UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-37942
CervoMed Inc.
(Exact Name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
30-0645032
(I.R.S. Employer Identification No)
20 Park Plaza, Suite 424
Boston, Massachusetts
(Address of Principal Executive Offices)
02116
(Zip Code)
(617) 744-4400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
Trading Symbol
CRVO
Name of Each Exchange on Which Registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☒
Emerging growth company ☐
Accelerated filer ☐
Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected 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. ☐
Indicated by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock beneficially owned by non-affiliates of the registrant, calculated based upon the
closing sale price of the common stock as quoted by the Nasdaq Capital Market on June 30, 2023 (the last business day of the registrant’s second fiscal
quarter), was approximately $6.8 million.
As of March 26, 2024, 6,170,479 shares of common stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part
III of this Annual Report on Form 10-K is incorporated by reference from the Registrant’s Proxy Statement for the 2024 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
TABLE OF CONTENTS
Introductory Notes
Part I
Item 1:
Item 1A:
Item 1B:
Item 1C:
Item 2:
Item 3:
Item 4:
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Item 5:
Item 6:
Item 7:
Item 7A:
Item 8:
Item 9:
Item 9A:
Item 9B:
Item 9C:
Part III
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
Item 10:
Item 11:
Item 12:
Item 13:
Item 14:
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part IV
Item 15:
Item 16:
Exhibit and Financial Statement Schedules
Form 10-K Summary
Page No.
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Note Regarding Company References and Other Defined Terms
INTRODUCTORY NOTES
As previously disclosed in our Current Report on Form 8-K filed on August 17, 2023 with the SEC, on August 16, 2023, the Delaware corporation
formerly known as “Diffusion Pharmaceuticals Inc.” completed a merger transaction in accordance with the terms and conditions of the Agreement and
Plan of Merger, dated March 30, 2023 (the “Merger Agreement”) by and among Diffusion Pharmaceuticals Inc. (“Diffusion”), Dawn Merger Inc., a
wholly-owned subsidiary of Diffusion (“Merger Sub”) and EIP Pharma, Inc. (“EIP “), pursuant to which Merger Sub merged with and into EIP, with EIP
surviving the Merger a wholly-owned subsidiary of Diffusion (the “Merger”). Additionally, on August 16, 2023, Diffusion changed its name from
“Diffusion Pharmaceuticals Inc.” to “CervoMed Inc.”
Prior to the Effective Time (as defined below), in connection with the transactions contemplated by the Merger Agreement, Diffusion effected a
reverse stock split of the Company’s common stock, par value $0.001 per share (“common stock”), at a ratio of 1-for-1.5 (the “Reverse Stock Split”). At
the Effective Time, each outstanding share of EIP capital stock was converted into the right to receive 0.1151 shares of Company common stock.
For accounting purposes, the Merger is treated as a reverse recapitalization under US GAAP and EIP is considered the accounting acquirer.
Accordingly, EIP’s historical results of operations are deemed the Company’s historical results of operations for all periods prior to the Merger and, for all
periods following the Merger, the results of operations of the combined company will be included in the Company’s financial statements. Following the
completion of the Merger, the business conducted by the Company became primarily the business conducted by EIP.
Accordingly, unless the context otherwise requires, all references in this Annual Report to (i) “CervoMed,” the “Company,” “we,” “our,” or “us,”
refer to the business of EIP for all dates and periods prior to August 16, 2023 and to the business of CervoMed for all dates and periods subsequent to (and
including) August 16, 2023 and (ii) “common stock” refer to the common stock, par value $0.001 per share, of the Company, after giving effect to the
Reverse Stock Split. Historical share and per share figures of EIP have been retroactively restated based upon the exchange ratio of 0.1151.
We have also used several other defined terms in this Annual Report, many of which are explained or defined below:
Term
2015 Equity Plan
2018 Plan
2020 Notes
2021 Notes
2022 Notes Amendment
2022 Sales Agreement
2023 Notes Amendment
2024 Private Placement
401(k) Plan
AD
Annual Report
ACA
ACR20
AIA
AKS
AMP
ANDA
Definition
CervoMed Inc. 2015 Equity Incentive Plan, as amended
CervoMed Inc. 2018 Employee, Director and Consultant Equity Incentive Plan, as amended
the previously outstanding convertible promissory notes of EIP, dated as of December 4, 2020, as amended
the previously outstanding convertible promissory notes of EIP, dated as of December 10, 2021, as amended
the amendments to the 2020 Notes entered into in April 2022
our At-The-Market Sales Agreement, dated July 22, 2022, with BTIG, as agent
the amendments to the 2020 Notes and 2021 Notes entered into in June 2023
our private placement of an aggregate of 2,532,285 units, each consisting of (i) (A) one share of common stock or (B) one
Pre-Funded Warrant in lieu thereof and (ii) one Series A Warrant, for aggregate gross proceeds of up to approximately
$149.4 million, announced March 28, 2024 and expected to be completed on or about April 1, 2024
CervoMed Inc. 401(k) Defined Contribution Plan
Alzheimer’s Disease
this Annual Report on Form 10-K
Affordable Care Act and the Healthcare and Education Reconciliation Act
American College of Rheumatology 20
America Invents Act
anti-kickback statute
average manufacturer price
abbreviated new drug application
1
API
ASC
AscenD-LB Trial
ASU
Bayh-Doyle Act
BID
BFC
BTIG
Board
CARES Act
CCPA
CPRA
CDR-SB
CGIC
cGMP
ChAT+ neurons
CMC
CMO
CMS
Convertible Notes
CNS
Code
CREATES Act
CRL
CRO
CSF
DSCSA
DGM
DLB
DNP
EEA
EEG
Effective Time
EIP Common Stock
EMA
EOAD
EOT
Exchange Act
Exchange Ratio
FASB
FCPA
FDA
FDCA
FDIC
FTC
FTD
G&A
GBM
GCP
GDPR
GLP
HIPAA
HVLT
IMM
IND
IRA
active pharmaceutical ingredient
Accounting Standard Codification of the FASB
our Phase 2a clinical trial evaluating neflamapimod for the treatment of patients with DLB, completed in the second half of
2021
Accounting Standards Update
Bayh-Dole Act of 1980
twice daily
basal forebrain cholinergic
BTIG LLC
the board of directors of the Company
Coronavirus Aid, Relief, and Economic Security Act
the California Consumer Privacy Act
the California Privacy Rights Act
Clinical Dementia Rating Sum of Boxes test
the Alzheimer’s Disease Cooperative Study-Clinician Global Impression of Change
current good manufacturing practices
neurons staining positively for choline acetyl transferase
chemistry, manufacturing and controls
contract manufacturing organization
the U.S. Centers for Medicare & Medicaid Services
collectively, the 2020 Notes and the 2021 Notes
central nervous system
the U.S. Internal Revenue Code of 1986, as amended
the Creating and Restoring Equal Access to Equivalent Samples Act of 2019
Complete Response Letter
contract research organization
cerebrospinal fluid
Drug Supply Chain Security Act
deep grey matter
dementia with Lewy bodies
the FDA’s Division of Neurology Products
European Economic Area
electroencephalogram
the effective time of the Merger on August 16, 2023
the common stock, par value $0.001, of EIP issued and outstanding prior to the Merger
European Medicines Agency
Early Onset Alzheimer’s Disease
end of treatment
Securities Exchange Act of 1934, as amended
the “Exchange Ratio” as defined in the Merger Agreement
Financial Accounting Standards Board
the Foreign Corrupt Practices Act
U.S. Food and Drug Administration
Federal Food, Drug, and Cosmetic Act
Federal Deposit Insurance Corporation
Federal Trade Commission
frontotemporal dementia
general and administrative
glioblastoma multiforme brain cancer
good clinical practice
European Union General Data Protection Regulation
good laboratory practice
the Health Insurance Portability and Accountability of Act of 1996
Hopkins Verbal Learning Test
irreversible morbidity and mortality
investigational new drug application
Inflation Reduction Act of 2022
2
IRB
IT
LOAD
MA
MCI
MRI
MSN
Nasdaq
NbM
NCE
NDA
NGF
NIA
NIA Grant
NIH
NOL
NTB
NYSE
p38α
PBM
PD
PDAB
PDD
PDMA
PDUFA
PET
POC
PPA
Pre-Funded Warrants
PREA
Proxy Statement
ptau181
RA
R&D
Registration Statement
Regulation S-K
REMS
RewinD-LB Trial
RLD
ROU
SAB
SAE
SEC
Section 382
Securities Act
Series A Warrants
TCJA
TID
TSC
TUG
UPL
U.S.
US GAAP
USPTO
Vertex
Vertex Agreement
institutional review board
information technology
late onset AD
marketing authorization
mild cognitive impairment
magnetic resonance imaging
medial septal nucleus
Nasdaq Stock Market, LLC
Nucleus basalis of Meynert
new chemical entity
new drug application
nerve growth factor
the National Institute on Aging of the National Institutes of Health
the $21 million grant awarded to us by the NIA in January 2023 to support the RewinD-LB Trial
National Institutes of Health
net operating loss
Neuropsychological Test Battery
New York Stock Exchange
p38 mitogen-activated protein kinase alpha
pharmacy benefit manger
Parkinson’s disease
prescription drug affordability board
Parkinson’s disease dementia
Prescription Drug Marketing Act
Prescription Drug User Fee Act, as amended
positron emission tomography
proof-of-concept
primary progressive aphasia
the pre-funded warrants each to purchase one share of common stock at a purchase price of $0.001 per share expected to be
issued in connection with the 2024 Private Placement
Pediatric Research Equity Act
the definitive proxy statement on Schedule 14A for our 2024 Annual Meeting of Stockholders
plasma phosphorylated tau at position 181
rheumatoid arthritis
research and development
Amendment No. 2 to our Registration Statement on Form S-4, filed with the SEC on July 11, 2023, as amended from time
to time
Regulation S-K promulgated under the Securities Act
Risk Evaluation and Mitigation Strategy
our Phase 2b clinical trial evaluating neflamapimod for the treatment of patients with DLB, initiated in the second quarter of
2023
reference-listed drug
right-of-use
scientific advisory board
serious adverse events
U.S. Securities and Exchange Commission
Section 382 of the Code
Securities Act of 1933, as amended
the warrants to purchase an aggregate of 2,532,285 shares of common stock at a purchase price of $39.24 per share expected
to be issued in connection with the 2024 Private Placement
Tax Cuts and Jobs Act of 2017
three times daily
trans sodium crocetinate
Timed Up and Go test
upper payment limit
United States of America
U.S. generally accepted accounting principles
U.S. Patent and Trademark Office
Vertex Pharmaceuticals Incorporated
the Option and License Agreement, dated as of August 27, 2012, by and between EIP Pharma LLC and Vertex, as amended
3
Explanatory Note Regarding 2024 Private Placement
On March 28, 2024, we entered into a securities purchase agreement with certain purchasers named therein related to the private placement of an
aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant. The
2024 Private Placement is expected to close on or about April 1, 2024, subject to customary closing conditions. The aggregate upfront gross proceeds from
the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and expenses, and additional gross proceeds of up
to approximately $99.4 million may be received if the Series A Warrants are exercised in full for cash.
The information contained in this Annual Report, including our consolidated financial statements set forth in, “Part II — Item 8 — Financial
Statements” and the information regarding our liquidity, capital resources and cash runway set forth in, “Part II --- Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” does not reflect the anticipated consummation of, or our anticipated receipt of proceeds from,
the 2024 Private Placement. For additional information regarding the 2024 Private Placement, the terms thereof (including the conditions to closing), and
our expected use of the net proceeds therefrom, refer to our Current Report on Form 8-K filed with the SEC on March 28, 2024.
Note Regarding Forward-Looking Statements
This Annual Report (including, for purposes of this Note Regarding Forward-Looking Statements, any information or documents incorporated
herein by reference) includes express and implied forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties
because they relate to events, competitive dynamics and industry change, and depend on the economic circumstances that may or may not occur in the
future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking
statement contained in this Annual Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual
results of operations, financial condition, liquidity, and prospects may differ materially from the forward-looking statements contained in this Annual
Report. In addition, even if our results of operations, financial condition, liquidity, and prospects are consistent with the forward-looking statements
contained in this Annual Report, they may not be predictive of actual results or reflect unanticipated developments in future periods.
Forward-looking statements appear in a number of places throughout this Annual Report. We may, in some cases, use terms such as “believes,”
“estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately,” or other words that convey
uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements also include statements regarding our
intentions, beliefs, projections, outlook, analyses or expectations concerning, among other things:
● our cash balances and our ability to obtain additional financing in the future and continue as a going concern;
● the success and timing of our ongoing RewinD-LB Trial and our other clinical and preclinical studies, including our ability to enroll subjects in
our studies at anticipated rates and our ability to manufacture an adequate amount of drug supply for our studies;
● obtaining and maintaining intellectual property protection for our current or future product candidates and our proprietary technology;
● the performance of third parties, including contract research organizations, manufacturers, suppliers, and outside consultants, to whom we
outsource certain operational, staff and other functions;
● our ability to obtain and maintain regulatory approval of our current or future product candidates and, if approved, our products, including the
labeling under any approval we may obtain;
● our plans and ability to develop and commercialize our current or future product candidates and the outcomes of our research and development
activities;
● our estimates regarding expenses, future revenues, capital requirements, and needs for additional financing;
● our future obligations under the Vertex Agreement;
● our failure to recruit or retain key scientific or management personnel or to retain our executive officers;
● the accuracy of our estimates of the size and characteristics of the potential markets for our current or future product candidates, the rate and
degree of market acceptance of any of our current or future product candidates that may be approved in the future, and our ability to serve those
markets;
● the success of products that are or may become available which also target the potential markets for our current or future product candidates;
● our ability to operate our business without infringing the intellectual property rights of others and the potential for others to infringe upon our
intellectual property rights;
● any significant breakdown, infiltration, or interruption of our information technology systems and infrastructure;
● our ability to remediate our previously disclosed material weaknesses in our internal controls over financial reporting in a timely manner;
● our ability to successfully integrate the historical businesses of EIP and Diffusion and realize the anticipated benefits of the Merger;
● recently enacted and future legislation related to the healthcare system;
● other regulatory developments in the U.S., European Union, and other foreign jurisdictions;
● our ability to satisfy the continued listing requirements of the Nasdaq or any other exchange on which our securities may trade in the future;
● uncertainties related to general economic, political, business, industry, and market conditions, including the continued availability of funding for
the NIA to support disbursements under our previously received grant and
● other risks and uncertainties, including those discussed under the heading "Risk Factors" herein and in our other public filings.
