||||||||||||||||||
Exercise of stock options | 6 | 1,425,000 | 378,412 | (173,614 | ) | — | — | 204,798 | ||||||||||||||||||
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Balance June 30, 2019 | 172,283,633 | 53,065,240 | 16,769,932 | (55,710,232 | ) | 117,964 | 14,242,904 | |||||||||||||||||||
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The accompanying notes form an integral part of these consolidated financial statements
F-6
InMed Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30
Expressed in U.S. Dollars
| Note | 2019 | 2018 | ||||||||
| $ | $ | |||||||||
Cash provided by (used in) | ||||||||||
Operating Activities: | ||||||||||
Net loss for the year | (9,248,495 | ) | (8,038,362 | ) | ||||||
Items not requiring cash: | ||||||||||
Amortization and depreciation | 3, 4 | 119,399 | 117,928 | |||||||
Share-based compensation | 7 | 2,294,057 | 3,821,378 | |||||||
Accrued interest income on short-term investments | (70,806 | ) | (10,919 | ) | ||||||
Changes innon-cash working capital: | ||||||||||
Prepaids and advances | (166,804 | ) | (17,684 | ) | ||||||
Accounts receivable | (23,883 | ) | 4,547 | |||||||
Accounts payable and accrued liabilities | 472,241 | 427,281 | ||||||||
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Total cash outflows from operating activities | (6,624,291 | ) | (3,695,831 | ) | ||||||
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Investing Activities: | ||||||||||
Maturity of short-term investments | 3,496,830 | — | ||||||||
Purchase of short-term investments | (5,558,288 | ) | (1,833,517 | ) | ||||||
Purchase of property and equipment | (26,812 | ) | (43,807 | ) | ||||||
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Total cash outflows from investing activities | (2,088,270 | ) | (1,877,324 | ) | ||||||
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Financing Activities: | ||||||||||
Shares issued for cash | 6 | 204,798 | 20,578,242 | |||||||
Share issue costs | 6 | — | (1,697,760 | ) | ||||||
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Cash provided by financing activities | 204,798 | 18,880,482 | ||||||||
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Effects of foreign exchange on cash and cash equivalents | 17,001 | (148,340 | ) | |||||||
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(Decrease) increase in cash during the year | (8,490,762 | ) | 13,158,987 | |||||||
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Cash and cash equivalents beginning of the year | 18,327,975 | 5,168,988 | ||||||||
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Cash and cash equivalents end of the year | 9,837,213 | 18,327,975 | ||||||||
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See note 12 forNon-Cash Transactions
The accompanying notes form an integral part of these consolidated financial statements
F-7
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 1. | NATURE OF BUSINESS AND FUTURE OPERATIONS: |
InMed Pharmaceuticals Inc. (“InMed” or the “Company”) was incorporated in the Province of British Columbia on May 19, 1981 under theBusiness Corporations Act of British Columbia. InMed is a clinical stage biopharmaceutical company specializing in the research and development of novel, cannabinoid-based therapies and a biosynthesis system for the manufacturing of pharmaceutical-grade cannabinoids.
The Company’s shares are listed on the Toronto Stock Exchange (“TSX”) under the trading symbol “IN”, and under the trading symbol “IMLFF” on the OTCQX® Best Market. InMed’s corporate office and principal place of business is located at #310 – 815 West Hastings Street, Vancouver, B.C., Canada, V6C 1B4.
These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to meet its commitments, realize its assets and discharge its liabilities. The Company has a history of operating losses and negative cash flows from operations and has no current sources of revenue. The Company’s ability to continue its operations on a going concern basis over the next twelve months after the financial issuance date is supported by its available cash and cash equivalents to meet its obligations. Until such time as the Company can generate substantial product revenue and achieve profitable operations, continuing operations are dependent upon receiving continued support from its shareholders, its ability to raise additional financing through issuing equity or debt, and ultimately achieving profitable operations. There is no assurance that the Company will be successful in these efforts. The Company has the ability to slow down or delay research and development program spending and reduce certain general and administrative expenditures in order to ensure its cash will extend past twelve months after the financial issuance date. These consolidated financial statements do not reflect adjustments to the carrying values of assets and liabilities that would be necessary if the Company was unable to continue as a going concern and such adjustments could be material.
| 2. | SIGNFICANT ACCOUNTING POLICIES: |
| (a) | Basis of Presentation |
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”).
| (b) | Use of Estimates |
The preparation of financial statements in compliance with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the balance sheet date, and the corresponding revenues and expenses for the periods reported. It also requires management to exercise judgment in applying the Company’s accounting policies. In the future, actual experience may differ from these estimates and assumptions. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to these consolidated financial statements are the estimate of useful life of intangible assets, the application of the going concern assumption, the impairment assessment for long-lived assets, and determining the fair value of share-based payments and warrants, which are discussed further below:
F-8
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (b) | Use of Estimates (cont’d) |
| Estimate | of useful life of intangible assets |
In the determination of the estimated useful life for intangible assets, which includes certain patents and technicalknow-how, management assesses a variety of internal and external factors such as the expected usage of the intangible assets by the Company, technical or commercial obsolescence and expected actions by competitors or potential competitors.
| Application | of going concern assumption |
The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but is not limited to, 12 months from the consolidated financial statement’s issuance date.
| Assets’ | impairment |
Whenever events or changes in circumstances indicate the asset may not be recoverable, estimates of future undiscounted cash flows expected to be generated by the asset are made, requiring estimates of both the timing and the amount of cash flows. If the asset is determined to be impaired, estimates of fair value are made using a discounted cash flow model.
| Share-based | payments and warrants |
Management determines costs for share-based payments and warrants using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment is used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, forfeiture rates and future employee stock option exercise behaviors and corporate performance. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.
| (c) | Basis of Consolidation: |
These consolidated financial statements include the accounts of the inactive subsidiaries: Biogen Sciences Inc., Sweetnam Consulting Inc., and InMed Pharmaceutical Ltd. The Company’s former inactive subsidiary, Meridex Network Corporation, was wound up into InMed effective April 17, 2019. A subsidiary is an entity that the Company controls, either directly or indirectly, where control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All inter-company transactions and balances including unrealized income and expenses arising from intercompany transactions are eliminated in preparing consolidated financial statements.
F-9
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (d) | Foreign Currency |
The functional currency of the Company and its subsidiaries is the Canadian Dollar. These consolidated financial statements are presented in U.S. Dollars. References to “$” and “US$” are to United States (“U.S.”) dollars and references to “C$” are to Canadian dollars.
Transactions in foreign currencies are translated to the functional currency at exchange rates at the date of the transactions. Period end balances of monetary assets and liabilities in foreign currencies are translated to the functional currency using the period end foreign currency rates. Foreign currency gains and losses are recognized in the consolidated statements of operations and comprehensive loss.Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Assets and liabilities are translated from the Canadian dollar functional currency to the U.S. dollar presentation currency based on the exchange rate at the balance sheet date. Income and expense, capital transactions and cash flows are translated to U.S. dollar presentation currency using the exchange rates prevailing at the transaction date or at an appropriate average exchange rate. Foreign currency translation adjustments to arrive at the presentation currency are recognized as a component of comprehensive income (loss).
| (e) | Cash and Cash Equivalents |
Cash and cash equivalents includecash-on-hand, demand deposits with financial institutions and other short-term, highly liquid investments with original maturities of three months or less when acquired that are readily convertible to known amounts of cash and subject to an insignificant risk of change in value.
| (f) | Short-term Investments |
Short-term investments include fixed and variable rate guaranteed investment certificates, with terms greater than three months and less than twelve months. Guaranteed investment certificates are convertible to known amounts of cash and are subject to an insignificant risk of change in value.
| (g) | Property and Equipment, Net |
Equipment and leasehold improvements are recorded at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of equipment and leasehold improvements comprises their purchase price. The useful lives of equipment and leasehold improvements are reviewed at least once per year. Equipment and leasehold improvements are depreciated using the straight-line method based on their estimated useful lives as follows:
| • | Computer equipment – 30% per annum |
| • | Leasehold improvements – lesser of initial lease term or useful life |
Property and equipment, acquired or disposed of during the year, are depreciated proportionately for the period they are in use.
F-10
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| h) | Intangible Assets, Net |
Intangible assets is comprised of acquired intellectual property, which consists of certain patents and technicalknow-how. The intellectual property is recorded at cost and is amortized on a straight-line basis over an estimated useful life of 18 years net of any accumulated impairment losses.
| (i) | Impairment of Long-Lived Assets |
The Company assesses the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset or assets. If carrying value exceeds the sum of undiscounted cash flows, the Company then determines the fair value of the underlying asset. Any impairment to be recognized is measured as the amount by which the carrying amount of the asset group exceeds the estimated fair value of the asset group. Assets classified as held for sale are reported at the lower of the carrying amount or fair value, less costs to sell. As of June 30, 2019 and 2018, the Company determined that there were no impaired assets and no assets wereheld-for-sale.
| (j) | Financial Assets and Liabilities |
| Financial | Assets |
Financial assets are initially recognized at fair value, plus transaction costs that are directly attributable to their acquisition or issue and subsequently carried at amortized cost, using the effective interest rate method, less any impairment losses. No financial assets are or elected to be carried at fair value through profit or loss or where changes in fair value are recognized in the consolidated statements of operations and comprehensive loss in other comprehensive loss.
Cash and cash equivalents are subsequently recognized at amortized cost, which approximates fair value. Short-term investments are subsequently recorded at cost plus accrued interest, which approximates fair value. Accounts receivable are reported at outstanding amounts, net of provisions for uncollectable amounts. At all periods presented, the Company has no allowance for doubtful accounts.
The Company evaluates the recoverability of accounts receivable on a regular basis based upon various factors including payment history and collection experience on other accounts or events expected to affect future collections experience.
| Financial | Liabilities |
Financial liabilities, including accounts payable and accrued liabilities, are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method. This ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. Interest expense in this context includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
F-11
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (j) | Financial Assets and Liabilities (cont’d) |
| Financial | Liabilities (cont’d) |
To determine the fair value of financial instruments, the Company uses the fair value hierarchy for inputs used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).
Level 1 — Unadjusted quoted prices in active markets for identical instruments.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 — Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable and accrued liabilities.
The carrying value of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable and accrued liabilities, approximate their carrying values as at June 30, 2019 and 2018 due to their immediate or short-term maturities.
| (k) | Income Taxes |
The Company records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, it recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company recognizes the deferred income tax effects of a change in tax rates in the period of the enactment. The Company records a valuation allowance to reduce its deferred tax assets to the net amount that management believes is more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than fifty percent likely of being realized. The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.
F-12
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (l) | Earnings (Loss) Per Share |
Basic earnings (loss) per common share (“EPS”) is computed by dividing the net income or loss applicable to common shares of the Company by the weighted average number of common shares outstanding for the relevant period. Diluted earnings (loss) per common share (“Diluted EPS”) is computed by dividing the net income or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and all additional common shares that would have been outstanding, if potentially dilutive instruments were converted. If the conversion of outstanding stock options and warrants into common share is anti-dilutive, then diluted EPS is not presented separately from EPS. Diluted EPS foryear-to-date (including annual) periods is based upon the weighted average of the incremental shares included in each interim period for theyear-to-date period.
| (m) | Share-based Payments |
The fair value, at the grant date, of equity-classified share awards is charged to income or loss over the period for which the benefits of employees and others providing similar services are expected to be received. The vesting components of graded vesting employee awards are measured separately and expensed over the related tranche’s vesting period. The corresponding accrued entitlement is recorded in additionalpaid-in capital. The amount recognized as an expense is adjusted to reflect the number of share options that vest. The fair value of awards is calculated using the Black-Scholes option pricing model which considers the exercise price, current market price of the underlying shares, expected life of the award, risk-free interest rate, expected volatility and the dividend yield.
Up to June 30, 2018, each vesting tranche of equity classifiednon-employee awards were remeasured each reporting period with a final measurement date of each vesting tranche being its vesting date. Post vesting, if continued services were not required, the award would become subject to other standards. Starting July 1, 2018, the Company accounted fornon-employee awards under the guidance provided under ASU2018-07 (see note 2 (r) iii)).
The expected term of the Company’s employee stock options has been determined using the simplified method and the Company estimates the forfeitures on the grant date for options issued. The expected term of the Company’snon-employee stock options is the contractual term of the options granted and the Company estimates the forfeitures on the grant date for options issued.
| (n) | Research and Development Costs |
The Company conducts research and development programs and incurs costs related to these activities, including research and development personnel compensation, services provided by contract research organizations and lab supplies. Research and development costs, net of contractual reimbursements from development partners, are expensed in the periods in which they are incurred.
| (o) | Patents and Intellectual Property Costs |
The costs of filing for patents and of prosecuting and maintaining intellectual property rights are expensed as incurred due to the uncertainty surrounding the drug development process and the
F-13
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (o) | Patents and Intellectual Property Costs (cont’d) |
uncertainty of future benefits. Patents and intellectual property acquired from third parties for approved products or where there are alternative future uses are capitalized and amortized over the remaining life of the patent.
| (p) | Research Grants |
Research grants are recognized as a recovery of research expenditures in the consolidated statement of operations and comprehensive loss when there is reasonable assurance that the Company will comply with the conditions attached to them and that the grants will be received. The Company only recognizes grant proceeds when the proceeds have been spent on research expenses. Grant amounts received in advance are recorded as deferred grant proceeds.
| (q) | Segment reporting |
The Company’s operations consist of one operating segment related to the biopharmaceutical research and development of novel, cannabinoid-based therapies and a biosynthesis system for the manufacturing of pharmaceutical-grade cannabinoids.
| (r) | New Standards Applicable in the Reporting Period |
| i) | Revenue from Contracts with Customers |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014–09,Revenue from Contracts with Customers (Topic 606). The new guidance in ASC 606 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a comprehensive five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as a performance obligation is satisfied. The Company adopted the new standard effective July 1, 2018, as required, using the modified retrospective approach under which previously presented financial statements are not restated and the cumulative effect of adopting ASC 606 is recognized by adjusting retained earnings at the effective date. The adoption of ASU 2014–09 had no impact the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date.
| ii) | Financial Instruments - Overall |
In January 2016, FASB issued ASUNo. 2016-01,Financial Instruments - Overall, which requires equity investments, not subject to consolidation or equity accounting, to be measured at fair value and fair value through profit and loss subsequently, unless a practical exemption applies. This update did not change the classification of investments in debt securities and loans. The ASU was effective July 1, 2018 and did not impact on the Company’s consolidated statements of financial position, operations or comprehensive loss, changes in shareholders’ equity or cash flows.
F-14
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (r) | New Standards Applicable in the Reporting Period (cont’d) |
| iii) | Non-employee Share-based Payment Accounting |
In June 2018, FASB the issued ASUNo. 2018-07,Compensation- Stock Compensation (topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services fromnon-employees. This ASU substantially alignsnon-employee award and employee award accounting under ASC 718, except that expected life assumptions for measurement purposes and attribution policies remain unchanged. Vestednon-employee awards will continue to be accounted for under ASC 718 unless they are modified after thenon-employee stops providing goods and services. This new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As permitted, the Company has elected to early apply this ASU and apply it effective July 1, 2018, in accordance with the ASU. Unvested awards outstanding at July 1, 2018 werere-valued at the date of adoption and no accounting changes are made to awards that vested at or prior to the date of adoption.
| (s) | Future Accounting Pronouncements Not Yet Adopted |
The standards listed below include only those which the Company reasonably expects may be applicable to the Company at a future date. The Company is currently assessing the impact of the standards on the consolidated financial statements.
| i) | Leases |
In February 2016, the FASB issued ASU 2016–02,Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017–13, ASU 2018–10 and ASU 2018–11,ASU 2018-20, ASU2019-01 and ASU2019-10 (collectively, Topic 842). Topic 842 establishes principles for recognition, measurement, presentation and disclosure of leases for both the lessee and lessor. The new guidance retains a distinction between finance leases and operating leases, with cash payments from operating leases classified within operating activities in the statement of cash flows. It also requires lessees to recognize all leases, including operating leases, with a term greater than 12 months on the balance sheet at the lease commencement date, for the present value of future lease payment obligations created by those leases and an offsettingright-of-use asset, which is depreciated over its useful life. The Company has arrangements currently classified as operating leases which will be recorded as a right of use asset and corresponding liability on the balance sheet and recognized interest expense on the lease obligation and depreciation on theright-of-use asset is combined and presented as lease expense on the consolidated statement of operations. Topic 842 is effective for fiscal years beginning after December 15, 2018. The Company plans to record a cumulative effect adjustment as at July 1, 2019, the effective date of adoption, and no retrospective adjustment is required. The Company will apply the exemption to treat short-term leases less than 12 months as executory contracts, to grandfather the assessment of which leases are leases as previously assessed under ASC 840, and to exclude initial direct costs from the measurement of theright-of-use asset. Based on the analysis completed to date of the Company’s expected leasing arrangements as of June 30, 2019, on adoption of the new standard and the commencement of the Company’s new lease on September 1, 2019, the Company expects to recognizeright-of-use assets of approximately $427,860 which is equal to the
F-15
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (s) | Future Accounting Pronouncements Not Yet Adopted (cont’d) |
| i) | Leases (cont’d) |
amount of the lease liability of approximately $379,033, discounted at the Company’s incremental borrowing rate of 8%, plus approximately $48,827 reclassified from prepaids and advances related to its arrangements where the Company is the lessee. There was no impact to opening deficit.
| ii) | Credit losses |
In June 2016, FASB issued ASUNo. 2016-13,Financial Instruments- Credit Losses (Topic 326), and subsequent amendments to the initial guidance: ASU2018-19, ASU2019-04,ASU 2019-05 and ASU2019-10 (collectively Topic 326), requires companies to measure credit losses on financial instruments measured at amortized cost applying an “expected credit loss” model based upon past events, current conditions and reasonable and supportable forecasts that affect collectability. Previously, companies applied an “incurred loss’ model for recognizing credit losses. This standard is effective for fiscal years beginning after December 14, 2019. The Company is currently evaluating the impact of this standard on the consolidated financial statements.
| iii) | Financial Instruments with Characteristics of Liabilities and Equity |
In July 2017, the FASB issued ASU 2017–11,Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily RedeemableNon-controlling interests with a Scope Exception. The ASU was issued to address the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity.
The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. The adoption of this standard had no impact on the Company’s consolidated financial statements.
| iv) | Fair Value Measurement |
In August 2018, the FASB issued ASU 2018–13,Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU eliminate, add and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for the Company in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact the adoption of the standard will have on its consolidated financial statements.