As a result of these and other factors, known and unknown, actual results could differ materially from our intentions, beliefs, projections, outlook,
analyses, or expectations expressed in any forward-looking statements in this Annual Report. Accordingly, we cannot assure you that the forward-looking
statements contained in this Annual Report will prove to be accurate or that any such inaccuracy will not be material. You should also understand that it is
not possible to predict or identify all such factors, and you should not consider any such list to be a complete set of all potential risks or uncertainties. In
light of the foregoing and the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or
warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. For all forward-looking statements,
we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Any forward-looking statements that we make in this Annual Report speak only as of the date of such statement, and, except as required by
applicable law or by the rules and regulations of the SEC, we undertake no obligation to update such statements to reflect events or circumstances after the
date of this Annual Report or to reflect the occurrence of unanticipated events. Comparisons of current and any prior period results are not intended to
express any ongoing or future trends or indications of future performance, unless explicitly expressed as such, and should only be viewed as historical data.
Note Regarding Trademarks, Trade Names, and Service Marks
This Annual Report includes trademarks, trade names, and service marks owned by us or other companies. All trademarks, service marks and
trade names included in this Annual Report are the property of their respective owners. To the extent any such terms appear without the trade name,
trademark, or service mark notice, such presentation is for convenience only and should not be construed as being used in a descriptive or generic sense.
4
ITEM 1.
BUSINESS
Overview
PART I
We are a clinical-stage biotechnology company focused on developing treatments for age-related neurologic disorders. We are currently focused
on the development of our lead drug candidate, neflamapimod, an investigational, orally administered, small molecule brain penetrant that inhibits p38α in
the neurons (nerve cells) within the brains of people with neurodegenerative diseases. Neflamapimod has the potential to treat and improve synaptic
dysfunction, the reversible aspect of the underlying disease processes in DLB and certain other major neurological disorders, and is currently being
evaluated in our ongoing RewinD-LB Trial, a Phase 2b study in patients with DLB funded by a $21.0 million grant from the NIA. We expect to complete
enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-controlled portion of the study during
the fourth quarter of 2024.
Our novel approach focuses on reducing the impact of inflammation in the brain, or neuroinflammation, which we believe is a key factor in the
manifestation of degenerative diseases of the brain, including DLB. Chronic activation of the enzyme p38α in the neurons (nerve cells) within the brains of
people with neurodegenerative diseases is believed to impair how neurons communicate through synapses (the connections between neurons). This
impairment, termed synaptic dysfunction, leads to deterioration of cognitive and motor abilities. Left untreated, synaptic dysfunction can result in neuronal
loss that leads to devastating disabilities, significant reliance on a caretaker, long term care living, and, ultimately, death. However, before neuronal loss
commences, disease progression in major neurodegenerative disorders, including DLB, initially involves a protracted period of functional loss, particularly
with respect to the synapses. We believe that inhibiting p38α activity in the brain, by interfering with key pathogenic drivers of disease, has the potential to
reverse the clinical progression observed in early-stage neurodegenerative diseases, and that it is possible to slow further progression by delaying
permanent synaptic dysfunction and neuron death.
We believe we are a leader in the industry in developing a treatment for DLB, as we are the only company of which we are aware with an asset
that has shown statistically significant improvements compared to placebo in a Phase 2a clinical trial (our AscenD-LB Trial) and has initiated a Phase 2b
clinical evaluation (our ongoing RewinD-LB Trial), from which we expect initial results before the end of 2024. The clinical symptoms in DLB are most
directly linked to synaptic dysfunction in cholinergic neurons (neurons producing the neurotransmitter acetylcholine) in a part of the brain named the basal
forebrain. Based on available preclinical and clinical data, we believe if neflamapimod is given in the early stages of certain degenerative diseases of the
brain, it may reverse synaptic dysfunction and improve neuron health and function. In preclinical studies, neflamapimod has been shown to reverse the
neurodegenerative process in the BFC system. Following earlier clinical studies demonstrating blood-brain-barrier penetration, target (p38α) engagement,
and identification of dose-response, we obtained positive Phase 2a clinical data in patients with DLB in our AscenD-LB Trial. Specifically, statistically
significant improvement was observed in patients treated with neflamapimod compared to patients treated with placebo on measures of dementia severity
(as measured by CDR-SB) and functional mobility (i.e., walking ability, as measured by the TUG test) in the primary (intention-to-treat) analysis that
includes all patients randomized into the study that had at least one measurement of the endpoint analyzed. In addition, in a secondary analysis,
neflamapimod demonstrated statistically significant improvement compared to placebo in a battery of cognitive tests, particularly with respect to tests that
measured attention.
In October 2023, the major clinical neurology journal, Neurology, published additional analyses of the AscenD-LB Trial data that further
strengthened these conclusions regarding neflamapimod’s potential efficacy and identified the DLB patient population most responsive to neflamapimod
treatment. In these analyses, the results were stratified by pre-treatment levels of plasma ptau181, which recent scientific literature has identified as a
biomarker to differentiate DLB patients with AD-associated co-pathology – a form of mixed dementia which we sometimes refer to as “DLB+AD” – from
DLB patients without AD-associated co-pathology – which we sometimes refer to as “pure DLB.” In pure DLB patients, who generally represent early-
stage patients with limited neurodegeneration in the hippocampus, the treatment response to neflamapimod in the AscenD-LB Trial was substantial
(Cohen’s d effect size ≥ 0.7 and statistically significant vs. placebo on the CDR-SB, TUG, cognitive tests of attention and working memory) and greater
than the overall patient population. In a February 2024 publication in the Journal of Prevention of Alzheimer’s Disease, results from our prior clinical trials
of neflamapimod in AD and DLB were integrated to show not only the demonstrated effects of neflamapimod on cognition and function, but on other
biomarkers such as EEG and brain volume and functional connectivity in the basal forebrain.
5
Our ongoing RewinD-LB Trial is a double-blind, placebo-controlled, 16-week Phase 2b study in 160 patients with pure DLB funded by a $21.0
million grant from the NIA. The trial is intended to confirm the efficacy findings from the AscenD-LB Trial and definitively demonstrate proof-of-concept.
We have utilized our subsequent analyses of the AscenD-LB data and the other information described above to optimize the RewinD-LB Trial’s design and
bolster the trial’s statistical power. Critically, the RewinD-LB Trial will exclude patients with Alzheimer’s disease related co-pathology as evaluated by
plasma ptau181 levels (i.e., the study will only enroll patients with pure DLB) and, to enrich for such patients, the global CDR-SB score at entry will be
limited to 0.5 or 1.0. Together with additional modifications to the Phase 2a design related to dosing regimen and primary endpoint, sample size
calculations indicate that the RewinD-LB Phase Trial has greater than 95% statistical power (approaching 100%) to meet its primary objective of
demonstrating improvement relative to placebo on change in CDR-SB over the course of the study.
We expect to complete enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-
controlled portion of the study during the fourth quarter of 2024. The results of the RewinD-LB Trial are intended to provide the data necessary to finalize
our design of a Phase 3 clinical trial, the general framework of which, including a 24-week treatment duration, has been agreed upon with the FDA.
In addition to neflamapimod’s potential to treat DLB, we believe the benefit of targeting neuroinflammation-induced synaptic dysfunction in the
BFC system can be applied to other neurologic indications in which treatment of BFC dysfunction and degeneration would be expected to be clinically
beneficial, including as treatment promoting recovery in the three months after ischemic stroke, as a disease-modifying treatment for early-stage
Alzheimer’s disease, and as a treatment for certain forms of frontotemporal dementia.
Our Pipeline
Set forth below is a table presenting our clinical pipeline:
6
Our Team
We have assembled a diverse team of experienced company builders and drug developers, complemented by an experienced Board and world-
class scientific advisors. This group shares a long-term commitment to execute our strategy, advance the development of neflamapimod, and improve
treatment outcomes and quality of life for patients suffering from age-related neurologic disorders. Moreover, we benefit from the significant
pharmaceutical development experience of our management team members and directors, several of whom have worked on neflamapimod in the past at
Vertex and are well acquainted with the unique properties of the compound for application in DLB and other potential target indications.
● Our Co-Founder, President and Chief Executive Officer, John Alam, M.D., is a biotech industry veteran with more than 30 years’ experience and is
an industry leader in translational medicine. He has a proven track record of creating value through clinical development success, including having
played major roles during the clinical development of five innovative drugs that are now on the market, and is an emerging drug development
leader in neurodegenerative diseases, including having been the global head of all R&D activities directed towards neurodegenerative diseases at
Sanofi S.A. (Nasdaq: SNY), a top ten global pharmaceutical company. Dr. Alam also has direct experience with neflamapimod from his time at
Vertex, where he was Executive Vice President, Medicines Development and Chief Medical Officer. Dr. Alam also led the clinical development of
Biogen’s first approved drug for the treatment of multiple sclerosis, Avonex.
● Our Co-Founder and Director, Dr. Sylvie Grégoire, PharmD., is also an industry veteran with more than 30 years’ experience who previously held
executive leadership posts in several multinational life sciences firms. Dr. Grégoire has extensive experience with corporate governance and board
operations and is currently also on the board of directors at of two public life sciences companies, Novo Nordisk A/S (NYSE: NVO) and Revvity
(Nasdaq: RVTY) (formerly known as PerkinElmer, Inc. (NYSE: PKI)), and one private company, F2G; and she previously was chair of Corvidia
Therapeutics (acquired by Novo Nordisk), and member of the board of directors of ViFor Pharma (acquired by CSL) and Cubist Pharmaceuticals
(acquired by Merck).
● The Chair of our Board, Joshua S. Boger, Ph.D., is an industry veteran who has served in multiple scientific and business leadership roles during
his multi-decade career. Dr. Boger founded Vertex in 1989 and served as its Chief Executive Officer from 1992 until 2009, and currently serves as
the Executive Chairman of Alkeus Pharmaceuticals. Prior to founding Vertex, Dr. Boger was Senior Director of Basic Chemistry at Merck Sharp
& Dohme Research Laboratories in Rahway, NJ, where he headed both the Departments of Biophysical Chemistry and Medicinal Chemistry of
Immunology & Inflammation.
● Our Chief Financial Officer, William Tanner, Ph.D., through his more than 20 years’ experience as a healthcare research analyst at well recognized
investment banks, has expertise and relevant industry experience.
● Our Chief Operating Officer, Robert J. Cobuzzi, Jr., Ph.D., has over 25 years of cross-functional executive and operational leadership experience
in the pharmaceutical and biotechnology industries across the areas of corporate development, research & development, and operations, at Endo
International Plc, Adolor Corporation, Diffusion Pharmaceuticals, Centocor and AstraMerck. Dr. Cobuzzi also currently serves as a Venture
Partner for Sunstone Life Science Ventures and also is Chairman of Sunstone’s Business Development Advisory Board.
● Our SVP of Clinical Development, Kelly Blackburn, MHA, has more than 30 years of experience in clinical development operations, including
senior management positions at aTyr Pharma and Vertex where she held senior global clinical operational responsibility for three major novel
therapeutics: Kalydeco® for the treatment of cystic fibrosis, Incivek® for hepatitis C, and Velcade® for multiple myeloma.
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● In addition, to provide a strong scientific underpinning for the neflamapimod program, we have surrounded ourselves with thought leaders in the
fields of cell biology, intracellular signal transduction, neurotherapeutics, and translational neuroscience. Our SAB is chaired by Dr. Ole Isacson,
who serves as Professor of Neurology at Harvard Medical School and is a Founding Director of the Neuroregeneration Research Institute at
McLean Hospital. Other members of our SAB include Dr. Lewis Cantley, Professor of Cell Biology at the Dana Farber Cancer Institute, and who
previously served as the Director of the Sandra and Edward Meyer Cancer Center at the Weill Cornell Medical Center; Dr. Jeffrey Cummings is
the Joy Chambers-Grundy Professor of Brain Science at the UNLV Integrated School of Health Sciences and Director of the Chambers-Grundy
Center for Transformative Neuroscience, and Director Emeritus of the Cleveland Clinic Lou Ruvo Center for Brain Health and Professor at the
Cleveland Clinic Lerner College of Medicine of Case Western University; and Dr. Heidi McBride, Canada Research Chair in Mitochondrial Cell
Biology and as Professor in the Department of Neurology and Neurosurgery at McGill University.
Our Strategy
Our mission is to develop and commercialize innovative medicines that change the course of the disease of patients who suffer from age-related
neurologic disorders.
The key elements of our strategy are:
● Advance clinical development of neflamapimod for treatment of DLB with a focus on moving the program through to Phase 3 initiation in mid-
2025. We initiated our Phase 2b RewinD-LB Trial in the second quarter of 2023 and anticipate completing enrollment in the second quarter of
2024. The efficacy data, which would come at the end of the four-month placebo-controlled portion of the trial, are expected in the fourth quarter
of 2024. With those results in hand, we plan to meet with the FDA in an end-of-Phase 2 meeting to finalize the design of a single 24-week
treatment duration Phase 3 clinical trial, which we are targeting to initiate in mid-2025. As the design of the Phase 3 clinical trial will largely
replicate the RewinD-LB Trial design, we believe that success in the RewinD-LB Trial will be a meaningful predictor of the potential for a
successful clinical outcome in our planned Phase 3 trial.
● Advance clinical development of neflamapimod for other disease indications. Neflamapimod’s mechanism of action with respect to treating neuro-
inflammation and, more specifically, cholinergic dysfunction and degeneration provides opportunities to advance our drug in a range of neurologic
disorders, in addition to DLB, in which targeting and treating BFC dysfunction and degeneration would be expected to provide substantial clinical
benefit. Our anticipated second indication is as a three-month treatment following ischemic stroke to promote neurologic recovery, particularly of
motor function. A potential third indication is as disease-modifying treatment early-stage AD, when the BFC degeneration is a major driver of
disease progression. In addition, we believe there is strong scientific basis for evaluating neflamapimod in certain forms of frontotemporal
dementia.
● Commercialize neflamapimod ourselves and/or in collaboration with one or more partners. If neflamapimod receives regulatory approval, we
intend to be prepared to commercialize as soon as practicable in the market(s) where it is first approved, if at all, which we expect to be in North
America and/or Europe. In the future, we may seek partners to seek approval and commercialize our products in other regions.
● Expand our pipeline through in-licensing and acquisitions. In the future, we intend to leverage our expertise in drug development and business
development, as well as our understanding of translational neuroscience with respect to synaptic dysfunction, to opportunistically evaluate product
candidates that are complementary to neflamapimod in our pursuit of novel therapies for DLB, AD and other age-related neurologic disorders.
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Neflamapimod in Dementia with Lewy Bodies
Our Approach
Our approach is based on an understanding of the mechanism by which neuroinflammation leads to the initiation and establishment of the
neurodegenerative process. The process of neurodegeneration starts with dysfunction of synapses, i.e., the interconnections between neurons. Treating
synaptic dysfunction has emerged as a major therapeutic objective to address progression of neurodegenerative diseases, particularly in the early stages
prior to the onset of significant cell death. Importantly, in animal models, while neurodegeneration is irreversible, synaptic dysfunction has been observed
to be reversible. In addition, even in animal models of rapidly progressive neurodegeneration (e.g., prion disease), interventions that reverse synaptic
dysfunction both improve function and “arrest” the neurodegenerative process. Thus, therapeutic interventions that target synaptic dysfunction have the
potential to both reverse and slow disease progression in the early stages of neurodegenerative dementias.
The basal forebrain, and specifically nerve cells producing the neurotransmitter acetylcholine (i.e., “cholinergic neurons”), play critical roles in
controlling and optimizing a wide range of cognitive, motor, and visual tasks. Synaptic dysfunction in the basal forebrain cholinergic system is the primary
pathogenic driver of disease expression and progression of DLB. Basal forebrain cholinergic dysfunction also plays a major role in disease progression in
the early stages of AD, and basal forebrain cholinergic dysfunction is rate limiting for optimal recovery after ischemic stroke.
In collaborative work conducted with the New York University Langone Medical Center, and as published in the journal Nature Communications,
we have demonstrated that neflamapimod targets the specific molecular mechanisms underlying basal forebrain cholinergic dysfunction, and eventually
degeneration, and, as discussed in subsequent sections, can successfully reverse disease progression in animals with basal forebrain cholinergic dysfunction
and degeneration.
Capitalizing on Our Strengths
We believe that the following competitive strengths will allow us to execute on our mission to develop and commercialize neflamapimod as a
disease modifying innovative drug treatment for patients who suffer from DLB and other neuro-inflammatory age-related neurologic disorders:
● Our approach to degenerative diseases of the brain is highly differentiated and has the potential to be the first to market specific drug therapy for
DLB. Our approach focuses on reducing the impact of neuroinflammation. Neuroinflammation is directly linked with the initiation of the
neurodegenerative process through synaptic dysfunction, which results in a reduction or elimination of the ability of the affected neurons to
transfer information. Neflamapimod targets neuro-inflammation and, particularly, the molecular mechanisms within neurons that lead to synaptic
dysfunction, thereby both improving cognitive function and slowing down the process that leads to neuronal loss. Currently, there are no approved
therapies for DLB and there is limited drug development in this area, with neflamapimod being, to our knowledge, the only disease-modifying
approach that has demonstrated significant improvements on clinical outcome measures in a clinical trial in DLB.
● Neflamapimod has the potential to meet a significant unmet medical need and achieve substantial commercial return. We believe that
neflamapimod can address the high unmet medical need with respect to both the cognitive and motor aspects of DLB. DLB is the third most
common chronic degenerative disease of the brain (after Alzheimer’s disease and Parkinson’s disease), with an estimated 700,000 individuals with
the disease in each of the U.S. and European Union. Despite this prevalence and high unmet medical need, there are currently no FDA or EMA
approved treatments for DLB. Further, patients are referred to neurologists to treat the disease. The specialty nature of neflamapimod, if approved,
combined with the prevalence of the disease should present a significant commercial opportunity, including through reimbursement, based on the
impact on patients’ quality of life and ability to function, reduction of caregiver burden and reduction of health care costs associated with DLB,
among other factors.
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● Neflamapimod has the potential to improve cognitive and motor function (i.e., restore function), providing the opportunity to demonstrate clinical
efficacy in Phase 2 and, if successful, provide a meaningful predictor of the potential for a successful clinical outcome in Phase 3. A major
challenge in developing effective drug treatments for chronic neurodegenerative diseases, particularly AD, has been that approaches to date do not
show improvement in disease outcomes in Phase 2 clinical trials (i.e., trials of less than six-month duration). Instead, demonstration of clinical
efficacy depends on clinical trial duration of at least 12 to 18 months and large subject numbers (~1,000 or more), effectively requiring Phase 3
trials designed to show an effect of slowing disease progression relative to placebo treatment. As a result, Phase 2 clinical trials data may not
provide a meaningful predictor of the potential for a successful clinical outcome in Phase 3 in AD. In contrast, in early-stage DLB, because there
is less extensive neuronal loss and fixed (i.e., irreversible) clinical deficits compared to AD, there is the potential to reverse disease progression
and improve function in Phase 2 clinical trials. Neflamapimod has previously been shown to reverse disease progression and restore function in
preclinical studies and has demonstrated improvement as compared to placebo on clinically meaningful outcomes in a 16-week Phase 2a clinical
trial, particularly in patients with pure DLB. If the results of our AscenD-LB Trial are confirmed in the ongoing RewinD-LB Trial (the placebo-
controlled portion of which will also be of 16 weeks duration) with a statistically significant difference between placebo and neflamapimod
treatment on the primary endpoint, we believe we will have demonstrated proof-of-concept (i.e., have established the neflamapimod is efficacious
in the treatment of DLB). In addition, based on discussions we have had with the FDA, and pending confirmation in an end-of-phase 2 meeting
with the FDA that we plan to have after Phase 2b, approval for neflamapimod could be obtained with the conduct of a single 24-week treatment
duration Phase 3 study involving a few hundred subjects, although there can be no assurances. As the design of the Phase 3 clinical trial will
largely replicate the RewinD-LB Trial design, we believe that success in the RewinD-LB Trial will be a meaningful predictor of the potential for a
successful clinical outcome in our planned Phase 3 trial. See section titled “Item 1A. Risk Factors - Risks Related to the Company’s Product
Development and Regulatory Approval” for a further description of these factors and uncertainties.
● Neflamapimod has been extensively tested in animals and humans. The safety and tolerability profile has been extensively evaluated and is well
understood. Specifically, long-term toxicology studies of neflamapimod have been completed and the drug has been administered to over 300
volunteers and subjects to date (including over 150 subjects in Phase 2 clinical trials in either DLB or AD), some of whom have received up to 30
times the dose we are using in our ongoing RewinD-LB Trial and currently plan to utilize in our planned Phase 3 trial.
DLB Background
Unmet Medical Need
Dementia with Lewy bodies is the second most common neurodegenerative dementia (after AD), representing 10-20% of the dementia population.
The Lewy Body Dementia Association estimates there are 1.4 million individuals in the United States affected with Lewy body dementia, which includes
both PDD and non-Parkinson’s DLB. As non-Parkinson’s DLB and PDD are prevalent in the United States at an approximate ratio of 1:1, there are
approximately 700,000 individuals with DLB in the United States. Furthermore, the prevalence in European countries is similar to that in the United States,
and so we believe there also are approximately 700,000 individuals with DLB in the European Union as well. Despite this prevalence, there are currently
no approved treatments specifically for DLB in the U.S. or the European Union.
DLB is characterized by progressive dementia and fluctuating cognition (particularly deficits in attention), visual hallucination, motor dysfunction
(disturbances in gait and balance) and sleep disturbances. With respect to life expectancy, in a large cohort of DLB and AD cases (251 DLB, 222 AD), after
controlling for age at diagnosis, comorbidity, and antipsychotic prescribing, the survival for DLB was shorter compared to AD, with a median (average)
survival of less than four years with DLB (3.3 years for males and 4.0 for females), as compared to nearly seven years with AD (6.7 years for males and 7.0
years for females). Antecedent to death, the time progression to severe dementia is also shorter by nearly two years with DLB compared to AD.
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Separate from survival and progression to severe disease, even in the mild-to-moderate stages, with deficits occurring in both cognitive and motor
function, the disease burden with respect to quality of life and caregiver burden, is greater in DLB than in AD. Furthermore, patients with DLB are more
frequently admitted to general hospitals and utilize inpatient care to a substantially higher degree than do those with AD or the general elderly population.
Most importantly, in a large prospective study, mild dementia patients with DLB were admitted to a nursing home after only a median of 1.8 years from
presentation and diagnosis, nearly two years shorter than the 3.7 years in the AD group.
Accordingly, DLB in afflicted persons often progresses quickly and severely impacts not only the daily lives of patients suffering from the disease
but that of their caregivers. There are currently no disease-modifying treatments available for DLB, so management of DLB currently focuses on relief of
symptoms, including its cognitive and parkinsonian (e.g., tremor) manifestations. No approaches have been shown to clinically slow neuronal loss or
prevent cognitive decline, and there are no approved therapies for treating the underlying disease process or disease-modifying drugs in Phase 3 clinical
trials. Though not approved for DLB, cholinesterase inhibitors are used in its management, with some limited and transient improvement in cognition and a
reduction in the frequency and severity of visual hallucinations. However, despite treatment with cholinesterase inhibitors, the cognitive and functional
impairments progress rapidly, caregiver burden remains high, and new treatments are needed for these patients. With respect to the motor component of
DLB, dopaminergic medications (e.g., carbidopa/levodopa) work less well in DLB as compared to PD and patients with DLB generally have a limited
response to these medications, which are in any case poorly tolerated in this patient population; a reason for the poor response is that DLB is primarily a
disease of the cholinergic system, rather than the dopaminergic system.
Scientific Rationale
Recent evidence indicates that the primary pathology in DLB is in the basal forebrain cholinergic system, dysfunction and degeneration of which
drives neurodegeneration in other regions of the brain. A series of publications, largely from the laboratories and colleagues of Prof. William Mobley at
UCSD and Prof. Ralph A. Nixon at NYU Langone and the Nathan Kline Psychiatric Institute, have defined the molecular mechanisms that lead to
neurodegeneration of cholinergic neurons. As shown in the figure below, the cholinergic degeneration is believed to result from inflammation and various
aggregated proteins that lead to aberrant activation of the protein Rab5, a master regulator of endocytosis and endosomal trafficking, further leading to
impaired retrograde axonal transport and a block in NGF signaling from the synapses at the ends of nerve fibers (or “axons”) back to cell body of the
cholinergic neuron in the basal forebrain. The resulting loss of support of neuronal health that NGF provides is then believed to lead to dysfunction, and,
eventually, degeneration of cholinergic neurons, which are particularly vulnerable to this pathogenic process because of their very long fibers.
Molecular Mechanisms Underlying Cholinergic Neurodegeneration in DLB and Point of Intervention for Neflamapimod
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Early-stage patients with pure DLB (i.e., the ~50% of patients without AD-related co-pathology assessed by biomarkers) have relatively limited
neurodegeneration and neuronal loss in the cortical regions of the brains, including and particularly in the hippocampus. Moreover, based on a range of
animal and human pathology studies, the cholinergic degenerative process in the basal forebrain is believed to be reversible. The cholinergic neurons in that
region of the brain do not die, rather they stop functioning normally (i.e., stop producing acetylcholine) and atrophy, or shrink in size. However, as those
neurons are still alive, with successful pharmacological treatment they can be rescued and the disease process reversed.
Neflamapimod was hypothesized to reduce Rab5 protein activity – a key therapeutic target in this pathogenic model for cholinergic degeneration
in DLB – because of scientific literature showing that the immediate target of neflamapimod, p38α kinase, is the major activator of Rab5. Based on that
hypothesis, neflamapimod was evaluated in a preclinical study in an animal model intended to evaluate neflamapimod’s effects on basal forebrain
cholinergic atrophy and, later, in our Phase 2a AscenD-LB Trial in patients with DLB. We believe that the results of these studies, through demonstration of
reduction in Rab5 activity and reversal cholinergic dysfunction & degeneration, demonstrate neflamapimod’s potential to treat synaptic dysfunction, the
reversible aspect of the underlying neurodegenerative processes in the basal forebrain cholinergic system that cause disease in DLB. We also have obtained
and published results from a pilot clinical study in patients with early AD that demonstrate neflamapimod treatment increases the volume of the basal
forebrain, as well its functional connectivity to the cortex, as assessed by structural and functional MRI, respectively.
Clinical Development Plan
AscenD-LB Trial: Our Completed Phase 2a Trial in Dementia with Lewy Bodies
The AscenD-LB Trial was a Phase 2a double-blind, placebo-controlled, 16-week treatment, exploratory clinical trial of neflamapimod in mild-to-
moderate DLB conducted at 22 centers in the United States and two centers in the Netherlands. 91 subjects were enrolled between October 2019 and March
2020 and randomized to receive 40 mg neflamapimod capsules or matching placebo capsules (randomized 1:1) for 16 weeks. The dosing regimen was
based on weight, with trial participants weighing less than 80 kg receiving capsules BID and those weighing greater than or equal to 80 kg receiving
capsules TID. All subjects had to have already been receiving oral cholinesterase inhibitor therapy for at least three months (stable dose for greater than six
weeks) and continued such therapy without dose modification during the trial.
The AscenD-LB Trial was an exploratory clinical trial designed to evaluate the effects of neflamapimod against a range of clinical endpoints. In
the primary analysis of the AscenD-LB Trial, which included all patients enrolled and evaluated for treatment effects, neflamapimod demonstrated
improvement compared to placebo in dementia severity (assessed by CDR-SB, p=0.023 vs. placebo) and functional mobility (gait or walking ability as
assessed by the TUG test, p=0.044 vs. placebo). In additional analyses, at the highest dose (40mg TID), significant improvement on a cognitive test battery,
or NTB, was evident as compared to placebo (p=0.049); however, significant improvement compared to placebo on the NTB was not evident in the
primary analysis. In addition, encouraging positive trends on the ten-item Neuropsychiatric Inventory were seen, particularly with respect to visual
hallucinations, where a significant reduction in frequency relative to placebo was seen.
This primary analysis of the AscenD-LB Trial data showing neflamapimod significantly improved dementia severity and motor function was
published in the major scientific journal Nature Communications in September 2022.
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Primary Analysis of Major Efficacy Endpoints in AscenD-LB Trial of Neflamapimod in DLB
On-study (all time-points) results; change from baseline analysis utilizing Mixed Model for Repeated Measures. Number of participants: 41 for
placebo, 20 each for 40mg BID and 40mg TID.