F-16
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (cont’d) |
| (s) | Future Accounting Pronouncements Not Yet Adopted (cont’d) |
| v) | Collaborative Arrangements |
In November 2018, the FASB issued ASU 2018–18,Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This ASU provides guidance that clarifies when certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer, and amends ASC 808 to refer to theunit-of-account guidance in ASC 606. The guidance specifically precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This ASU is effective for public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for entities that have adopted ASC 606. The Company currently has no agreements that would be classified as collaborative arrangements.
| 3. | PROPERTY AND EQUIPMENT, NET |
Property and equipment consists of the following:
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Equipment | 56,839 | 40,857 | ||||||
Leasehold Improvements | 39,328 | 27,765 | ||||||
|
|
|
| |||||
Property and equipment | 96,167 | 68,622 | ||||||
Less: accumulated depreciation | (53,507 | ) | (26,298 | ) | ||||
|
|
|
| |||||
Property and equipment, net | 42,660 | 42,324 | ||||||
|
|
|
| |||||
Depreciation expense on property and equipment for the year ended June 30, 2019 was $26,739(2018- $21,224).
| 4. | INTANGIBLE ASSETS, NET |
Intangible assets consist of:
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Intellectual property | 1,689,318 | 1,678,926 | ||||||
Less: accumulated amortization | (467,947 | ) | (371,923 | ) | ||||
|
|
|
| |||||
Intangible assets, net | 1,221,371 | 1,307,003 | ||||||
|
|
|
| |||||
The acquired intellectual property is recorded at cost and is amortized on a straight-line basis over an estimated useful life of 18 years net of any accumulated impairment losses. At June 30, 2019, the acquired intellectual property has an estimated remaining useful life of approximately 14 years.
F-17
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 4. | INTANGIBLE ASSETS, NET (cont’d) |
Amortization expense on intangible assets for the year ended June 30, 2019 was $92,660 (2018- $96,704). Based upon the intangible assets held as at June 30, 2019, the Company expects amortization expense to be incurred over the next five years as follows:
| $ | ||||
2020 | 93,851 | |||
2021 | 93,851 | |||
2022 | 93,851 | |||
2023 | 93,851 | |||
2024 | 93,851 | |||
|
| |||
| 469,255 | ||||
|
| |||
| 5. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
Accounts payable and accrued liabilities consist of the following:
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Trade payables | 120,540 | 102,585 | ||||||
Accrued research and development expenses | 480,389 | 49,596 | ||||||
Employee compensation, benefits and related accruals | 397,549 | 286,879 | ||||||
Accrued legal and professional | 195,733 | 273,090 | ||||||
|
|
|
| |||||
Accounts payable and accrued liabilities | 1,194,211 | 712,150 | ||||||
|
|
|
| |||||
| 6. | SHARE CAPITAL AND RESERVES |
| a) | Authorized |
As at June 30, 2019, the Company’s authorized share structure consisted of: (i) an unlimited number of common shares without par value; and (ii) an unlimited number of preferred shares without par value. No preferred shares were issued and outstanding as at June 30, 2019 and 2018.
The Company may issue preferred shares and may, at the time of issuance, determine the rights, preference and limitations pertaining to these shares. Holders of preferred shares may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding up of the Company before any payment is made to the holders of common shares.
During the year ended June 30, 2019, the Company completed the following:
Transaction Description | Number | Issue Price | Value | |||||||||
| C$ | US$ | |||||||||||
Issued for exercise of warrants (i) | 7,564 | $ | 0.65 | — | ||||||||
Fair value of warrants exercised (i) | — | — | 6,116 | |||||||||
Issued for exercise of stock options (ii) | 1,425,000 | $ | 0.19 | 204,798 | ||||||||
Fair value of stock options exercised (ii) | — | — | 173,614 | |||||||||
F-18
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 6. | SHARE CAPITAL AND RESERVES (cont’d) |
| b) | Common Shares |
| i) | The Company issued an aggregate 7,564 common shares pursuant to the exercise of 35,000 share purchase warrants. The 35,000 share purchase warrants that were exercised had an exercise price of C$0.65 each and, pursuant to the terms of a May 31, 2017 financing, were exercised on a net cashless basis, based on thefive-day volume-weighted average trading price of the common shares of the Company on the TSX ending on the date immediately preceding the date of exercise. The exercise of these 35,000 share purchase warrants resulted in the issuance of 7,564 common shares but, as they were exercised on a net cashless basis, no cash was received. |
| ii) | The Company issued an aggregate 1,425,000 common shares pursuant to the exercise of 1,425,000 stock options at a weighted average exercise price of C$0.19 per share. The aggregate intrinsic value of options exercised at the date of exercise was $422,679 (C$559,500). |
During the year ended June 30, 2018, the Company completed the following:
| Transaction Description | Number | Issue Price | Value | |||||||||
| C$ | US$ | |||||||||||
Issued for private placement (iv) | 13,428,571 | $ | 0.70 | 7,500,199 | ||||||||
Issued for public placement (iii) | 16,611,244 | $ | 0.90 | 11,232,247 | ||||||||
Share issue costs (iii), (iv) | — | — | (2,700,472 | ) | ||||||||
Issued for services (iv) | 35,718 | $ | 1.17 | 32,903 | ||||||||
Issued for exercise of warrants (v) | 5,895,775 | $ | 0.15 - $0.65 | 567,983 | ||||||||
Grant date fair value of agents’ warrants exercised | — | — | 106,594 | |||||||||
Issued for exercise of stock options (vi) | 7,230,295 | $ | 0.11 - $0.45 | 1,277,813 | ||||||||
Grant date fair value of stock options exercised | — | — | 3,032,138 | |||||||||
| iii) | On June 21, 2018, the Company completed a public offering (“June-2018 Financing”) of 16,611,244 units (“June-2018 Units”), at a price of C$0.90 per June-2018 Unit for gross proceeds of $11,232,247 (C$14,950,120). Each June-2018 Unit consists of one common share and one share purchase warrant (a “June-2018 Warrant”), or an aggregate of 16,611,244 full June-2018 Warrants. Each full June-2018 Warrant is exercisable by the holder to acquire one additional common share at a price of C$1.25 for a period of twenty-four (24) months expiring on June 21, 2020. The June-2018 Warrants trade on the Toronto Stock Exchange (“TSX”) under the symbol “IN.WT”. |
Share issue costs from the sale of June-2018 Units of $1,499,625 is comprised of $748,128 in underwriter’s commission, thenon-cash fair value of $415,626 for 1,106,397 warrants(“June-2018 Agent Warrants”) issued to the underwriter and $335,871 of other transaction costs. Each June-2018 Agent Warrant is exercisable in whole or in part at an exercise price of C$1.05 for a period of twenty-four (24) months expiring on June 21, 2020. The allocation of net proceeds from this financing to the June-2018 Warrants was done using the relative fair values of the shares and warrants.
F-19
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 6. | SHARE CAPITAL AND RESERVES (cont’d) |
| b) | Common Shares (cont’d) |
| iv) | On January 3, 2018, the Company completed anon-brokered private placement(“Jan-2018 Financing”) for 13,428,571units(“Jan-2018 Units”), at a price of C$0.70 perJan-2018 Unit for gross proceeds of $7,500,199 (C$9,400,000). Each Unit consists of one common share and onenon- transferable share purchase warrant (a“Jan-2018 Warrant”). EachJan-2018 Warrant is exercisable by the holder to acquire one additional common share at a price of C$1.25 for a period of eighteen (18) months expiring on July 3, 2019. |
Share issue costs from the sale ofJan-2018 Units of $1,200,847 is comprised of $496,040 in finders’ fees, thenon-cash fair value of $554,183 for 433,556 warrants (“January-2018 Agent Warrants”) issued to finders and $150,624 of other transaction costs. The January-2018 Agent Warrants have identical terms as the January-2018 Warrants described above. For the $496,040 in finders’ fees, $32,903 was settled on February 9, 2018 via the issuance of 35,718 common shares at the C$1.17 closing price on the date of issuance of these shares. The allocation of net proceeds from this financing to theJan-2018 Warrants was done using the relative fair values of the shares and warrants.
| v) | The Company issued an aggregate 5,895,775 common shares pursuant to the exercise of 8,232,095 share purchase and agents’ warrants at a weighted average exercise price of C$0.44 per share. Included in the total number of share purchase warrants exercised were 3,710,984 share purchase warrants, with a weighted average exercise price of C$0.19 each, that were exercised for cash and 4,521,111 share purchase warrants with an exercise price of C$0.65 each that, pursuant to the terms of a May 31, 2017 financing, were exercised on a net cashless basis, based on thefive-day volume-weighted average trading price of the common shares of the Company on the stock exchange that the Company’s shares were trading on at that time (either the TSX or CSE) ending on the date immediately preceding the date of exercise. The exercise of these 4,521,111 share purchase warrants resulted in the issuance of 2,184,791 common shares but, as they were exercised on a net cashless basis, no cash was received. |
| vi) | The Company issued an aggregate 7,230,295 common shares pursuant to the exercise of 7,345,000 stock options at a weighted average exercise price of C$0.23 per share. Included in the total number of stock options exercised were 300,000 stock options with an exercise price of C$0.195 per share that, pursuant to the terms of a settlement agreement with the stock option holder, were exercised on a net cashless basis, based on the C$0.51 per common share closing price of the Company on the CSE on the date immediately preceding the date of exercise. The exercise of these 300,000 stock options resulted in the issuance of 185,295 common shares. |
F-20
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 6. | SHARE CAPITAL AND RESERVES (cont’d) |
| c) | Share Purchase Warrants |
Share purchase warrants are exercisable in Canadian dollars (United States dollar amounts for exercise price and aggregate intrinsic value are calculated using prevailing rates as at June 30, 2019). Each warrant entitles the holders thereof the right to purchase one common share. The following is a summary of changes in share purchase warrants from July 1, 2017 to June 30, 2019:
| Number | Weighted Average Share Price | Weighted Average Share Price | Aggregate Intrinsic Value | Aggregate Intrinsic Value | ||||||||||||||||
| # | C$ | US$ | C$ | US$ | ||||||||||||||||
Balance as at June 30, 2017 | 9,434,000 | $ | 0.49 | $ | 0.37 | — | — | |||||||||||||
Granted | 30,039,815 | $ | 1.25 | $ | 0.96 | |||||||||||||||
Exercised (Note 6. b) v)) | (7,561,111 | ) | $ | 0.45 | $ | 0.34 | ||||||||||||||
Balance as at June 30, 2018 | 31,912,704 | $ | 1.21 | $ | 0.92 | — | — | |||||||||||||
Exercised (Note 6. b) i)) | (35,000 | ) | $ | 0.65 | $ | 0.50 | ||||||||||||||
Expired | (1,837,889 | ) | $ | 0.65 | $ | 0.50 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as at June 30, 2019 | 30,039,815 | $ | 1.25 | $ | 0.96 | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Issuance Date | Number | Exercise Price | Exercise Price | Expiry Date | ||||||||||||
| C$ | US$ | |||||||||||||||
January 3, 2018 | 13,428,571 | $ | 1.25 | $ | 0.96 | July 3-19 | ||||||||||
June 21, 2018 | 16,611,244 | $ | 1.25 | $ | 0.96 | June 21-20 | ||||||||||
|
|
|
|
|
| |||||||||||
Balance as at June 30, 2019 | 30,039,815 | $ | 1.25 | $ | 0.96 | |||||||||||
|
|
|
|
|
| |||||||||||
The weighted average remaining contractual life of the share purchase warrants at June 30, 2019 was 0.54 years. The January 3, 2018 share purchase warrants in the table above expired unexercised on July 3, 2019.
| d) | Agents’ Warrants |
Share purchase warrants are exercisable in Canadian dollars (United States dollar amounts for exercise price and aggregate intrinsic value are calculated using prevailing rates as at June 30, 2019). The following is a summary of changes in agents’ warrants from July 1, 2017 to June 30, 2019:
| Number | Weighted Average Share Price | Weighted Average Share Price | Aggregate Intrinsic Value | Aggregate Intrinsic Value | ||||||||||||||||
| # | C$ | US$ | C$ | US$ | ||||||||||||||||
Balance as at June 30, 2017 | 670,984 | $ | 0.40 | $ | 0.31 | — | — | |||||||||||||
Granted | 1,539,953 | $ | 1.11 | $ | 0.85 | |||||||||||||||
Exercised (Note 6. b) v) | (670,984 | ) | $ | 0.40 | $ | 0.31 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as at June 30, 2018 | 1,539,953 | $ | 1.11 | $ | 0.85 | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as at June 30, 2019 | 1,539,953 | $ | 1.11 | $ | 0.85 | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
F-21
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 6. | SHARE CAPITAL AND RESERVES (cont’d) |
| d) | Agents’ Warrants (cont’d) |
At June 30, 2019, all Agents’ Warrants were fully vested. Each warrant entitles the holders thereof the right to purchase one common share as follows:
| Issuance Date | Agents’ Warrants | Exercise Price | Exercise Price | Expiry Date | ||||||||||||
| # | C$ | US$ | ||||||||||||||
January 3, 2018 | 433,556 | $ | 1.25 | $ | 0.96 | July 3-19 | ||||||||||
June 21, 2018 | 1,106,397 | $ | 1.05 | $ | 0.80 | June 21-20 | ||||||||||
|
|
|
|
|
| |||||||||||
Balance as at June 30, 2019 | 1,539,953 | $ | 1.11 | $ | 0.85 | |||||||||||
|
|
|
|
|
| |||||||||||
The weighted average remaining contractual life of the Agents’ Warrants at June 30, 2019 was 0.71 years. The January 3, 2018 Agents’ Warrants in the table above expired unexercised on July 3, 2019.
The weighted average fair value at grant date of Agents’ Warrants granted during the year ended June 30, 2018 was C$0.81 per Agents’ Warrant. Assumptions used for Agents’ Warrants granted during the prior year included a weighted average risk-free interest rate of 1.78%, weighted average life of 1.9 years, weighted average volatility factor of 117.98%, weighted average dividend yield of 0%. The expected price volatility is based on historic volatility of the Company, based on the expected life of the Agents’ Warrants, adjusted for any expected changes to future volatility due to publicly available information. The expected term is the expected average term to exercise the awards. The risk-free interest rate is based upon Government of Canada bonds that have a term that approximates the expected life of the Agents’ Warrants.
| 7. | SHARE-BASED PAYMENTS |
| a) | Option Plan Details |
On March 24, 2017, the Company’s shareholders approved: (i) the adoption of a new stock option plan (the “Plan”) pursuant to which the board of directors may, from time to time, in its discretion and in accordance with the requirements of the TSX, grant to directors, officers, employees and consultants of the Company,non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed twenty percent (20%) of the issued and outstanding common shares at the date the options are granted (on anon-diluted and rolling basis); and (ii) the application of the new stock option plan to all outstanding stock options of the Company that were granted prior to March 24, 2017 under the terms of the Company’s previous stock option plan.
As at June 30, 2019, there was 14,686,727 (June 30, 2018 – 17,575,214) options available for future allocation pursuant to the terms of the Plan. The option price under each option shall be not be less than the closing price on the day prior to the date of grant. All options vest upon terms as set by the Board of Directors, either over time, typically 12 to 36 months, or upon the achievement of certain corporate milestones.
F-22
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 7. | SHARE-BASED PAYMENTS (cont’d) |
| a) | Option Plan Details (cont’d) |
Stock options are granted with Canadian dollar exercise prices (United States dollar amounts for weighted average exercise prices and aggregate intrinsic value are calculated using prevailing rates as at June 30, 2019). The following is a summary of changes in outstanding options from July 1, 2017 to June 30, 2019:
| Number | Weighted Average Exercise Price | Weighted Average Exercise Price | ||||||||||
| C$ | US$ | |||||||||||
Balance as at June 30, 2017 | 16,200,000 | 0.17 | 0.13 | |||||||||
Granted | 8,240,000 | 0.97 | 0.74 | |||||||||
Exercised | (7,345,000 | ) | 0.23 | 0.18 | ||||||||
Expired/Forfeited | (500,000 | ) | 0.81 | 0.62 | ||||||||
|
|
|
|
|
| |||||||
Balance as at June 30, 2018 | 16,595,000 | 0.52 | 0.40 | |||||||||
Granted | 4,800,000 | 0.50 | 0.38 | |||||||||
Exercised | (1,425,000 | ) | 0.19 | 0.15 | ||||||||
Expired/Forfeited | (200,000 | ) | 1.01 | 0.77 | ||||||||
|
|
|
|
|
| |||||||
Balance as at June 30, 2019 | 19,770,000 | 0.53 | 0.40 | |||||||||
|
|
|
|
|
| |||||||
F-23
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 7. | SHARE-BASED PAYMENTS (cont’d) |
| a) | Option Plan Details (cont’d) |
The following is a summary of changes in options from July 1, 2018 to June 30, 2019:
Grant Date | Expiry Date | Exercise Price C$ | Opening Balance | Granted | Exercised | Expired/ Forfeited | Closing Balance | Vested and Exercisable | Unvested | |||||||||||||||||||||||||||
4-Mar-15 | 4-Mar-20 | $ | 0.360 | 200,000 | — | — | — | 200,000 | 200,000 | — | ||||||||||||||||||||||||||
25-Aug-15 | 25-Aug-20 | $ | 0.210 | 50,000 | — | — | — | 50,000 | 50,000 | — | ||||||||||||||||||||||||||
23-Nov-15 | 23-Nov-20 | $ | 0.145 | 200,000 | — | — | — | 200,000 | 200,000 | — | ||||||||||||||||||||||||||
27-Nov-15 | 27-Nov-20 | $ | 0.140 | 550,000 | — | (500,000 | ) | — | 50,000 | 50,000 | — | |||||||||||||||||||||||||
16-May-16 | 16-May-21 | $ | 0.080 | 2,000,000 | — | — | — | 2,000,000 | 2,000,000 | — | ||||||||||||||||||||||||||
10-Jun-16 | 10-Jun-21 | $ | 0.130 | 800,000 | — | — | — | 800,000 | 800,000 | — | ||||||||||||||||||||||||||
15-Jun-16 | 15-Jun-21 | $ | 0.110 | 2,000,000 | — | — | — | 2,000,000 | 2,000,000 | — | ||||||||||||||||||||||||||
26-Jul-16 | 26-Jul-21 | $ | 0.110 | 750,000 | — | — | — | 750,000 | 750,000 | — | ||||||||||||||||||||||||||
12-Sep-16 | 12-Sep-21 | $ | 0.110 | 1,000,000 | — | — | — | 1,000,000 | 1,000,000 | — | ||||||||||||||||||||||||||
28-Oct-16 | 28-Oct-21 | $ | 0.195 | 400,000 | — | — | — | 400,000 | 400,000 | — | ||||||||||||||||||||||||||
15-Nov-16 | 15-Nov-21 | $ | 0.165 | 750,000 | — | (750,000 | ) | — | — | — | — | |||||||||||||||||||||||||
12-Dec-16 | 12-Dec-21 | $ | 0.140 | 160,000 | — | — | — | 160,000 | 160,000 | — | ||||||||||||||||||||||||||
13-Jan-17 | 13-Jan-22 | $ | 0.250 | 1,000,000 | — | — | — | 1,000,000 | 1,000,000 | — | ||||||||||||||||||||||||||
20-Feb-17 | 20-Feb-22 | $ | 0.370 | 100,000 | — | — | — | 100,000 | 100,000 | — | ||||||||||||||||||||||||||
22-Feb-17 | 22-Feb-22 | $ | 0.410 | 50,000 | — | — | — | 50,000 | 50,000 | — | ||||||||||||||||||||||||||
2-Jun-17 | 2-Jun-22 | $ | 0.450 | 940,000 | — | (175,000 | ) | (50,000 | ) | 715,000 | 715,000 | — | ||||||||||||||||||||||||
10-Jul-17 | 10-Jul-22 | $ | 0.330 | 355,000 | — | — | — | 355,000 | 255,000 | 100,000 | ||||||||||||||||||||||||||
8-Mar-18 | 8-Mar-23 | $ | 1.550 | 2,500,000 | — | — | (50,000 | ) | 2,450,000 | 1,375,000 | 1,075,000 | |||||||||||||||||||||||||
16-May-18 | 16-May-23 | $ | 1.020 | 2,790,000 | — | — | (100,000 | ) | 2,690,000 | 1,345,000 | 1,345,000 | |||||||||||||||||||||||||