We believe the lack of significant effect in the primary analysis on the cognitive testing (NTB) results are attributable to the combination of (1) the
inclusion of subjects receiving the lower, 40 mg BID dose of neflamapimod, a dose that did not achieve targeted therapeutic blood drug concentrations, and
(2) “ceiling effects”, (i.e. that patients with disease have exogenous limits on how much they can improve on a cognitive test) resulting from two separate
potential causes. First, all patients in the study were receiving cholinesterase inhibitor therapy, which is known to improve outcomes on cognitive testing in
patients with DLB; that is, with having received benefit with cholinesterase inhibitor therapy, there was a limit to how much better perform with
neflamapimod treatment, particularly with low dose neflamapimod treatment. Second, the deficits in executive function at baseline were very mild and, as a
result, the tests evaluating executive function (two of six in the NTB) could not have demonstrated an effect.
Based on recent scientific literature demonstrating that DLB subjects with abnormally elevated plasma ptau181 (tau protein phosphorylated at
residue 181) have AD associated co-pathology (specifically amyloid plaque and/or tau pathology by PET scan or CSF analysis), additional pre-specified
analyses of the AscenD-LB data stratified by baseline plasma ptau181 were conducted and identified the pure DLB patient population as the optimal
patient population for the RewinD-LB Trial and any future phase 3 clinical trials. Compared to subjects with DLB without elevated plasma ptau181 (i.e.,
with “pure” DLB), subjects with DLB with elevated plasma ptau181 have more extensive neuronal loss (neurodegeneration) and, therefore, would be
expected to be less responsive to treatment. As shown in the table below, patients in the AscenD-LB Trial with pure DLB had an average higher treatment
response (evaluated by Cohen’s d effect size), compared to the average response in the overall study, and demonstrated significant improvement in
cognitive tests of Attention, the CDR-SB, the TUG test, and in a rest of recognition memory (International Shopping List Test recognition index) with
Cohen’s d treatment effect size that was greater than 0.7 for each of these endpoints, indicating clinical effects that are moderate-to-large in magnitude. By
comparison, in published studies in the scientific literature, the cholinesterase inhibitors have Cohen’s d effect size of approximately 0.3 in the treatment of
AD or DLB.
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Magnitude of 40mg TID Neflamapimod Treatment Effect vs. Placebo in Overall Patient Population and in the Pure DLB Patient Population) of the
AscenD-LB Trial*
* By convention the magnitude of a treatment is considered small when the Cohen’s d effect size between 0.2 and, moderate when it is 0.4 to 0.8
and large when it is 0.8 or greater.
In September 2023, the results of these additional analyses of the AscenD-LB Trial were published in Neurology, the medical journal of the
American Academy of Neurology. A subsequent publication in Molecular Neurodegeneration provides a combined evaluation of the findings in the
Neurology and Nature Communications articles that makes the case for advancing neflamapimod as a treatment for DLB.
RewinD-LB Trial: Our Ongoing Phase 2b Trial in Dementia with Lewy Bodies
In the second quarter of 2023, we initiated our ongoing RewinD-LB Trial, a Phase 2b clinical trial of neflamapimod in subjects with DLB funded
by a $21.0 million grant from the NIA, and, in August 2023, we announced dosing of the first patient in the study. We believe the design of the RewinD-LB
Trial has positioned the study for success, as it is based on our findings and learnings from the AscenD-LB Trial, including the following:
● Based on the dose response analysis of the AscenD-LB Trial and observations in prior AD studies, the optimal dose was identified as 40
mg TID, which will be the only dosing regimen used in the RewinD-LB Trial.
● Clinical endpoints that can detect effects on both cognitive and motor function (specifically, CDR-SB and TUG) better distinguish drug
treatment from placebo than tests that are purely focused on evaluating cognition. Moreover, in AD, CDR-SB is accepted by regulatory
authorities as an approval endpoint. Accordingly, we have chosen CDR-SB as the primary endpoint in the RewinD-LB Trial.
● Subjects with pure DLB (i.e., those without AD co-pathology as evidenced by increased concentrations of ptau181) appear to have a
greater response to treatment. Therefore, we have chosen to exclude subjects with elevated (i.e., abnormal) levels of ptau181 in the
RewinD-LB Trial. We believe that excluding subjects with abnormal ptau181 substantially increases the statistical power to demonstrate
treatment effects in clinical trials of neflamapimod in DLB.
Accordingly, in the RewinD-LB Trial, neflamapimod will be administered orally, 40 mg TID, with a second group receiving matching placebo.
Each treatment group will include 80 subjects (enrolling a total of 160 subjects) diagnosed with DLB by consensus criteria, including having an abnormal
dopamine transporter scan. Subjects with elevated plasma ptau181 (i.e., having evidence of AD co-pathology) will be excluded. Treatments (neflamapimod
or placebo) will be administered for 16 weeks in the main trial (i.e., double-blind, placebo-controlled portion of the study), with a 36-week open label
treatment extension for subjects completing the initial 16-weeks of the trial. Following completion of informed consent procedures, subjects will enter the
screening phase of the trial. Once eligibility is confirmed and before the first dose of study drug, subjects will be randomly assigned on 1:1 basis to placebo
or neflamapimod treatment. Dosing will start on day 1 following completion of all baseline procedures. During the placebo-controlled portion of the trial,
subjects will return to the clinic at the end of weeks 2, 4, 8, 12 and 16.
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The primary objective of the trial is to demonstrate that neflamapimod, compared with placebo, improves dementia severity, as assessed by change
from baseline to week 16 in CDR-SB score. The CDR-SB is designed to assess both cognition and function, and is obtained by clinicians rating the severity
of symptoms across 6 domains – memory, orientation, judgment & problem solving, community affairs, home & hobbies, and personal care – after a semi-
structured interview with the patient and a reliable informant (e.g. family member) on a 0–3 scale for each domain (total range 0–18, with a higher score
indicating worse dementia).
Secondary objectives include further evaluation of the safety and tolerability of neflamapimod and treatment effects on (1) cognition, assessed by
a DLB-specific cognitive test battery, (2) motor function, as assessed by the TUG test, and (3) global rating of treatment effect, assessed by the CGIC.
Tertiary endpoints will examine whether neflamapimod affects neuropsychiatric outcomes as assessed by the NPI-12, effect on fluctuations in cognition as
assessed by the Dementia Cognitive Fluctuations Scale, impact on resting-state EEG (as well alpha-reactivity evaluated by EEG) and in a sub-set of
subjects, basal forebrain atrophy assessed by structural MRI.
Sample size was calculated via simulations conducted utilizing the data in the Phase 2a study for the major clinical endpoints in the neflamapimod
40mg TID and placebo groups, generating for each patient a change from baseline for each endpoint at individual visits over the course of the simulated
clinical study, and then analyzing the result using the linear mixed effects model for repeated measures that will be utilized to analyze the Phase 2b study.
Based on the simulation of 100 clinical trials with 80 patients per treatment group, and assuming a 10% dropout rate, the RewinD-LB Trial has
approximately 85% power with the NTB, 95% power with TUG, and greater than 95% power (approaching 100%) with the primary endpoint, CDR-SB, to
detect a treatment effect at a significance level of 0.05.
We expect to complete enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-
controlled portion of the study during the fourth quarter of 2024. The results of the RewinD-LB Trial are intended to provide the data necessary to finalize
our design of a Phase 3 clinical trial, the general framework of which has been agreed upon with the FDA.
Planned Phase 3 Development in DLB Based on Success in Phase 2b Clinical Trial
We met with the FDA in January 2020, after completion of the AscenD-LB Trial and availability of the preliminary analysis of the results, in an
end-of-phase 2 meeting to discuss potential Phase 3 clinical designs that may support approval of neflamapimod for the treatment of DLB. In that meeting,
the FDA stated that a single Phase 3 clinical trial of six months’ treatment duration may be sufficient to support approval of neflamapimod if the trial
demonstrated robust, clinically meaningful effects on cognition and on either function or a global measure (e.g., CGIC). Based on those discussions, we
believe that if the RewinD-LB Trial demonstrates significant effects on the primary CDR-SB endpoint (a clinically meaningful measure of cognition and
function), the result would be highly predictive of success in Phase 3, as the Phase 3 clinical trial would be designed to replicate the Phase 2b findings over
six months (an additional two months compared to the four months in Phase 2b). Further, the number of subjects to be enrolled in a Phase 3 trial, which at
the time of the January 2020 meeting was proposed to be 250 subjects, would be adjusted based on treatment effect size observed in the Phase 2b results to
provide >95% statistical power for the primary efficacy endpoint. We are also evaluating CGIC in our planned Phase 2b trial for incorporation as a
potential endpoint in the Phase 3 clinical trial. The size of a Phase 3 clinical trial and certain other aspects of the Phase 3 trial (e.g., choice of secondary
endpoints) would be discussed with the FDA in a second end-of-phase 2 meeting that we would expect to schedule after the primary efficacy data are
available from the ongoing RewinD-LB Trial, which we anticipate being available in the fourth quarter of 2024.
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NIA Grant
In January 2023, we were awarded a $21.0 million grant from the NIA that is estimated to fully fund development costs associated with the
RewinD-LB Trial. The NIA Grant funds will be disbursed over the course of the trial as costs are incurred and, during the year ended December 31, 2023,
we received total cash funding of approximately $6.2 million.
In addition, in December 2023, we submitted a request for supplemental funds in the amount of $4.0 million, of which, if approved, $3.9 million
would be received in the current year and the remainder would be received in next the funding year. The request for supplemental funds was initially
reviewed by the NIA in January 2024 but, due to the NIA currently working under the Continuing Resolution, completion of the review was delayed and
the request is currently scheduled to be reviewed for approval in May 2024.
We currently expect to receive the remaining 10%, or $0.8 million, of the previously approved year 2 funding upon U.S. congressional approval of
a final appropriations bill, the supplemental amount of $4.0 million following NIA review of our supplement request, and the year 3 funding of $6.2
million in February 2025.
Prior Clinical Studies of Neflamapimod
Phase 2 Clinical Trials Evaluating Neflamapimod in Alzheimer’s Disease
Prior to our more recent clinical trials in patients with DLB, two Phase 2a studies of neflamapimod in AD were completed in early 2017. Results
from these earlier studies demonstrated that neflamapimod is well tolerated, crosses the blood brain barrier and is pharmacologically active in the brain,
including providing us with data around blood-barrier penetration target engagement (biological activity in the brain), and an understanding of dose-
response, i.e., the completion of the steps in early clinical studies to successful CNS drug development.
One of these studies, Reverse-SD, was a Phase 2b clinical trial in subjects with AD. 161 subjects were enrolled at 38 sites in the Czech Republic
(5 sites), Denmark (3 sites), Netherlands (3 sites), United Kingdom (11 sites) and United States (16 sites) and were randomized 1:1 to receive
neflamapimod 40 mg capsules or matching placebo capsules twice daily with food for 24 weeks. Inclusion criteria were as follows: men and women aged
55 to 85 years, with CDR-Global score of 0.5 or 1.0 (i.e., with mild AD); CDR memory sub-score of at least 0.5; MMSE score of 20 to 28, inclusive;
positive biomarker for AD, as defined by CSF Aβ1-42 <1000 pg/mL and phospho-tau/Aβ1-42 >0.024 in the Roche Eclesys® immunoassay; receiving
either no AD-specific therapy or on a stable dose monotherapy (either cholinesterase inhibitor or memantine; dual therapy excluded).
Including all subjects in the analysis, there was no evident difference between the neflamapimod and placebo groups in the primary clinical
efficacy endpoint, the combined change from baseline to week 24 in the z-scores of HVLT of Total Recall and Delayed Recall. However, in the analysis of
CSF biomarkers, there were statistically significant effects of neflamapimod treatment, with a reduction relative to placebo, in the change from baseline to
week 24 in CSF protein levels of phosphorylated tau (p-tau181, p=0.01 vs. placebo) and total tau (p=0.03 vs. placebo), and a trend on CSF neurogranin
(p=0.07 vs. placebo).
Because in the scientific literature tau pathology has been shown to be downstream (is a consequence) of p38α kinase activity, the effect of
neflamapimod on CSF levels of ptau181 and total tau demonstrates target engagement, i.e., these CSF results are consistent with “target engagement”
within the brains of subjects. Target engagement is the industry term for the drug having the intended pharmacological effect in humans that would be
expected based on its mechanism of action; in this case, that neflamapimod is inhibiting p38α activity. Furthermore, as CSF ptau181 and CSF total tau are
considered to reflect neurodegeneration and synaptic dysfunction, respectively, we believe the results also provide objective evidence of neflamapimod
impacting the neurodegenerative process in patients, including specifically on synaptic dysfunction.
16
As a single dose of neflamapimod was utilized in the trial, pre-specified pharmacokinetic pharmacodynamic analyses were conducted to evaluate
the results for potential dose-dependency. These analyses showed improvement, relative to the placebo group, in tests of episodic memory in
neflamapimod-treated subjects with the highest (top quartile) trough plasma drug concentrations; with positive trends evident both for the primary endpoint
(combined change in z-scores of HVLT total recall and delayed recall) and the major secondary endpoint of change in Wechsler Memory Scale Combined
Immediate and Delayed Recall composites. This analysis provided critical dose-response information as it indicated that 40mg BID was too low a dose, but
that a dose of 40mg TID would achieve therapeutically effective drug concentration levels in the blood.
Results of Imaging of Basal Forebrain by MRI in Patients with Early AD after Treatment with Neflamapimod
With the development and availability of analytic MRI-based techniques to evaluate potential treatment effects on the basal forebrain, the MRI
images from patients with mild AD (n=15) from one of our Phase 2a studies were reanalyzed by a specialized neuroimaging group at the Amsterdam
Medical Center. The goal of this exploratory analysis, which was presented at the AD/PD meeting in Gothenburg, Sweden in April 2023, was to assess by
MRI the treatment effects of neflamapimod on the NbM, the largest cluster of cholinergic neurons in the basal forebrain. Structural and MRI assessments
had been conducted as part of the study at baseline and following 12 weeks of treatment with neflamapimod. The additional analysis demonstrated that the
NbM volume was statistically significantly higher at EOT (mean 3.1% higher vs. baseline, p=0.026). Eight of 15 subjects had greater than 3% NbM higher
volume at EOT, as compared to baseline. Treatment with neflamapimod was also associated with a statistically significantly higher functional dynamic
connectivity between the NbM and DGM at EOT (mean 11% higher vs. baseline, p=0.043), with six of 13 subjects showing a greater than 10% higher
dynamic NbM-DGM connectivity at EOT, as compared to baseline. We believe the potential reversal of atrophy and recovery of function in neflamapimod-
treated subjects in this trial suggests a restoration of cholinergic neurons in the NbM in line with the data generated in previous preclinical studies that
demonstrated neflamapimod reversed the neurodegenerative process in the basal forebrain cholinergic system.