31-Aug-18 | 31-Aug-23 | $ | 0.820 | — | 270,000 | — | — | 270,000 | 67,500 | 202,500 | ||||||||||||||||||||||||||
20-Sep-18 | 20-Sep-23 | $ | 0.800 | — | 150,000 | — | — | 150,000 | 37,500 | 112,500 | ||||||||||||||||||||||||||
05-Dec-18 | 05-Dec-23 | $ | 0.445 | — | 775,000 | — | — | 775,000 | 193,750 | 581,250 | ||||||||||||||||||||||||||
14-Jan-19 | 14-Jan-24 | $ | 0.500 | — | 140,000 | — | — | 140,000 | — | 140,000 | ||||||||||||||||||||||||||
21-Jan-19 | 21-Jan-24 | $ | 0.510 | — | 100,000 | — | — | 100,000 | — | 100,000 | ||||||||||||||||||||||||||
4-Feb-19 | 4-Feb-24 | $ | 0.790 | — | 150,000 | — | — | 150,000 | — | 150,000 | ||||||||||||||||||||||||||
4-Mar-19 | 4-Mar-24 | $ | 0.600 | — | 355,000 | — | — | 355,000 | — | 355,000 | ||||||||||||||||||||||||||
27-May-19 | 27-May 24 | $ | 0.435 | — | 2,860,000 | — | — | 2,860,000 | — | 2,860,000 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| 16,595,000 | 4,800,000 | (1,425,000 | ) | (200,000 | ) | 19,770,000 | 12,748,750 | 7,021,250 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Weighted Average Exercise Price C$ | $0.52 | $0.50 | $0.19 | $1.01 | $0.53 | $0.41 | $0.75 | |||||||||||||||||||||||||||||
Weighted Average Exercise Price US$ | $0.40 | $0.38 | $0.15 | $0.77 | $0.40 | $0.31 | $0.57 | |||||||||||||||||||||||||||||
Weighted Average Life Remaining | 2.66 | 4.73 | — | — | 3.19 | 2.53 | 4.40 | |||||||||||||||||||||||||||||
Aggregate Intrinsic Value (C$) | $3,954,600 | $Nil | ||||||||||||||||||||||||||||||||||
Aggregate Intrinsic Value (US$) | $3,003,190 | $Nil | ||||||||||||||||||||||||||||||||||
F-24
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 7. | SHARE-BASED PAYMENTS (cont’d) |
| b) | Fair Value of Options Issued During the Period |
| i) | The weighted average fair value at grant date of options granted during the year ended June 30, 2019 was C$0.34 per option (year ending June 30, 2018 – C$0.69) with a term of five years. Assumptions used for options granted during the year ended June 30, 2019 included a weighted average risk-free interest rate of 1.65% (year ending June 30, 2018 – 1.83%), weighted average expected life of 3.1 years calculated using the Simplified Method (year ending June 30, 2018 – 3.7 years), weighted average volatility factor of 109.37% (year ending June 30, 2018 – 133.70%), weighted average dividend yield of 0% (year ending June 30, 2018 – 0%) and a 5% forfeiture rate (year ending June 30, 2018 – 5%). The expected price volatility is based on historic volatility of the Company, based on the expected life of the options, adjusted for any expected changes to future volatility due to publicly available information. |
Starting July 1, 2018, the Company accounted for 5non-employee awards under the guidance provided under ASU2018-07. |
| ii) | Expenses Arising from Share-based Payment Transactions |
Total expenses arising from share-based payment transactions recognized during the year ended June 30, 2019 were $2,294,057 (June 30, 2018 – $3,821,378). Unrecognized compensation cost at June 30, 2019 related to unvested options was $1,135,104 (C$1,486,504) which will be recognized over a weighted-average vesting period of 1.4 years. |
| 8. | RESEARCH AND DEVELOPMENT AND PATENT EXPENSES |
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Research and Development: | ||||||||
Personnel compensation | 1,068,452 | 628,406 | ||||||
Share-based payments | 866,667 | 417,162 | ||||||
External contractors | 2,174,553 | 709,228 | ||||||
Research supplies | 879,225 | 101,429 | ||||||
Other | 20,206 | 8,338 | ||||||
Less: Research grants | (85,395 | ) | — | |||||
|
|
|
| |||||
Total research and development expenses | 4,923,708 | 1,864,563 | ||||||
Patents | 202,700 | 69,910 | ||||||
|
|
|
| |||||
Total Research and Development and Patent Expenses | 5,126,408 | 1,934,473 | ||||||
|
|
|
| |||||
Effective November 1, 2018, the Company entered into a contribution agreement with the National Research Council Canada Industrial Research Assistance Program (“NRC IRAP”) to receive funding of up to C$500,000 to support its ongoing R&D efforts in cannabinoid biosynthesis. It is expected that this funding will be earned over the period commencing November 1, 2018 through to approximately mid calendar 2020. Grant income is recognized as a recovery of research and development expenditures when earned.
F-25
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 9. | ADMINISTRATIVE AND GENERAL EXPENSES |
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Accounting and legal | 551,462 | 328,661 | ||||||
Consulting | 31,766 | 68,787 | ||||||
Corporate development | — | 138,823 | ||||||
Investor relations, website development and marketing | 533,526 | 826,118 | ||||||
Office and administrative | 210,122 | 141,043 | ||||||
Regulatory fees | 62,704 | 203,967 | ||||||
Rent | 150,916 | 104,787 | ||||||
Shareholder communication | 93,876 | 59,362 | ||||||
Transfer agent fees | 22,677 | 22,590 | ||||||
Travel | 62,569 | 78,852 | ||||||
Salaries and employee benefits | 1,149,512 | 678,533 | ||||||
Share-based payments | 1,427,390 | 3,404,216 | ||||||
|
|
|
| |||||
Total General and Administrative Expenses | 4,296,520 | 6,055,739 | ||||||
|
|
|
| |||||
| 10. | BASIC AND DILUTED LOSS PER SHARE |
Basic loss per share amounts are calculated by dividing the net loss for the period by the weighted average number of ordinary shares outstanding during the period. As the outstanding warrants and stock options are all anti-dilutive, they are excluded from the weighted average number of common shares in the table below.
| 2019 | 2018 | |||||||
Net loss for the year | ($ | 9,248,495 | ) | ($ | 8,038,362 | ) | ||
Basic and diluted loss per share | ($ | 0.05 | ) | ($ | 0.06 | ) | ||
Weighted average number of common shares- basic and diluted | 171,338,793 | 142,451,768 | ||||||
| 11. | INCOME TAXES |
The following is a reconciliation of income taxes calculated at the combined Canadian federal and provincial income statutory corporate tax rate of 27.0% (June 30, 2018 – 26.5%) to the tax expense:
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Net loss before taxes | (9,248,495 | ) | ($ | 8,038,362 | ) | |||
|
|
|
| |||||
Income tax expense (recovery) at the statutory rate | (2,497,094 | ) | (2,130,166 | ) | ||||
Increase (reduction) in income taxes resulting from: | ||||||||
Change in valuation allowance | 1,937,425 | 1,903,440 | ||||||
Permanent differences | 621,207 | 1,013, 154 | ||||||
Financing costs in equity | — | (730,471 | ) | |||||
Other | (61,538 | ) | (55,957 | ) | ||||
|
|
|
| |||||
Income tax expense (recovery) | — | — | ||||||
|
|
|
| |||||
F-26
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 11. | INCOME TAXES (cont’d) |
Deferred tax assets and liabilities are as follows:
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Non-capital losses | 7,802,253 | 5,695,093 | ||||||
Financing costs | 527,370 | 714,403 | ||||||
|
|
|
| |||||
| 8,329,623 | 6,409,496 | |||||||
|
|
|
| |||||
Intangible assets | (220,711 | ) | (237,591 | ) | ||||
Fixed assets | (737 | ) | (1,154 | ) | ||||
|
|
|
| |||||
| (221,448 | ) | (238,745 | ) | |||||
|
|
|
| |||||
Net deferred tax asset | 8,108,175 | 6,170,751 | ||||||
Valuation allowance | (8,108,175 | ) | (6,170,751 | ) | ||||
|
|
|
| |||||
| — | — | |||||||
|
|
|
| |||||
A full valuation allowance has been applied against the net deferred tax assets because it is not more likely than not that future taxable income will be available against which the Company can utilize the benefits therefrom.