Neflamapimod treatment was associated with increased basal forebrain volume and functional connectivity
NbM – Nucleus basalis of Meynert, the largest cluster of cholinergic neurons in the basal forebrain; DGM – Deep Grey Matter
Lin C-P, Noteboom S, Bet M, Alam J, Prins N, Barkhof F, Jonkman L, Schoonheim M, Oral Presentation at AD/PD™ 2023, Gothenburg, Sweden, 1 April
2023
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Clinical Safety Results
Adverse events seen in all completed Phase 2 clinical trials evaluating neflamapimod in both CNS and non-CNS disorders are shown in the table
below. This includes 149 subjects with either AD or DLB who have received neflamapimod for up to 24 weeks at either 40 mg BID or TID or 125 mg BID.
Among this cohort of patients with CNS disorders, the most commonly reported adverse events were headache (15 events, 10%), respiratory infection (11
events, 7%), diarrhea (11 events, 7%), fall, (11 events, 7%), and somnolence (seven events, 5%), all mild to moderate in severity. Headache, diarrhea, and
somnolence appear to have the strongest association with neflamapimod treatment.
There were five Serious Adverse Events reported in the 149 subjects with AD and DLB treated with neflamapimod (vs. eight who were
administered placebo), involving hypokalemia, myeloma, head injury, brain tumor, and brain lesion, none of which were considered related to
neflamapimod.
Adverse Events in Neflamapimod Phase 2 Clinical Trials of ≥ 12 weeks duration in AD or DLB
Placebo (N=128)
Neflamapimod (N=140)
Falls
Diarrhea
Headache
Common Cold/URI
Nausea
Somnolence
Vomiting
Fatigue
8 (6%)
7 (6%)
6 (5%)
8 (6%)
4 (3%)
3 (2%)
4 (4%)
5 (3%)
11 (8%)
10 (7%)
9 (6%)
7 (5%)
6 (4%)
4 (3%)
2 (1%)
1 (1%)
With respect to liver enzyme abnormalities, during 12 weeks of dosing at 250mg BID (i.e., four-fold higher daily dosing than in the recently
initiated Phase 2b trial) in 44 subjects with rheumatoid arthritis, elevations in liver transaminase levels were noted in six subjects (14%). Additionally, in
one subject (1%) participating in the Reverse-SD 24-week trial in mild AD who received 40 mg BID neflamapimod, ALT and AST levels increased to
three times the upper limit of normal. In each instance, subjects were asymptomatic, there were no associated increases in bilirubin, and the elevations
resolved with treatment discontinuation.
In the most recently completed AscenD-LB trial involving 91 subjects with DLB, neflamapimod was well tolerated with no treatment
discontinuations due to study drug-related adverse events. There were four SAEs reported in the placebo group (haematochezia, internal bleeding,
intraparenchymal hemorrhage, asthma exacerbation) and two among the neflamapimod BID treatment group (brain lesions, head injury), all of which were
considered unrelated to treatment. In addition, one SAE (brain tumor diagnosis) was reported 34 days after the last dose in a neflamapimod BID recipient.
There were no SAEs or early treatment discontinuations in the neflamapimod TID recipients. Liver enzyme abnormalities were not observed in the
AscenD-LB trial.
Preclinical Studies
Ts2 Transgenic Mice
Nearly all individuals who have Down Syndrome, characterized by trisomic chromosome 21, develop AD by their fourth decade of life, and have
typical AD pathology when autopsied at death. This may be explained by chromosome 21 containing the gene for amyloid-precursor-protein, which is the
gene linked to familial or genetic early onset AD in humans. The Ts2 transgenic mouse model of Down Syndrome utilizes mice that are partially trisomic at
chromosome 16, which is the mouse equivalent of chromosome 21. Along with developmental behavioral abnormalities, Ts2 mice develop typical early
onset dementia pathology, including endosomal abnormalities and cholinergic neurodegeneration in the basal forebrain cholinergic system. Accordingly,
Ts2 mice provide an ideal opportunity to evaluate the effects of drug treatment on basal forebrain cholinergic dysfunction and degeneration.
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To evaluate the potential of neflamapimod on the neurodegenerative process, the effects of neflamapimod were evaluated in Ts2 mice. Wild-type
mice, referred to as either WT or 2N, and Ts2 mice were treated over 28 days, twice daily, with either vehicle or 3 mg/kg of neflamapimod in vehicle, with
nine mice in each group. Treatment was initiated at 6-7 months of age, representing a time point at which endosomal pathology and cholinergic neuronal
loss is developing. To assess for effects on cholinergic neurodegeneration, ChAT+ neurons were quantitated in the region of the forebrain that is enriched
for cholinergic neurons, which is known as the MSN.
At the end of treatment, consistent with current scientific literature, the number of cholinergic neurons in the MSN region was significantly
decreased in vehicle-treated TS2 mice compared to vehicle-treated WT mice (p<0.001). This effect was reversed with neflamapimod treatment, with the
number cholinergic neurons in the MSN increased in neflamapimod-treated TS2 mice compared to vehicle-treated TS2 mice, and the number of ChAT+
neurons were similar to those seen in WT mice (p<0.001). Neflamapimod treatment also normalized Rab5 activity and phosphorylated (i.e., activated) p38
MAP kinase and its downstream substrates.
Neflamapimod restores numbers of cholinergic neurons in basal forebrain (i.e., reverses disease progression) in Ts2 transgenic mouse.
Cholinergic neurons, as assessed by staining positive for ChAT+ in the MSN of the basal forebrain, in wild-type treated with vehicle or Ts2
transgenic mice after treatment for four weeks with either vehicle or neflamapimod.
The finding of reversal of disease progression is consistent with studies in the scientific literature that suggest that “loss” of cholinergic neurons in
the basal forebrain cholinergic system is not due to cell death. Rather, the “degeneration” and loss of such basal forebrain cholinergic neurons appears to be
due to a loss of cholinergic phenotype and functional properties, and neuronal shrinkage, all of which in animal studies can be reversed. That is, the effect
of reversing disease progression, evidenced by increased number of cholinergic neurons. This is not a regenerative effect. Rather, we believe it reflects that
treatment with neflamapimod is restoring the function of diseased neurons (those that don’t express ChAT), allowing them to express ChAT. There is also
evidence from studies in early AD, that cholinergic phenotype loss, rather than frank neuronal death and loss, occurs in the basal forebrain of humans as
well. We believe this is consistent with the results obtained from the MRI evaluation of neflamapimod-treated AD patients discussed above in whom an
increase in the volume of basal forebrain cholinergic neurons was observed in the NbM.
Aged Rat Model
To obtain preclinical proof-of-principle and confirm the role of p38α in the development of synaptic dysfunction, we tested neflamapimod in a rat
model of age-related cognitive decline. When evaluated in the Morris-Water-Maze test of spatial learning, rats show cognitive deficits starting at 20 to 22
months of age, which is equivalent to approximately 60 years of age in humans. Of note, because the deficits in Morris-Water-Maze performance can be
fully reversed by implanting healthy cholinergic neurons in the basal forebrain, those deficits are believed to be due to basal forebrain cholinergic
dysfunction and degeneration.
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The results of these tests showed that treatment with neflamapimod fully reversed the learning deficits in the Morris-Water-Maze test in 20- to 22-
month-old rats. Specifically, the performance of aged rats on the last day of testing (day 17) showed that animals treated with neflamapimod at the optimal
dose performed significantly better than vehicle–treated aged rats (p=0.007 for latency; p=0.01 for distance). Further, the performance of neflamapimod-
treated aged rats was similar to that of young rats (i.e., fully reversed cognitive deficits). The figure below further details the results of these tests, in which
two groups of 15 rats each (aged rats with cognitive deficits and a control group of young rats) received vehicle or active drug treatment for 21 days. The
Morris-Water-Maze test was conducted on days 4-8 and days 11-17.
Neflamapimod’s Potential in Additional Indications
Acute Indication: Recovery after Ischemic Stroke
We believe the therapeutic benefit of targeting neuroinflammation-induced synaptic dysfunction is not limited to chronic neurodegenerative
diseases. A drug that improves synaptic function could also be considered for evaluation of the potential to improve brain function after acute neurological
injury. In the future, we may investigate neflamapimod in the treatment of certain acute indications such as ischemia-induced stroke. We have generated
preclinical evidence suggesting that neflamapimod could improve recovery after ischemic stroke in an animal model.
A treatment to improve recovery from stroke remains a significant unmet medical need. Every year, more than 795,000 people in the United States
suffer a stroke, and approximately 610,000 of these are first or new strokes. About 87% of all strokes are ischemic strokes, in which blood flow to the brain
is blocked. The prognosis for recovery from stroke is influenced by a number of different factors, including stroke severity, type of stroke, location of
infarct, co-morbidity with other disorders, and other clinical complications. The majority of survivors of an acute stroke demonstrate some level of
neurological recovery during the three to six months after the initial event. Despite this initial period of recovery, 40 to 50% of patients exhibit persistent
neurological deficits.
During the last 10 years, the medical and scientific communities have gained a better understanding of the mechanisms underlying neuronal
recovery following a stroke. The major translational opportunity for therapeutics that target recovery after stroke is the time window in which intervention
must be initiated. Rather than just the first few hours after the stroke (as is the case with neuroprotection, i.e., acute stroke therapy to reduce the size of
stroke), the window for therapeutics that could improve recovery is days and even weeks after an acute stroke. Waiting to initiate therapy until 48 hours
after the stroke allows inclusion of a homogenous patient population as the diagnosis and extent of the stroke can be definitively established by that time in
most patients (the exception being the minority who have a “stuttering” stroke). As a result, a POC study in stroke recovery is in the range 50-100 patients
per treatment arm, compared to 500+ per treatment arm in neuroprotection trials.
The scientific rationale for evaluating neflamapimod to promote recovery after stroke is that the basal forebrain cholinergic system plays a critical
role in recovery after ischemic stroke, particularly motor function recovery. The BFC system is suppressed by residual inflammation in the weeks and
months after the acute stroke event. Neflamapimod, through the same mechanisms operating in DLB, would be expected to reverse the suppression of BFC
function, leading to improved recovery of motor function. Supporting that concept is our preclinical data with neflamapimod demonstrating significant
improvement in neurological recovery vs. vehicle treatment, and TUG results from the AscenD-LB clinical trial where positive effects of neflamapimod on
basal forebrain mediated control of movement were observed in the clinic.
In a preclinical study of neflamapimod that evaluated effects on recovery after stroke, which has been published in a peer-reviewed scientific
journal, transient ischemia of sufficient duration was induced in rats such that significant neurologic disability developed without mortality, and the
neurologic disability did not substantially reverse during follow-up without therapy. These rats were then treated with either vehicle or one of two different
doses of neflamapimod. The three groups in the study were: vehicle control (n =18), 1.5 mg/kg neflamapimod (n = 21) and 4.5 mg/kg neflamapimod (n =
21). Six weeks of neflamapimod treatment, starting at 48-hours after stroke, led to substantial improvement on multiple parameters of neurologic function
compared to vehicle controls (p<0.001 for each of global neurologic scores; motor and sensory specific tests).
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We have no immediate plans to initiate a clinical trial evaluating neflamapimod as a treatment to improve recovery from acute stroke. However,
we have had extensive discussions with stroke experts and have designed a 120-patient, 12-week treatment, placebo-controlled Phase 2 POC trial to
improve recovery after ischemic trial in which treatment would be initiated between 3 and 7 days after the acute stroke event that could be initiated to
evaluate the effects of neflamapimod, subject to available funding.
Early-Stage Sporadic Alzheimer’s Disease
The defining clinical characteristics of early-stage, sporadic AD are deficits in episodic memory (the recollection of everyday events). The driving
pathology of sporadic AD is in the hippocampus, the part of the brain in which episodic memory is formed. Accordingly, the amyloid beta therapies have
been developed as a treatment for AD based on preclinical data demonstrating that amyloid beta has deleterious effects on synaptic function in the
hippocampus. However, scientific literature indicates that degeneration of the basal forebrain cholinergic system also contributes to disease expression and
progression in AD, particularly in the early stages, and we believe that a reason for the limited success of amyloid beta directed therapies is that they do not
impact disease progression in these basal forebrain cholinergic neurons. In addition to the effects on the BFC system, in experimental studies, p38α
expression increased amyloid beta production, while reducing p38α activity decreased amyloid pathology. Further, neflamapimod treatment of transgenic
AD mice reduced amyloid beta levels and, in Ts2 mice, neflamapimod reduced the expression of the major enzyme (beta secretase) that produces amyloid
beta. Based on these observations, we believe there is a strong rationale for neflamapimod, either as a standalone therapy or in combination with amyloid
beta directed therapies.
In addition to the mechanistic and pre-clinical evidence of the potential use of neflamapimod in AD, the AscenD-LB Trial demonstrated clinical
outcome results and biomarker results in the CSF and on basal forebrain volume in patients with early AD that we believe suggest neflamapimod’s
potential use in treating AD.
We have no current plans to initiate a clinical trial evaluating neflamapimod for treatment of early-stage sporadic AD. Rather, assuming success in
our ongoing RewinD-LB Trial, we would likely pursue clinical development in early-stage sporadic AD in parallel with our Phase 3 development of
neflamapimod in pure DLB, subject to available funding.
Frontotemporal Dementia
FTD is a neurodegenerative disorder characterized by progressive deterioration in behavior, personality, and language abilities, typically affecting
individuals between the ages of 40 and 65 including an estimated 50,000 to 60,000 individuals in the U.S. alone. Unlike AD, which primarily targets
memory, FTD primarily affects the frontal and temporal lobes of the brain, leading to changes in social conduct, emotional regulation, and decision-
making. There are several subtypes of FTD, including the behavioral variant FTD, the most common subtype (approximately half the patients with FTD)
and primary progressive aphasia, or PPA, each presenting with distinct symptom profiles. PPA, a subtype of FTD itself, has three main variants:
nonfluent/agrammatic variant PPA, semantic variant PPA, and logopenic variant PPA. The prevalence of these PPA subtypes varies, with approximately
40% of PPA patients being nonfluent/agrammatic variant PPA, 40% being semantic variant PPA, and 20% being logopenic variant PPA. As the disease
progresses, individuals with FTD may require increasing levels of care and support, with management focusing on alleviating symptoms and maximizing
function.