As at June 30, 2019, the Company hasnon-capital loss carry-forwards of approximately $28,897,233 (June 30, 2018 – $21,092,936) available to offset future taxable income in Canada. Thesenon-capital loss carryforwards begin to expire in 2026.
| 12. | NON-CASH TRANSACTIONS |
Investing and financing activities that do not have a direct impact on cash flows are excluded from the statements of cash flows. During the year ended June 30, 2019 and 2018 the following transactions were excluded from the statements of cash flows:
| i) | In the year ending June 30, 2019, 35,000 (June 30, 2018 – 4,521,111) share purchase warrants, with an exercise price of C$0.65 each, were exercised. Pursuant to the terms of a May 31, 2017 financing, these share purchase warrants were exercised on a net cashless basis, based on thefive-day volume-weighted average trading price of the common shares of the Company on the TSX ending on the date immediately preceding the date of exercise (see Note 6c). The exercise of these 35,000 share purchase warrants resulted in the issuance of 7,564 common shares (June 30, 2018 – 2,184,791); |
| ii) | In the year ending June 30, 2018, finders’ fees of $32,903 for theJan-2018 Financing were settled via the issuance of 35,718 common shares at the C$1.17 based on the closing price on the date of issuance; |
| iii) | The grant of 1,539,953 Agents Warrants in the year ending June 30, 2018 for recorded value of $969,809 – see Note 6d; and |
| iv) | Included in the total number of stock options exercised in the year ending June 30, 2018 were 300,000 stock options with an exercise price of C$0.195 per share that, pursuant to the terms of a settlement agreement with the stock option holder, were exercised on a net cashless basis, based on the C$0.51 per common share closing price of the Company on the date immediately preceding the date of exercise. The exercise of these 300,000 stock options resulted in the issuance of 185,295 common shares. |
F-27
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 13. | COMMITMENTS AND CONTINGENCIES |
Pursuant to the terms of agreements with various contract research organizations, as at June 30, 2019, the Company is committed for contract research services and materials at a cost of approximately $2,654,543. A total of $2,531,520 of these expenditures are expected to occur in the twelve months following June 30, 2019 and the balance of $123,023 in the following twelve-month period.
Pursuant to the terms of a May 31, 2017 Technology Assignment Agreement between the Company and the University of British Columbia (“UBC”), the Company is committed to pay royalties to UBC on certain licensing and royalty revenues received by the Company for biosynthesis of certain drug products that are covered by the agreement.
Pursuant to the terms of a December 13, 2018 Collaborative Research Agreement with UBC in which the Company owns all right, title and interest in and to any intellectual property, in addition to funding research at UBC, the Company is committed to make aone-time payment upon filing of any patent application arising from the research.
On June 22, 2017, the Company entered into an agreement to sublet office space with asub-landlord. Under this agreement, the Company is leasing office premises at an annual cost of approximately $58,855 plus annual operating costs estimated at $77,080. The term of the sublease is from September 1, 2017 to August 31, 2019.
On January 14, 2019, the Company executed a lease for new office premises at an annual cost of approximately $99,180, increasing up to $109,500 in the last year of the lease, plus annual operating costs estimated at $59,980. The term of this new lease is from September 1, 2019 to August 31, 2024. In January 2019, the Company paid the landlord a security deposit of approximately $48,458, included in “Prepaids and advances” on the Company’s balance sheet, that is to be applied to the rent for certain months during the five-year lease term.
Short-term investments include guaranteed investment certificates with a face value of $43,937 (June 30, 2018 – $21,833) that are pledged as security for a corporate credit card.
The Company has entered into certain agreements in the ordinary course of operations that may include indemnification provisions, which are common in such agreements. In some cases, the maximum amount of potential future indemnification is unlimited; however, the Company currently holds commercial general liability insurance. This insurance limits the Company’s liability and may enable the Company to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and it believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.
From time to time, the Company may be subject to various legal proceedings and claims related to matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.
F-28
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 14. | FINANCIAL RISK MANAGEMENT |
Fair value:
Fair value measurements recognized in the statement of financial position must be categorized in accordance with the following levels:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable and accrued liabilities..
The fair values of short-term investments, accounts receivable, and accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these instruments. Cash and cash equivalents are measured at fair value using Level 1 inputs.
The following table summarizes the classification and carrying values of the Company’s financial instruments at June 30, 2019 and 2018:
June 30, 2019 | Level 1 | Level 2 | Total | |||||||||
Financial assets | ||||||||||||
Cash and cash equivalents | 9,837,213 | — | 9,837,213 | |||||||||
Short-term investments | — | 3,946,736 | 3,946,736 | |||||||||
Accounts receivable | — | 64,940 | 64,940 | |||||||||
|
|
|
|
|
| |||||||
Total financial assets | 9,837,213 | 4,011,676 | 13,848,889 | |||||||||
|
|
|
|
|
| |||||||
Financial liabilities | ||||||||||||
Accounts payable and accrued liabilities | — | 1,194,211 | 1,194,211 | |||||||||
|
|
|
|
|
| |||||||
Total financial liabilities | — | 1,194,211 | 1,194,211 | |||||||||
|
|
|
|
|
| |||||||
June 30, 2018 | Level 1 | Level 2 | Total | |||||||||
Financial assets | ||||||||||||
Cash and cash equivalents | 18,327,975 | — | 18,327,975 | |||||||||
Short-term investments | — | 1,779,021 | 1,779,021 | |||||||||
Accounts receivable | — | 40,533 | 40,533 | |||||||||
|
|
|
|
|
| |||||||
Total financial assets | 18,327,975 | 1,819,554 | 20,147,529 | |||||||||
|
|
|
|
|
| |||||||
Financial liabilities | ||||||||||||
Accounts payable and accrued liabilities | — | 712,150 | 712,150 | |||||||||
|
|
|
|
|
| |||||||
Total financial liabilities | — | 712,150 | 712,150 | |||||||||
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| |||||||
F-29
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 14. | FINANCIAL RISK MANAGEMENT (cont’d) |
| a) | Market Risk: |
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices are comprised of four types of risk: foreign currency risk, interest rate risk, commodity price risk and equity price risk. The Company does not currently have significant commodity price risk or equity price risk.
| Foreign | Currency Risk: |
Foreign currency risk is the risk that the future cash flows or fair value of the Company’s financial instruments that are denominated in a currency that is not the Company’s functional currency (C$) will fluctuate due to changes in foreign exchange rates. Portions of the Company’s cash and cash equivalents and accounts payable and accrued liabilities are denominated in US dollars. Accordingly, the Company is exposed to fluctuations in the US and Canadian dollar exchange rates.
As at June 30, 2019, the Company has a net excess of US dollar denominated cash and cash equivalents in excess of US dollar denominated accounts payable and accrued liabilities of US$1,931,447 which is equivalent to C$2,527,685 at the June 30, 2019 exchange rate. The US dollar financial assets generally result from holding US dollar cash to settle anticipated near-term accounts payable and accrued liabilities denominated in US dollars. The US dollar financial liabilities generally result from purchases of supplies and services from suppliers from outside of Canada.
Each change of 1% in the US dollar in relation to the Canadian dollar results in a gain or loss, with a corresponding effect on cash flows, of $19,315 based on the June 30, 2019 net US dollar assets (liabilities) position. During the year ended June 30, 2019, the Company recorded foreign exchange loss of $33,888 (June 30, 2018 – gain of $226).
| Interest | Rate Risk: |
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. As at June 30, 2019, holdings of cash and cash equivalents of $ 2,340,795 (June 30, 2018 - $16,365,252) are subject to floating interest rates. In addition, the Company held fixed rate guaranteed investment certificates, cashable within ninety days of purchase, with a book value of $7,268,373 (June 30, 2018 - $1,912,543). The balance of the Company’s cash holdings of $228,045 (June 30, 2018 - $50,180) arenon-interest bearing.
As at June 30, 2019, the Company held short-term investments in the form of fixed rate guaranteed investment certificates, with terms of 6 to 12 months, with a face value of $3,820,585 (June 30, 2018 - $1,746,659) and variable rate guaranteed investment certificates, withone-year terms, with face value of $ 43,937 (June 30, 2018 - $21,833).
The Company’s current policy is to invest excess cash in guaranteed investment certificates or interest-bearing accounts of major Canadian chartered banks or credit unions with comparable credit ratings. The Company regularly monitors compliance to its cash management policy.
The Company, as at June 30, 2019, does not have any borrowings. Interest rate risk is limited to potential decreases on the interest rate offered on cash and cash equivalents and short-term investments held with chartered Canadian financial institutions. The Company considers this risk to be immaterial.
F-30
INMED PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2019 AND 2018
(Expressed in U.S. Dollars)
| 14. | FINANCIAL RISK MANAGEMENT (cont’d) |
| b) | Credit Risk: |
Credit risk is the risk of financial loss to the Company if a customer or a counter party to a financial instrument fails to meet its contractual obligations. Financial instruments which are potentially subject to credit risk for the Company consist primarily of cash and cash equivalents and short-term investments. Cash and cash equivalents and short-term investments are maintained with financial institutions of reputable credit and may be redeemed upon demand.
The carrying amount of financial assets represents the maximum credit exposure. Credit risk exposure is limited through maintaining cash and cash equivalents and short-term investments with high-credit quality financial institutions and management considers this risk to be minimal for all cash and cash equivalents and short-term investments assets based on changes that are reasonably possible at each reporting date.
| c) | Liquidity Risk: |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s policy is to ensure that it has sufficient cash to meet its liabilities when they become due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. A key risk in managing liquidity is the degree of uncertainty in the cash flow projections. If future cash flows are fairly uncertain, the liquidity risk increases. As at June 30, 2019, the Company has cash and cash equivalents and short-term investments of $13,783,949 (June 30, 2018 - $20,106,996), current liabilities of $1,194,211 (June 30, 2018 - $712,150) and a working capital surplus of $12,978,873 (June 30, 2018 - $19,589,903.
| 15. | TRANSACTIONS WITH RELATED PARTIES |
The Company did not enter into any transactions with related parties during the year ended June 30, 2019.
| 16. | SUBSEQUENT EVENTS |
Subsequent to June 30, 2019, theCOVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our business are not known at this time. These impacts could include an impact on our ability to obtain debt and equity financing in the future, and impairment in the value of our long-lived assets.
F-31
Common Shares
PROSPECTUS
Roth Capital Partners
Laidlaw & Company (UK) Ltd.
, 2020
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other expenses of issuance and distribution
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid by us in connection with the sale of the common shares being registered hereby. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and Nasdaq initial listing fee.
SEC registration fee | $ | |||
FINRA filing fee | ||||
Nasdaq listing fee | * | |||
Printing and engraving expenses | * | |||
Legal fees and expenses | * | |||
Accounting fees and expenses | * | |||
Blue Sky fees and expenses (including legal fees) | * | |||
Transfer agent and registrar fees and expenses | * | |||
Miscellaneous | * | |||
Total | * |
| * | To be provided by amendment. |
Item 14. Indemnification of directors and officers
We are subject to the provisions of Part 5, Division 5 of the Business Corporations Act (British Columbia), or “BCBCA”. Under Section 160 of the BCBCA, we may, subject to Section 163 of the BCBCA:
| 1. | indemnify an individual who: |
| • | is or was a director or officer of our company; |
| • | is or was a director or officer of another corporation (i) at a time when such corporation is or was an affiliate of our company; or (ii) at our request, or |
| • | at our request, is or was, or holds or held a position equivalent to that of, a director or officer of a partnership, trust, joint venture or other unincorporated entity, |
and including, subject to certain limited exceptions, the heirs and personal or other legal representatives of that individual (collectively, an “eligible party”), against all eligible penalties to which the eligible party is or may be liable; and
| 2. | after final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by an eligible party in respect of that proceeding, where: |
| • | “eligible penalty” means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, and eligible proceeding. |
| • | “eligible proceeding” means a proceeding in which an eligible party or any of the heirs and personal or other legal representatives of the eligible party, by reason of the eligible party being or having been a director or officer of, or holding or having held a position equivalent to that of a director or officer of, our company or an associated corporation (a) is or may be joined as a party, or |
II-1
(b) is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding. |
| • | “proceeding” includes any legal proceeding or investigative action, whether current, threatened, pending or completed. |
Under Section 161 of the BCBCA, and subject to Section 163 of the BCBCA, we must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by an eligible party in respect of that proceeding if the eligible party (a) has not been reimbursed for those expenses, and (b) is wholly successful, on the merits or otherwise, in the outcome of the proceeding or is substantially successful on the merits in the outcome of the proceeding.
Under Section 162 of the BCBCA, and subject to Section 163 of the BCBCA, we may pay, as they are incurred in advance of the final disposition of an eligible proceeding, the expenses actually and reasonably incurred by an eligible party in respect of the proceeding, provided that we must not make such payments unless we first receive from the eligible party a written undertaking that, if it is ultimately determined that the payment of expenses is prohibited under Section 163 of the BCBCA, the eligible party will repay the amounts advanced.
Under Section 163 of the BCBCA, we must not indemnify an eligible party against eligible penalties to which the eligible party is or may be liable or pay the expenses of an eligible party in respect of that proceeding under Sections 160, 161 or 162 of the BCBCA, as the case may be, if any of the following circumstances apply:
| • | if the indemnity or payment is made under an earlier agreement to indemnify or pay expenses and, at the time that the agreement to indemnify or pay expenses was made, we were prohibited from giving the indemnity or paying the expenses by our memorandum or articles; |
| • | if the indemnity or payment is made otherwise than under an earlier agreement to indemnify or pay expenses and, at the time that the indemnity or payment is made, we are prohibited from giving the indemnity or paying the expenses by our memorandum or articles; |
| • | if, in relation to the subject matter of the eligible proceeding, the eligible party did not act honestly and in good faith with a view to the best interests of our company or the associated corporation, as the case may be; or |
| • | in the case of an eligible proceeding other than a civil proceeding, if the eligible party did not have reasonable grounds for believing that the eligible party’s conduct in respect of which the proceeding was brought was lawful. |
If an eligible proceeding is brought against an eligible party by or on behalf of our company or by or on behalf of an associated corporation, we must not either indemnify the eligible party against eligible penalties to which the eligible party is or may be liable, or pay the expenses of the eligible party under Sections 160, 161 or 162 of the BCBCA, as the case may be, in respect of the proceeding.
Under Section 164 of the BCBCA, and despite any other provision of Part 5, Division 5 of the BCBCA and whether or not payment of expenses or indemnification has been sought, authorized or declined under Part 5, Division 5 of the BCBCA, on application of our company or an eligible party, the Supreme Court of British Columbia may do one or more of the following:
| • | order us to indemnify an eligible party against any liability incurred by the eligible party in respect of an eligible proceeding; |
| • | order us to pay some or all of the expenses incurred by an eligible party in respect of an eligible proceeding; |
II-2
| • | order the enforcement of, or payment under, an agreement of indemnification entered into by us; |
| • | order us to pay some or all of the expenses actually and reasonably incurred by any person in obtaining an order under Section 164 of the BCBCA; or |
| • | make any other order the court considers appropriate. |
Section 165 of the BCBCA provides that we may purchase and maintain insurance for the benefit of an eligible party or the heirs and personal or other legal representatives of the eligible party against any liability that may be incurred by reason of the eligible party being or having been a director or officer of, or holding or having held a position equivalent to that of a director or officer of, our company or an associated corporation.
Under our articles, and subject to the BCBCA, we must indemnify our directors, former directors or alternate directors and his or her heirs and legal personal representatives against all eligible penalties to which such person is or may be liable, and we must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by such person in respect of that proceeding. Each director and alternate director is deemed to have contracted with our company on the terms of the indemnity contained in our articles.
Under our articles, and subject to the BCBCA, we may agree to indemnify and may indemnify any person (including an eligible party) against eligible penalties and pay expenses incurred in connection with the performance of services by that person for us. We have entered into indemnity agreements with our directors and certain of our officers.
Pursuant to our articles, the failure of an eligible party to comply with the BCBCA or our articles does not, of itself, invalidate any indemnity to which he or she is entitled under our articles.
Under our articles, we may purchase and maintain insurance for the benefit of any person (or his or her heirs or legal personal representatives) who:
| • | is or was our director, alternate director, officer, employee or agent; |
| • | is or was a director, alternate director, officer, employee or agent of a corporation at a time when the corporation is or was our affiliate; |
| • | at our request, is or was a director, alternate director, officer, employee or agent of a corporation or of a partnership, trust, joint venture or other unincorporated entity; or |
| • | at our request, holds or held a position equivalent to that of a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity; |
| • | against any liability incurred by him or her as such director, alternate director, officer, employee or agent or person who holds or held such equivalent position. |
In addition, we have entered into an indemnification agreement with each of our directors and our Chief Financial Officer, which requires us to indemnify them.