The rationale for potentially evaluating neflamapimod as a treatment for FTD is based on the atrophy of the BFC system also being a driver of
disease and the mechanisms that neflamapimod targets (e.g. defects in axonal transport) being operative in FTD. Specifically, when assessed by MRI, the
volume of the basal forebrain is reduced, relative to age-matched healthy control, most prominently in patients who semantic variant PPA and behavioral
variant FTD and in patients who have “tauopathies” (i.e., patients at autopsy who have tau pathology, rather than TDP-43 pathology). Moreover, in March
2024, at the AD/PD 2024 scientific conference in Lisbon, Portugal, academic collaborators from University College London presented data that showed
that p38 MAPK inhibitors generally, and neflamapimod specifically, enhanced axonal transport in a transgenic mouse model of FTD (rg4510 transgenice
harboring P301L mutation). Based, in particular, on the transgenic mouse results, we plan to initiate discussions with experts in field and design a phase 2a
study to evaluate neflamapimod in the most appropriate subtype of FTD for the mechanism, subject to available funding.
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Additional Neflamapimod Development Background
Discovery and Early Development by Vertex
Neflamapimod was originally discovered at Vertex, which initiated clinical investigations in 1999 to determine the effects of the drug on RA.
During its clinical investigations of neflamapimod, Vertex completed single and multi-dose Phase 1 studies and initiated Phase 2a development in
rheumatoid arthritis. A total of approximately 150 healthy volunteers and patients received neflamapimod in Vertex-sponsored studies for up to one month
at 750 mg twice daily and up to 3 months at a dose of 250 mg twice daily.
In a Phase 2a trial in active rheumatoid arthritis conducted by Vertex, a total of 59 healthy volunteers and patients (44 on active drug of 250 mg,
and 15 on placebo, twice daily) were enrolled in a 12-week treatment. In this trial, a statistically significant effect of neflamapimod administration on
ACR20 response rate was demonstrated (p = 0.027 in the primary endpoint analysis: area-under-the-curve of ACR20 response over the 12-week trial
period). In a pharmacokinetic/pharmacodynamic analysis, neflamapimod administration also reduced C-reactive protein and IL-6 levels with increasing
cumulative drug exposure.
Neflamapimod was generally well tolerated in this RA Phase 2a trial. The most common adverse events associated with neflamapimod were
abdominal pain (21% of the 44 healthy volunteers), diarrhea (18%), infection (16%), headache (14%), increased aspartate aminotransferase (14%) and
increased alanine aminotransferase (11%). No treatment-emergent neurologic events were seen. Regarding liver function test abnormalities, transaminase
levels returned to normal after treatment discontinuation and were not associated with bilirubin elevations. Liver enzyme elevations are a well-known dose-
dependent clinical side effect of p38 MAPK inhibitors. In the case of neflamapimod however, we believe the threshold for inducing liver enzyme elevation
is a dose level of 250 mg twice daily when administered for more than 4 weeks, which on a daily dose level is four-fold higher than the 40mg TID dose
regiment we are moving forward in DLB and other CNS indications (500 mg per day in RA vs. 120 mg per day in DLB and other CNS indications).
Vertex ultimately discontinued its pursuit of neflamapimod in the early 2000s to focus on the clinical development of a therapy for rheumatoid
arthritis with a different p38α inhibitor, which, unlike neflamapimod, does not enter the brain. Neflamapimod lay dormant with Vertex until we expressed
our interest in exploring the drug for other indications. See “Vertex Agreement” below for additional information.
Toxicology
A full chronic repeated dose toxicology program has been completed in rodents (rats) and non-rodents (dogs). In the rodent species, in the six-
month toxicology study, no human relevant findings were evident at dose levels that provided plasma neflamapimod drug concentration levels
approximately ten-fold higher than those achieved in the AD clinical trials. In shorter-term studies, the primary target organ was the liver, with findings
commencing at plasma drug concentration levels 20-fold higher than the AD clinical trial exposures. In the non-rodent species, in 9- and 12-month
toxicology studies, dose dependent findings were evident beginning at plasma neflamapimod drug concentrations more than ten-fold higher than achieved
with 40 mg twice daily in AD clinical trials, with minimal to equivocal findings at that dose level in the liver, bone marrow and CNS. The CNS findings
demonstrated damage to axons, or nerve fibers, primarily in the spinal cord. p38α and p38β have been reported to have a role in transport of proteins in
axons, and therefore we believe these toxicity findings are related to the inhibition of both p38α and p38β at the very high doses administered in the non-
rodent studies. The doses we are using in our clinical trials are at least ten-fold lower than the doses at which these effects were observed.
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Regulatory Status
We submitted an IND application to the FDA in February 2015. The FDA cleared our application in March 2015, and the IND remains open and
active.
The FDA granted neflamapimod Fast Track designation for the treatment of DLB in October 2019.
Following a review of the long-term animal toxicology studies discussed above, the FDA placed a partial clinical hold on our first Phase 2a Trial
in mild AD (Study 303) in August 2015, limiting administration of neflamapimod to doses that lead to plasma drug levels which provide at least a 10-fold
safety margin to the plasma drug levels in animals that in long-term animal toxicity studies had previously led to minimal or equivocal findings in the liver,
bone marrow and CNS. At the present time, this partial clinical hold effectively limits our clinical dosing in the United States to 40 mg of neflamapimod
three times daily in patients with a weight of greater than or equal to 50kg (110 pounds), based on agreements with the FDA and on our current
understanding of plasma drug levels achieved with neflamapimod in humans. As our current plans across our indications do not envision surpassing this
dose level, we do not expect this partial clinical hold to impact our ongoing and planned clinical trials.
In Europe, clinical trial applications in support of our clinical trials have been reviewed and approved by the national regulatory authorities in each
of the Netherlands, United Kingdom, Czech Republic and Denmark. In addition, the Agence Nationale de Sécurité du Médicament et des Produits de Santé
(the French national regulatory authority) has reviewed and approved a clinical trial application for an investigator-initiated study of neflamapimod in
Toulouse, France.
Vertex Agreement
In August 2012, based on our team’s previous direct experience with this compound and our understanding of its profile and emerging science
around p38α in the brain, we entered into the Vertex Agreement, which granted us an option to acquire an exclusive worldwide license to develop and
commercialize neflamapimod for the diagnosis, treatment and prevention of AD and other neurodegenerative diseases. In August 2014, we exercised that
option to acquire the license to neflamapimod.
The Vertex Agreement contains certain milestone events and the related payments that we would be obligated to make to Vertex if and when such
events occur. Each milestone payment is payable only once for each distinct licensed product, upon the first occurrence of the applicable milestone event.
The first expected milestone events concern filing of an NDA, with the FDA for marketing approval of neflamapimod, in the U.S., or a similar filing for a
non-U.S. major market, as specified in the Vertex Agreement. The Vertex Agreement also provides that we will make royalty payments to Vertex in the
event aggregate net sales, as defined in the agreement, for a commercialized licensed product meet specified thresholds. Such royalties will be on a sliding
scale of percentages of net sales in the low- to mid-teens, depending on the amount of net sales in the applicable years. We are also obligated to make a
milestone payment to Vertex upon net sales reaching a certain specified amount in any 12-month period. The Vertex Agreement states that royalties will be
reduced by 50% during any portion of the royalty term when there is no valid claim of an issued patent within specified patent rights covering the licensed
product. We also have the right to deduct, on a country by country basis, from royalties otherwise payable to Vertex under the terms of the Vertex
Agreement, 50% of all royalties, upfront fees, milestones and other payments paid by us or any of our affiliates or sublicensees to third parties under
licenses that are necessary for the development, manufacture, sale or use of a licensed product, provided that in no event will the royalty payable to Vertex
be reduced to less than 50% of the rates specified in the Vertex Agreement, subject to certain adjustments specified therein. In the aggregate, our potential
milestone payment obligations, all of which relate to development milestones, under the Vertex Agreement are up to $122.0 million. To date, we have made
an aggregate of $100,000 in payments to Vertex. In connection with our obligations under the Vertex Agreement, there is no minimum annual expenditure
requirement. Our diligence obligations under the Vertex Agreement have included the making of annual expenditures in connection with the development
of neflamapimod, commencement of a Phase 2 clinical trial of neflamapimod, and the commercial sale of neflamapimod within six months of market
approval.
The Vertex Agreement provides that we may sublicense the rights granted to us by Vertex, in whole or in part, to a third party (through multiple
levels of sublicensing) (i) who is providing services to us in connection with the manufacture or development of the licensed product, solely for the purpose
of providing such services, or (ii) with the prior written consent of Vertex, which shall not be unreasonably withheld.
23
The license term under the Vertex Agreement is deemed to have commenced on August 21, 2014, and continues until the expiration of the royalty
term, unless sooner terminated in accordance with the terms of the Vertex Agreement. The royalty term commences on the first commercial sale of a
licensed product and ends upon the later of (i) the date of expiration, unenforceability or invalidation of the last valid claim of certain specified underlying
patent rights, or (ii) ten years after the date of such first commercial sale. Upon the expiration of the royalty term, the license will convert to a perpetual,
fully paid-up non-royalty bearing license with the same scope.
The Vertex Agreement may be terminated by us for any reason upon 90 days’ prior written notice to Vertex if such termination occurs before
receipt of the first marketing approval of a licensed product, and otherwise upon twelve months’ prior written notice to Vertex. Either party may terminate
the Vertex Agreement if the other party is in material breach of its obligations thereunder, following a 60-day notice and cure period, or if the other party
files for bankruptcy, reorganization, liquidation, receivership, or an assignment of a substantial portion of assets to creditors. The Vertex Agreement also
provides that in the event we materially breach any of certain specified diligence obligations as to a specific major market, Vertex’s sole remedy for such
breach, following the applicable notice and cure period, will be to terminate the license as to such specific major market country.
EIP200 – Novel Co-Crystal of Neflamapimod
We have an issued patent, set to expire in 2038, in the United States for novel co-crystals of neflamapimod with identified, specific, Generally
Recognized as Safe compounds that have the potential to improve the solubility and other physical properties of neflamapimod. The development of one of
these co-crystals as a product would be supported by composition of matter protection afforded by this patent, providing additional patent protection if we
developed such a co-crystal product ourselves, the opportunity to license such a product to another pharmaceutical company while retaining the rights to
neflamapimod and other potential benefits. The ability to develop one or more of these co-crystal products requires a fuller evaluation of the potential
manufacturing processes than has been performed to date.
Trans Sodium Crocetinate
Prior to the Merger in August 2023, Diffusion focused on developing novel therapies that may enhance the body’s ability to deliver oxygen to
areas where it is needed most. The most advanced of these product candidates, TSC, has been investigated and developed to enhance the diffusion of
oxygen to tissues with low oxygen levels, also known as hypoxia. Although we have paused all development activity related to TSC, including the
initiation of Diffusion’s previously announced Phase 2 study of TSC in newly diagnosed GBM patients, we intend to continue to attempt to identify sale or
out-licensing transactions for the Company’s TSC-related assets.
Sales and Marketing
We do not currently have any infrastructure for the sales, marketing or distribution of an approved drug product. In order to market and
successfully commercialize neflamapimod or any other future product candidate, to the extent it or they are approved, we must either develop these
capabilities internally or make arrangements with third parties to perform these services. We may also collaborate with strategic partners that have
experience in these fields. There are significant expenses and risks involved in establishing our own sales, marketing and distribution functions, including
our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and
marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Alternatively, to the extent that we depend on third
parties for such services, any revenues we receive will depend upon the efforts of those third parties, and there can be no assurance that such efforts will be
successful.
24
Manufacturing
We do not own or operate manufacturing facilities, nor do we have plans to develop our own manufacturing operations in the foreseeable future.
Our lead product candidate, neflamapimod, is a small molecule drug that is manufactured using commercially available technologies.
Our RewinD-LB Trial is being conducted with drug substance (or API) that has already been manufactured. This drug substance was
manufactured at an established commercial CMO, that is approved for and manufactures drug both for investigational use and marketed products. We
would anticipate utilizing this CMO for clinical trials beyond the Phase 3 clinical trial in DLB, as well as potentially for commercial use if neflamapimod is
approved. However, supplies of our neflamapimod drug substance could be interrupted from time to time, and we cannot be certain that alternative supplies
could be obtained within a reasonable timeframe, at an acceptable cost, or at all. For a further description of certain risks related to our manufacturing, see
“Item 1A. Risk Factors – Risks Related to the Company’s Clinical Development and Regulatory Approval – The Company’s reliance on third parties for the
production of neflamapimod may result in delays in the Company’s clinical trials or regulatory approvals and may impair the development and ultimate
commercialization of neflamapimod, which would adversely impact the Company’s business and financial position.”
We also currently rely on a third-party CMO (different than that for drug substance) for the manufacture of our neflamapimod drug product. We
have used the same manufacturer for our neflamapimod drug product in all our clinical trials to date. If neflamapimod is ultimately approved for
commercial sale, we expect to continue to rely on third-party contractors for manufacturing the drug product. Although we intend to do so prior to any
commercial launch, we have not yet entered into long-term agreements for the commercial supply of either drug substance or drug product with our current
manufacturing providers, or with any alternate manufacturers.
Competition
Given the potential market opportunity for the treatment of DLB and other neurodegenerative diseases, an increasing number of established
pharmaceutical firms and smaller biotechnology/biopharmaceutical companies are pursuing a range of potential therapies for these diseases in various
stages of clinical development.
While there are numerous companies pursuing AD disease modifying approaches, we believe there are a limited number of companies and disease
modifying approaches for DLB. With regard to public biopharmaceutical companies that we would consider competitive with our approach, and actively
evaluating treatments in DLB, we are aware of Eisai Co. Ltd., Cognition Therapeutics, Inc. and Athira Pharma, Inc., all of whom remain in clinical stage
development of their potential DLB treatments. None of these companies, however, are developing a treatment specifically targeting patients with pure
DLB, the target patient population of our ongoing RewinD-LB Trial.
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis
on proprietary products. We face potential competition from many different sources, including pharmaceutical and biotechnology companies, academic
institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and
commercialize, including neflamapimod, may compete with existing therapies and new therapies that may become available in the future.
Our competitors may have significantly greater financial resources, an established presence in the market, and significantly greater expertise in
research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and reimbursement and marketing approved
products than we do. These competitors also compete with us in recruiting and retaining qualified scientific, sales, marketing and management personnel,
establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our
programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies.