Item 15. Recent sales of unregistered securities
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act of 1933:
| • | On May 5, 2017, we issued the remaining 500,000 common shares, valued at C$70,000, due to our Chief Scientific Officer, pursuant to an October 28, 2015 purchase agreement to acquire |
II-3
certain patents from him. The securities were exempt from registration under the Securities Act as they were issued outside the U.S. pursuant to Regulation S under the Securities Act. |
| • | On May 31, 2017, we completed a public offering in Canada(“May-2017 Financing”) of 12,788,000 units(“May-2017 Units”), at a price of C$0.45 perMay-2017 Unit for gross proceeds of C$5,754,601. EachMay-2017 Unit consisted of one common share andone-halfnon-transferable share purchase warrant (a“May-2017 Warrant”), or an aggregate of 6,394,000 fullMay-2017 Warrants. Each fullMay-2017 Warrant was exercisable by the holder to acquire one additional common share at a price of C$0.65 for a period of twenty-four (24) months expiring on May 31, 2019. TheMay-2017 Warrants were only exercisable on a net cashless basis, based on thefive-day volume-weighted average trading price of our common shares ending on the date immediately preceding the date of exercise. The underwriters for this financing were Canaccord Genuity Corp., Eight Capital and Roth Capital Partners, LLC. The underwriters’ commissions on the gross proceeds received by us from the sale ofMay-2017 Units sold pursuant to theMay-2017 Financing included cash of C$370,132 and 535,620 warrants (“Agent Warrants”). Each Agent Warrant was exercisable in whole or in part at an exercise price of C$0.45 for a period of 12 months expiring on May 31, 2018. The securities were exempt from registration under the Securities Act as they were either issued outside the U.S. pursuant to Regulation S under the Securities Act or were issued to two U.S. purchasers pursuant to Section 4(a)(2) of the Securities Act in that such sales did not involve a public offering. |
| • | During the year ending June 30, 2017, we issued an aggregate 12,325,750 common shares pursuant to the exercise of share purchase warrants at a weighted average exercise price of C$0.14 per share or proceeds of C$1,678,458. The securities were exempt from registration under the Securities Act as they were issued outside the U.S. pursuant to Regulation S under the Securities Act. |
| • | During the year ending June 30, 2017, we issued an aggregate 875,000 common shares pursuant to the exercise of stock options at a weighted average exercise price of C$0.17 per share or proceeds of C$152,625. The securities were exempt from registration under the Securities Act as they were issued outside the U.S. pursuant to Regulation S under the Securities Act. |
| • | On January 3, 2018, we completed anon-brokered private placement(“Jan-2018 Financing”) for 13,428,571 units(“Jan-2018 Units”), at a price of C$0.70 perJan-2018 Unit for gross proceeds of C$9,400,000. EachJan-2018 Unit consisted of one common share and onenon-transferable share purchase warrant (a“Jan-2018 Warrant”). EachJan-2018 Warrant was exercisable by the holder to acquire one additional common share at a price of C$1.25 for a period of eighteen (18) months expiring on July 3, 2019. Share issue costs from the sale ofJan-2018 Units of $1,200,847 is comprised of $496,040 in finders’ fees, thenon-cash fair value of $554,183 for 433,556 warrants (“January-2018 Agent Warrants”) issued to finders and $150,624 of other transaction costs. The January-2018 Agent Warrants have identical terms as the January-2018 Warrants described above. Of the $496,040 in finders’ fees, $32,903 was settled on February 9, 2018 via the issuance of 35,718 common shares at the C$1.17 closing price on the date of issuance of these shares. The issuance of the securities was exempt from registration under the Securities Act as the securities were either issued outside the U.S. pursuant to Regulation S under the Securities Act or were issued to two U.S. purchasers pursuant to Regulation D under the Securities Act in that such sales did not involve a public offering. The finder’s fees paid in respect of sales to U.S. purchasers were paid to a registered broker-dealer. |
| • | On June 21, 2018, we completed a public offering in Canada (“June-2018 Financing”) of 16,611,244 units (“June-2018 Units”), at a price of C$0.90 per June-2018 Unit for gross proceeds of $11,232,247 (C$14,950,120). Each June-2018 Unit consists of one common share and one share purchase warrant (a “June-2018 Warrant”), or an aggregate of 16,611,244 full June-2018 Warrants. Each full June-2018 Warrant is exercisable by the holder to acquire one additional |
II-4
common share at a price of C$1.25 for a period of twenty-four (24) months expiring on June 21, 2020. The June-2018 Warrants trade on the TSX under the symbol “IN.WT”. The underwriter for this transaction was Eight Capital. Share issue costs from the sale of June-2018 Units of $1,499,625 is comprised of $748,128 in underwriter’s commission, thenon-cash fair value of $415,626 for 1,106,397 warrants (“June-2018 Agent Warrants”) issued to the underwriter and $335,871 of other transaction costs. Each June-2018 Agent Warrant is exercisable in whole or in part at an exercise price of C$1.05 for a period of twenty-four (24) months expiring on June 21, 2020. The securities were exempt from registration under the Securities Act as they were issued outside the U.S. pursuant to Regulation S under the Securities Act. |
| • | During the year ending June 30, 2018, we issued an aggregate 5,895,775 common shares pursuant to the exercise of 8,232,095 share purchase warrants at a weighted average exercise price of C$0.44 per share. Included in the total number of share purchase warrants exercised were 3,710,984 share purchase warrants, with a weighted average exercise price of C$0.19 each, that were exercised for cash and 4,521,111 share purchase warrants with an exercise price of C$0.65 each that, pursuant to the terms of a May 31, 2017 financing, were exercised on a net cashless basis, based on thefive-day volume-weighted average trading price of our common shares on the stock exchange that our common shares were trading on at that time (either the TSX or CSE) ending on the date immediately preceding the date of exercise. The exercise of these 4,521,111 share purchase warrants resulted in the issuance of 2,184,791 common shares but, as they were exercised on a net cashless basis, no cash was received. The securities were exempt from registration under the Securities Act as they were either issued outside the U.S. pursuant to Regulation S under the Securities Act or were issued to a total of eight U.S. purchasers, upon exercise of investor or agent warrants issued in either the July-2016 Financing orMay-2017 Financing, pursuant to Section 4(a)(2) of the Securities Act in that such sales did not involve a public offering. |
| • | During the year ending June 30, 2018, we issued an aggregate 7,230,295 common shares pursuant to the exercise of 7,345,000 stock options at a weighted average exercise price of C$0.23 per share. Included in the total number of stock options exercised were 300,000 stock options with an exercise price of C$0.195 per share that, pursuant to the terms of a settlement agreement with the stock option holder, were exercised on a net cashless basis, based on the C$0.51 per common share closing price of our common shares on the CSE on the date immediately preceding the date of exercise. The exercise of these 300,000 stock options resulted in the issuance of 185,295 common shares. The securities were exempt from registration under the Securities Act as they were issued outside the U.S. pursuant to Regulation S under the Securities Act or pursuant to Rule 701 under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation. |
| • | During the year ending June 30, 2019, we issued an aggregate 7,564 common shares pursuant to the exercise of 35,000 share purchase warrants. The 35,000 share purchase warrants that were exercised had an exercise price of C$0.65 each and, pursuant to the terms of a May 31, 2017 financing, were exercised on a net cashless basis, based on thefive-day volume-weighted average trading price of our common shares on the TSX ending on the date immediately preceding the date of exercise. The exercise of these 35,000 share purchase warrants resulted in the issuance of 7,564 common shares but, as they were exercised on a net cashless basis, no cash was received. The issuance of the securities was exempt from registration under the Securities Act as they were issued outside the U.S. pursuant to Regulation S under the Securities Act. |
| • | During the year ending June 30, 2019, we issued an aggregate 1,425,000 common shares pursuant to the exercise of 1,425,000 stock options at a weighted average exercise price of C$0.14 per share. The issuance of the securities was exempt from registration under the Securities Act as they were issued outside the U.S. pursuant to Regulation S under the Securities Act. |
II-5
Item 16. Exhibits and financial statement schedules
| (a) | Exhibits |
Exhibit No. | Description of Exhibit | |
| 1.1* | Underwriting Agreement | |
| 3.1 | Amended and Restated Articles | |
| 5.1* | Opinion of Farris LLP | |
| 8.1* | Opinion of Dorsey & Whitney LLP | |
| 10.1 | InMed Pharmaceuticals Inc. 2017 Stock Option Plan | |
| 10.2 | Form of Stock Option Agreement pursuant to the InMed Pharmaceuticals Inc. 2017 Stock Option Plan | |
| 10.3 | Amended and Restated Executive Employment Agreement, dated April 8, 2020, between Eric A. Adams and InMed Pharmaceuticals Inc. | |
| 10.4 | Employment Agreement, dated March 8, 2018, between Eric Hsu and InMed Pharmaceuticals Inc. | |
| 10.4.1 | April 13, 2018 salary adjustment letter to Eric Hsu | |
| 10.4.2 | September 1, 2018 salary adjustment letter to Eric Hsu | |
| 10.4.3 | March 4, 2019 salary adjustment letter to Eric Hsu | |
| 10.5 | Amended and Restated Executive Employment Agreement, dated April 8, 2020, between Alexandra Mancini and InMed Pharmaceuticals Inc. | |
| 10.6 | Executive Employment Agreement, dated September 20, 2018, between Michael Woudenberg and InMed Pharmaceuticals Inc. | |
| 10.7 | Executive Employment Agreement, dated July 9, 2019, between Bruce S. Colwill and InMed Pharmaceuticals Inc. | |
| 10.8** | Office Premises Lease, dated January 14, 2019, between InMed Pharmaceuticals Inc. and 815 West Hastings Ltd. | |
| 10.9 | Share Purchase Agreement, dated May 10, 2014, among Meridex Software Corporation, Biogen Sciences Inc. and the Shareholders of Biogen Sciences Inc. | |
| 10.10 | Section 85 Purchase and Sale Agreement, dated as of October 28, 2015, between Dr. Sazzad Hossain and InMed Pharmaceuticals Inc. | |
| 10.11 | Assignment of Intellectual Property, dated as of October 28, 2015, between Dr. Sazzad Hossain and InMed Pharmaceuticals Inc. | |
| 10.12** | Technology Assignment Agreement, dated as of May 31, 2017, between The University of British Columbia and InMed Pharmaceuticals Inc. | |
| 10.13 | Amendment No. 1 to Technology Assignment Agreement, dated as of May 31, 2017, between The University of British Columbia and InMed Pharmaceuticals Inc. | |
| 10.14** | Collaborative Research Agreement, dated as of May 31, 2017, between The University of British Columbia and InMed Pharmaceuticals Inc. | |
| 10.15** | Amended and Restated Collaborative Research Agreement, dated as of August 16, 2018, between The University of British Columbia and InMed Pharmaceuticals Inc. | |
| * | To be filed by amendment. |
| ** | Portions of this exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. |
| (b) | Financial Statement Schedules |
None
II-6
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, InMed Pharmaceuticals Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Vancouver, British Columbia, Canada, on , 2020.
| INMED PHARMACEUTICALS INC. | ||
| By: |
| |
| Name: Eric A. Adams | ||
| Title: President and Chief Executive Officer | ||
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Eric A. Adams and Bruce Colwill, and each of them, either of whom may act without the joinder of the other, as his true and lawfulattorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by the registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the SEC, granting unto saidattorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that saidattorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated and , 2020.
Signature | Title | |||
| President, Chief Executive Officer and Director (Principal Executive Officer) | |||
| Eric A. Adams | ||||
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
| Bruce Colwill | ||||
| Director (Chairman of the Board of Directors) | |||
| William J. Garner | ||||
| Director | |||
| Catherine A. Sazdanoff | ||||
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Signature | Title | |||
| Director | |||
| Adam Cutler | ||||
| Director | |||
| Andrew Hull | ||||
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, the undersigned has signed this registration statement, solely in its capacity as the duly authorized representative of InMed Pharmaceuticals Inc. in the United States, on , 2020.
| CATHERINE SAZDANOFF |
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II-9