The key competitive factors affecting the success of neflamapimod, and any other product candidates that we develop to address DLB and other CNS
diseases, if approved, are likely to be their efficacy, safety, convenience, price, the level of competition, and the availability of reimbursement from
government and other third-party payors. Our potential commercial opportunity could also be reduced or eliminated if our competitors develop and
commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we
may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. In
addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products.
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Intellectual Property
We strive to protect and enhance the proprietary technologies, inventions and improvements that we believe are important to our business,
including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek to protect our
proprietary position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States
related to our proprietary technology, inventions, improvements and our product candidates that are important to the development and implementation of
our business.
We have made a number of discoveries related to our lead product candidate, neflamapimod, which are reflected in ten main patent families, each
of which we wholly own (dates below are without consideration of potential patent term extension, see section titled “—Patent Term Restoration” below):
● The first patent family relates to methods of treating patients suffering from AD, as well as methods of reducing amyloid plaque burden. In this
family, we hold issued patents in the United States, Europe, Japan, China, Canada, Australia, and Hong Kong. These patents are set to expire in
2032.
● The second patent family relates to the use of neflamapimod for improving cognition. In this family, we hold issued patents in the United States,
Europe, Japan, and a pending application in China. These patents are set to expire in 2035.
● The third patent family relates to co-crystals of neflamapimod in this family, we hold an issued patent in the United States. This patent is set to
expire in 2038.
● The fourth patent family relates to methods for promoting recovery of function in patients who have suffered acute neurologic injuries, including
those resulting from various forms of stroke. In this family, we hold an issued patent in the United States, Europe, and Japan, and pending
applications in Korea and China. These patents are set to expire in 2035-2036.
● The fifth patent family relates to methods of treating patients suffering from dementia. In this family, we have an issued patent the United States
for the treatment to patients with MCI to improve episodic memory and a pending application in Europe. Patents that issue in this family, if any,
are expected to expire in 2037.
● The sixth patent family relates to formulations of neflamapimod, including pharmaceutical compositions for oral administration exhibiting
desirable pharmacokinetics and processes for the manufacture thereof. In this family, we have an issued patent in the United States that is set to
expire in 2039.
● The seventh patent family relates to the treatment of DLB. In this family we have pending applications in the United States, Europe, Japan, China,
Canada, and Hong Kong. Patents that issue in this family, if any, are expected to expire in 2040.
● The eighth patent family is co-owned by Boston University and relates to methods of treating prion disease. In this family, we have a pending
application in the United States. Patents that issue in this family, if any, are expected to expire in 2040.
● The ninth patent family relates to treatment of gait dysfunction related to neurodegenerative disease. An International Application is pending.
Patents that issue in this family, if any, are expected to expire in 2041.
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● The tenth patent family relates to treatment of a subpopulation of patients having DLB but no substantial Alzheimer’s like tau pathology. Patents
that issue in this family, if any, are expected to expire in 2042.
Pursuant to the terms and conditions of the Vertex Agreement, Vertex has granted us an exclusive license under specified Vertex patent rights,
including U.S patent No. 5,945,418, which relates to the composition of matter for neflamapimod. This patent expired in 2017.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal
term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term
of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of
the USPTO delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the
FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years
following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from
the earliest effective filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country and
depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal
remedies in a particular country and the validity and enforceability of the patent.
We also rely upon trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek
to protect our proprietary information, in part, using confidentiality agreements and invention assignment agreements with our collaborators, employees
and consultants, as we determine necessary. These agreements are designed to protect our proprietary information and, in the case of the invention
assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. These agreements may be
breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently
discovered by competitors. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us,
disputes may arise as to the rights in related or resulting know-how and inventions.
Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance
of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses from third parties or
cease certain activities.
From time to time, we may find it necessary or prudent to obtain licenses from third party patent owners. Where licenses are available at
reasonable cost, such licenses are considered a normal cost of doing business. In other instances, we may use the results of freedom-to-operate studies to
guide our early-stage research away from areas where we are likely to encounter obstacles in the form of third-party intellectual property. We strive to
identify potential third-party intellectual property issues in the early stages of research in our programs in order to minimize the cost and disruption of
resolving such issues.
Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our
future drugs may have an adverse impact on us.
For more information, please see “Item 1A. Risk Factors—Risks Related to the Company’s Intellectual Property.”
Government Regulation
The FDA and comparable regulatory authorities in other countries impose requirements upon companies involved in the clinical development,
manufacture, marketing and distribution of drugs, such as those we are developing. These requirements can, in some instances, be substantial and
burdensome. These agencies and other federal, state and local entities regulate, among other things, the research and development, testing, manufacture,
quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and
reporting, sampling and export and import of pharmaceutical products. The process of obtaining regulatory approvals and the subsequent compliance with
applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources.
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U.S. Government Regulation of Drug Products
In the United States, the FDA regulates drugs under the FDCA and its implementing regulations. Failure to comply with the applicable U.S.
requirements at any time during the product development and approval process or after approval may subject an applicant to a variety of administrative or
judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve a pending NDA, withdrawal of an approval,
imposition of a clinical hold, issuance of warning letters or other notices of violation, product recalls or market withdrawals, product seizures, total or
partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
Any agency or judicial enforcement action could have a material adverse effect on our business and results of operations.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
● Completion of nonclinical laboratory tests, potentially animal studies and formulation studies in compliance with the FDA’s GLP regulations;
● Submission to the FDA of an IND, which must become effective before human clinical trials may begin;
● Approval by an IRB covering each clinical trial site before each trial may be initiated at that site;
● Performance of adequate and well-controlled human clinical trials in accordance with GCP regulations and other clinical trial-related requirements
to establish the safety and efficacy of the proposed drug product for each indication;
● Submission to the FDA of an NDA seeking marketing approval;
● A determination by the FDA within 60 days of its receipt of an NDA that the NDA is sufficiently complete to permit a substantial review, in which
case the NDA is filed;
● Satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and
purity;
● Satisfactory completion of FDA audits of clinical trial sites that generated data in support of the NDA to assure compliance with GCP regulations
and the integrity of the clinical data and/or FDA audits of the nonclinical studies submitted as part of the NDA; and
● FDA review and approval of the NDA, including consideration of the views of an FDA advisory committee, if one was involved, prior to any
commercial marketing or sale of the drug in the United States.
Preclinical Studies and IND
Preclinical, or nonclinical studies generally include laboratory evaluation of product chemistry, toxicity and formulation, as well as in vitro and
animal studies to assess the potential for adverse events and in some cases to establish a rationale for the investigational product’s therapeutic use. The
Consolidated Appropriations Act for 2023, signed into law on December 29, 2022, (P.L. 117-328) amended the FDCA to specify that nonclinical testing for
drugs may, but is not required to, include in vivo animal testing. According to the amended language, a sponsor may fulfill nonclinical testing requirements
by completing various in vitro assays (e.g., cell-based assays, organ chips, or microphysiological systems), in silico studies (i.e., computer modeling), other
human or non-human biology-based tests (e.g., bioprinting), or in vivo animal tests. The conduct of nonclinical studies is subject to federal regulations and
requirements, including GLP regulations.
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An IND sponsor must submit the results of preclinical tests, together with manufacturing information, analytical data and any available clinical
data or literature, among other things, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational
new drug to humans, and it must become effective before human clinical trials may begin. Some long-term nonclinical testing may continue even after the
IND is submitted and clinical trials have been initiated. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time
the FDA issues a notice expressly authorizing the proposed trial to proceed or raises concerns or questions related to one or more proposed clinical trials
and places the clinical trial on a clinical hold. If the agency imposes a hold, the IND sponsor and the FDA must resolve any outstanding concerns before the
clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to initiate. Clinical holds also may be imposed
by the FDA at any time before or during clinical trials due to safety concerns or non-compliance. A separate submission to an existing IND must also be
made for each successive clinical trial conducted during product development.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators
(generally physicians not employed by or under the trial sponsor’s control) in accordance with GCP requirements, which include the requirement that all
research subjects provide their informed consent in writing for their participation in any clinical trial, as well as review and approval of the trial by an IRB
for each participating site. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trial procedures, subject
selection and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical
trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB acting on behalf of each institution
participating in the clinical trial must review and approve the trial plan, informed consent forms, and communications to trial subjects before the trial
commences at that institution. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are
reasonable in relation to anticipated benefits, and whether the planned human subject protections are adequate. The IRB must continue to oversee the
clinical trial while it is being conducted and must operate in compliance with FDA regulations.
Sponsors of certain clinical trials generally must register such trials and disclose certain trial information within specific timeframes to the NIH for
public dissemination on the ClinicalTrials.gov data registry. Information related to the investigational product, patient population, phase of investigation,
trial sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Sponsors are also obligated to
disclose the results of their clinical trials after completion, but such disclosures may be delayed in some cases for up to two years after the date of
completion of the trial. Failure to timely register a covered clinical study or to submit study results as provided for in the law can give rise to civil monetary
penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. The U.S. Department of Health and
Human Services’ Final Rule and NIH’s complementary policy on ClinicalTrials.gov registration and reporting requirements became effective in 2017, and
the government has brought enforcement actions against non-compliant clinical trial sponsors. Competitors may use the publicly available information
about clinical trials to gain knowledge regarding the progress of development programs. Sponsors or distributors of investigational products for the
diagnosis, monitoring, or treatment of one or more serious diseases or conditions must also have a publicly available policy on evaluating and responding
to requests for expanded access requests.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
● Phase 1: The drug candidate is initially administered to healthy human volunteers and tested for safety, dosage tolerance, structure-activity
relationships, mechanism of action, absorption, metabolism, distribution, and excretion. In the case of some products for severe or life-threatening
diseases, such as cancer, especially when the product may be too inherently toxic to administer ethically to healthy volunteers, the initial human
testing is often conducted in patients with the target disease or condition. If possible, Phase 1 trials may also be used to gain an initial indication of
product effectiveness.
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● Phase 2: The drug candidate is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Multiple Phase 2 clinical
trials may be conducted by the sponsor to obtain information prior to beginning larger and more extensive clinical trials.
● Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled
clinical trials to generate enough data to evaluate the efficacy and safety of the product for its intended use, to establish the overall risk-benefit
profile of the product, and to provide adequate information for the labeling of the product as well as an adequate basis for marketing approval.
Typically, two adequate, well-controlled multicenter trials are required by the FDA for drug product approval. Under some limited circumstances,
however, the FDA may approve an NDA based upon a single Phase 3 clinical trial plus confirmatory evidence from a post-market trial or,
alternatively, a single large, robust, well-controlled multicenter trial without confirmatory evidence.
● Post-approval Trials: Sometimes referred to as “Phase 4” clinical trials, these trials may be conducted after initial marketing approval and are used
to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the
performance of Phase 4 clinical trials as a condition of approval of an NDA.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be
submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to
humans exposed to the investigational drug, findings from animal or in vitro testing that suggest a significant risk for human subjects and any clinically
important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. It is possible that Phase 1,
Phase 2 or Phase 3 trials may not be completed successfully within any specified period, or at all. The FDA or the sponsor may suspend or terminate a
clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an
IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s
requirements or if the drug has been associated with unexpected serious harm to patients. Sponsors may also choose to discontinue clinical trials as a result
of risks to subjects, a lack of favorable results, or changing business priorities. Additionally, some clinical trials are overseen by an independent group of
qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for
whether a trial may move forward at designated checkpoints based on access to certain data from the trial.
Congress also recently amended the FDCA, as part of the Consolidated Appropriations Act for 2023, in order to require each sponsor of a Phase 3
clinical trial, or other “pivotal study” of a new drug to support marketing authorization, to design and submit a diversity action plan for such clinical trial.
The action plan must include the sponsor’s diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor will meet
them. A sponsor must submit a diversity action plan to the FDA by the time the sponsor submits the relevant clinical trial protocol to the agency for review.
The FDA may grant a waiver for some or all of the requirements for a diversity action plan. It is unknown at this time how the diversity action plan may
affect Phase 3 trial planning and timing or what specific information FDA will expect in such plans, but if the FDA objects to a sponsor’s diversity action
plan or otherwise requires significant changes to be made, it could delay initiation of the relevant clinical trial.
Concurrent with clinical trials, companies may perform additional nonclinical studies and develop additional information about a drug candidate’s
chemistry and physical characteristics as well as finalize a process for its manufacturing in commercial quantities in accordance with cGMP requirements.
The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, the manufacturer must
develop methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and
tested and stability studies must be conducted to demonstrate that a drug candidate does not undergo unacceptable deterioration over its proposed labeled
shelf life.
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Marketing Application Submission, Review by the FDA, and Marketing Approval
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product
development, preclinical studies and clinical trials are submitted to the FDA as part of an NDA requesting approval to market the product for one or more
indications. The NDA must contain proof of the product candidate’s safety and substantial evidence of effectiveness for its proposed indication or
indications in the form of relevant data available from pertinent preclinical and clinical studies, 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. In
particular, a marketing application must demonstrate that the manufacturing methods and quality controls used to produce the drug product are adequate to
preserve the drug’s identity, strength, quality, and purity. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness
of a use of the product, or from a number of alternative sources, including studies initiated by investigators. FDA approval of an NDA must be obtained
before the corresponding drug may be marketed in the United States.
Under PDUFA, each NDA submission is subject to a substantial application user fee, and the sponsor of an approved NDA is also subject to an
annual program fee. The FDA adjusts the PDUFA user fees on an annual basis. The application user fee must be paid at the time of the first submission of
the application, even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in certain circumstances, including a
waiver of the application fee for the first application filed by a small business.
The FDA reviews all NDAs submitted to determine if they are substantially complete before it accepts them for filing and may request additional
information rather than accepting a submission for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt and
must inform the sponsor by the 74th day after the FDA’s receipt of the submission whether the application is sufficiently complete to permit substantive
review. The FDA may refuse to file any submission that it deems incomplete or not properly reviewable at the time of submission and may request
additional information. In this event, the marketing application must be resubmitted with the additional information requested by the agency. The
resubmitted application is also subject to review before the FDA accepts it for filing.
Once an NDA is accepted for filing, the FDA’s goal is to review the application within 10 months after it accepts the application for filing, or, if
the application meets the criteria for “priority review,” six months after the FDA accepts the application for filing. The review process is often significantly
extended by FDA requests for additional information or clarification after the NDA has been accepted for filing. The review process may be extended by
the FDA for three additional months to consider new information or in the case of a clarification provided by the applicant to address an outstanding
deficiency identified by the FDA following the original submission.
During the review process, the FDA reviews the NDA to determine, among other things, whether the product is safe and effective and whether the
facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued strength, quality, and purity. The
FDA may refer any NDA, including applications for novel drug candidates which present difficult questions of safety or efficacy to an advisory committee
to provide clinical insight on application review questions. Typically, an advisory committee is a panel of independent experts, including clinicians and
other scientific experts that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions.
The FDA is not bound by the recommendation of an advisory committee, but it considers such recommendations carefully when making final decisions on
approval.
Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve
an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure
consistent manufacture 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. If the FDA determines that the application, manufacturing process or manufacturing facilities are not
acceptable, it will outline the deficiencies as part of the review process and often will request additional testing or information. Notwithstanding the
submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
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Under the PREA, amendments to the FDCA, an NDA or supplement to an NDA must contain data that are adequate to assess the safety and
efficacy of the product candidate for the claimed indications in all relevant pediatric populations and to support dosing and administration for each pediatric
population for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers. The PREA
requires a sponsor that is planning to submit a marketing application for a product that includes a new active ingredient, new indication, new dosage form,
new dosing regimen or new route of administration to submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-Phase 2 meeting or, if
there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 clinical trial. The initial PSP must include an outline of the
pediatric study or studies that the sponsor plans to conduct, including trial objectives and design, age groups, relevant endpoints and statistical approach, or
a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the
requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A
sponsor can submit amendments to an agreed upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected
from pre-clinical studies, early-phase clinical trials or other clinical development programs.
The testing and approval process requires substantial time, effort and financial resources, and each may take several years to complete. The FDA
may not grant approval on a timely basis, or at all, and we may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental
approvals, which could delay or preclude us from marketing its products. After the FDA evaluates an NDA and conducts inspections of the manufacturing
facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a CRL. An approval letter
authorizes commercial marketing of the product with specific prescribing information for specific indications. A CRL indicates that the review cycle of the
application is complete and the application will not be approved in its present form. A CRL generally outlines the deficiencies in the submission and may
require substantial additional testing, information or clarification for FDA to reconsider the application. The FDA may delay or refuse approval of an NDA
if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor
safety or efficacy of a product. If a CRL is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or
withdraw the application. If and when the deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the marketing application, the
FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in response to an issued CRL in either two or six months
depending on the type of information included. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval.
If regulatory approval of a product is granted, such approval is limited to the conditions of use (e.g., patient population, indication) described in
the application and may entail further limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the
NDA with a REMS plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as
restricted distribution methods, patient registries and other risk minimization tools. The FDA determines the requirement for a REMS, as well as the
specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS plan is needed, the sponsor of the NDA must submit a proposed REMS
to obtain approval for the product. The FDA also may condition approval on, among other things, changes to proposed labeling (e.g., adding
contraindications, warnings or precautions) or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product
approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace.
The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after
commercialization and may limit further marketing of the product based on the results of these post-marketing studies. Some types of changes to an
approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and
separate FDA review and approval. In addition, new government requirements, including those resulting from new legislation, may be established, or the
FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.
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Fast Track, Priority Review, and Breakthrough Therapy Designations
A sponsor may seek approval of its product candidate under programs designed to accelerate FDA’s review and approval of new drugs that meet
certain criteria. Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and
demonstrate the potential to address unmet medical needs for the condition. Fast track designation provides increased opportunities for sponsor interactions
with the FDA during preclinical and clinical development, in addition to the potential for rolling review once a marketing application is filed, meaning that
the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule
for the submission of the sections of the application, the FDA agrees to accept the sections and determines that the schedule is acceptable, and the sponsor
pays any required user fees upon submission of the first section of the application. A fast track designated product candidate may also qualify for
accelerated approval (described below) or priority review, under which the FDA sets the target date for FDA action on the NDA or biologics license
application at six months after the FDA accepts the application for filing.
Priority review is granted when there is evidence that the proposed product would be a significant improvement in the safety or effectiveness of
the treatment, diagnosis, or prevention of a serious condition. Significant improvement may be illustrated by evidence of increased effectiveness in the
treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that
may lead to improvement in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. If criteria are not met for priority review, the
application is subject to the standard FDA review period of 10 months after FDA accepts the application for filing.
In addition, a sponsor may seek FDA designation of its product candidate as a breakthrough therapy if the product candidate is intended, alone or
in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence
indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as
substantial treatment effects observed early in clinical development. Breakthrough therapy designation provides all the features of fast track designation in
addition to intensive guidance on an efficient development program beginning as early as Phase 1, and FDA organizational commitment to expedited
development, including involvement of senior managers and experienced review and regulatory staff in a proactive, collaborative, cross-disciplinary
review, where appropriate. A drug designated as breakthrough therapy is also eligible for accelerated approval if the relevant criteria are met.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for
qualification or decide that the time period for FDA review or approval will not be shortened. Fast track, priority review and breakthrough therapy
designations do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval but may expedite the
development or approval process.
Accelerated Approval
In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful
therapeutic benefit over existing treatments may receive accelerated approval from the FDA and may be approved on the basis of adequate and well-
controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The
FDA may also grant accelerated approval for such a drug or biologic when it has an effect on an intermediate clinical endpoint that can be measured earlier
than an effect on IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or
prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug
receiving accelerated approval perform post-marketing clinical trials to verify and describe the predicted effect on IMM or other clinical endpoint, and the
product may be subject to expedited withdrawal procedures. Drugs granted accelerated approval must meet the same statutory standards for safety and
effectiveness as those granted traditional approval.
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For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign,
or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more
easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably
likely to predict the clinical benefit of a drug or biologic, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on
intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval when the therapeutic effect measured by
the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely
to predict the ultimate long-term clinical benefit of a drug.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required
to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. For example,
accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy
is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large clinical trials to
demonstrate a clinical or survival benefit.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval
confirmatory studies to verify and describe the product candidate’s clinical benefit. As a result, a product candidate approved on this basis is subject to
rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical
endpoint. Failure to conduct required post-approval studies, or to confirm the predicted clinical benefit of the product during post-marketing studies, would
allow the FDA to withdraw approval of the product. As part of the Consolidated Appropriations Act for 2023, Congress provided FDA additional statutory
authority to mitigate potential risks to patients from continued marketing of ineffective drugs or biologics previously granted accelerated approval. Under
the act’s amendments to the FDCA, FDA may require the sponsor of a product granted accelerated approval to have a confirmatory trial underway prior to
approval. The sponsor must also submit progress reports on a confirmatory trial every six months until the trial is complete, and such reports are published
on FDA’s website. The amendments also give FDA the option of using expedited procedures to withdraw product approval if the sponsor’s confirmatory
trial fails to verify the claimed clinical benefits of the product.
All promotional materials for product candidates being considered and approved under the accelerated approval program are subject to prior
review by the FDA.
Patent Term Restoration
Depending upon the timing, duration and specifics of FDA approval of our product candidates, some of our United States patents may be eligible
for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act. The
Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA
regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product
candidate’s approval date. The patent term restoration period is generally one half of the time between the effective date of an IND and the submission date
of an NDA, plus the time between the submission date of the NDA and the approval of that application, except that the review period is reduced by any
time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved product candidate is eligible for the extension
and the application for extension must be made prior to expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the
application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or
licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the
submission of the relevant NDA.
Pediatric Exclusivity
Pediatric exclusivity is a type of non-patent marketing exclusivity available in the United States and, if granted, it provides for the attachment of
an additional six months of marketing protection to the term of any existing regulatory exclusivity or listed patents. This six-month exclusivity may be
granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the
product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional
protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory
or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively
extends the regulatory period during which the FDA cannot approve another application. The issuance of a written request does not require the sponsor to
undertake the described studies.
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Abbreviated NDAs for Generic Drugs
In 1984, with passage of the Hatch-Waxman Act, which established an abbreviated regulatory scheme authorizing the FDA to approve generic
drugs based on an innovator or “reference” product, Congress also enacted Section 505(b)(2) of the FDCA, which provides a hybrid pathway combining
features of a traditional NDA and a generic drug application. To obtain approval of a generic drug, an applicant must submit an ANDA to the agency. In
support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously
approved under an NDA, known as the RLD.
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active
ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug
is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to an RLD if “the rate and extent of absorption of the drug do not
show a significant difference from the rate and extent of absorption of the listed drug.”
Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication
Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book. Clinicians and pharmacists consider a therapeutic
equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the
FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing
clinicians or patient.
In contrast, Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not
conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2) NDAs may provide an alternate path
to FDA approval for new or improved formulations or new uses of previously approved products; for example, an applicant may be seeking approval to
market a previously approved drug for new indications or for a new patient population that would require new clinical data to demonstrate safety or
effectiveness. A Section 505(b)(2) applicant may eliminate the need to conduct certain preclinical or clinical studies, if it can establish that reliance on
studies conducted for a previously-approved product is scientifically appropriate. Unlike the ANDA pathway used by developers of bioequivalent versions
of innovator drugs, which does not allow applicants to submit new clinical data other than bioavailability or bioequivalence data, the 505(b)(2) regulatory
pathway does not preclude the possibility that a follow-on applicant would need to conduct additional clinical trials or nonclinical studies. The FDA may
then approve the new product for all or some of the label indications for which the RLD has been approved, or for any new indication sought by the
Section 505(b)(2) applicant, as applicable.
In addition, under the Hatch-Waxman Amendments, the FDA may not approve an ANDA or 505(b)(2) NDA until any applicable period of non-
patent exclusivity for the RLD has expired. These market exclusivity provisions under the FDCA also can delay the submission or the approval of certain
applications. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing an NCE. For the purposes of this
provision, an NCE, is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the
molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such NCE exclusivity has been granted,
an ANDA or 505(b)(2) NDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV
certification (described below), in which case the applicant may submit its application four years following the original product approval.
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The FDCA also provides for a period of three years of exclusivity for an NDA, 505(b)(2) NDA or supplement thereto if one or more new clinical
investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant are deemed by the FDA to be essential to the
approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form,
route of administration, combination or indication. The three-year exclusivity covers only the conditions of use associated with the new clinical
investigations and does not prohibit the FDA from approving follow-on applications for drugs containing the original active agent. Five-year and three-year
exclusivity also will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA. However, an applicant
submitting a traditional NDA would be required to either conduct or obtain a right of reference to all of the preclinical studies and adequate and well-
controlled clinical trials necessary to demonstrate safety and effectiveness.
Hatch-Waxman Patent Certification and the 30-Month Stay
Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the
applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an
ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in
the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)
(2) NDA applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents
listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.
Specifically, the applicant must certify with respect to each patent that:
● the required patent information has not been filed by the original applicant;
● the listed patent has expired;
● the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
● the listed patent is invalid, unenforceable or will not be infringed by the manufacture, use or sale of the new product.
If a Paragraph I or II certification is filed, the FDA may make approval of the application effective immediately upon completion of its review. If a
Paragraph III certification is filed, the approval may be made effective on the patent expiration date specified in the application, although a tentative
approval may be issued before that time. If an application contains a Paragraph IV certification, a series of events will be triggered, the outcome of which
will determine the effective date of approval of the ANDA or 505(b)(2) application.
If the follow-on applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV
certification to the NDA and patent holders once the follow-on application in question has been accepted for filing by the FDA. The NDA and patent
holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement
lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) NDA until
the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the
ANDA or 505(b)(2) applicant. Alternatively, if the listed patent holder does not file a patent infringement lawsuit within the required 45-day period, the
follow-on applicant’s ANDA or 505(b)(2) NDA will not be subject to the 30-month stay.
Post-Approval Requirements
Following approval of a new product, the manufacturer and the approved product are subject to pervasive and continuing regulation by the FDA,
including, among other things, monitoring and recordkeeping activities, reporting of adverse experiences with the product, product sampling and
distribution restrictions, complying with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or
patient populations (i.e., “off-label use”) and limitations on industry-sponsored scientific and educational activities. The manufacturer and its products are
also subject to similar post-approval requirements by regulatory authorities comparable to FDA in jurisdictions outside of the United States where the
products are approved. Although physicians may prescribe legally available products for off-label uses, manufacturers may not market or promote such
uses. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to
have improperly promoted off-label uses may be subject to significant liability. If there are any modifications to the product, including changes in
indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or a
supplement to an NDA, which may require the applicant to develop additional data or conduct additional nonclinical studies and clinical trials. The FDA
may also place other conditions on approvals including the requirement for a REMS to assure the safe use of the product. A REMS could include
medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk
minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of
products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
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FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP regulations
include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and
closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned
or salvaged products. The manufacturing facilities for our product candidates must meet applicable cGMP requirements to the FDA's or comparable foreign
regulatory authorities' satisfaction before any product is approved and our commercial products can be manufactured. We rely, and expect to continue to
rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. These manufacturers
must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation
and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of
approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic prescheduled or
unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to
expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Future inspections by the FDA and other
regulatory agencies may identify compliance issues at the facilities of our contract manufacturing organizations that may disrupt production or distribution
or require substantial resources to correct. In addition, the discovery of conditions that violate these rules, including failure to conform to cGMPs, could
result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of
an approved NDA, including voluntary recall and regulatory sanctions as described below.
Once an approval or clearance of a drug is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards
is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including
adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in
mandatory revisions to the approved labeling to add new safety information; imposition of post-market or clinical trials to assess new safety risks; or
imposition of distribution or other restrictions under a REMS program.
Other potential consequences include, among other things:
● Restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
● Fines, warning letters or other enforcement-related letters, or clinical holds on post-approval clinical trials;
● Refusal of the FDA to approve pending marketing applications or supplements to approved marketing authorizations, or suspension or revocation
of product approvals;
● Product seizure or detention, or refusal to permit the import or export of products;
● Injunctions or the imposition of civil or criminal penalties;
● Consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs; and/or
● Mandated modification of promotional materials and labeling and the issuance of corrective information.
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In addition, the distribution of prescription pharmaceutical products is subject to the PDMA, which regulates the distribution of drugs and drug
samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws
limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution. Most recently, the
DSCSA was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States. The
DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10-year
period, which culminated in November 2023. Most recently, the FDA announced a one-year stabilization period to November 2024, giving entities subject
to the DSCSA additional time to finalize interoperable tracking systems and to ensure supply chain continuity. From time to time, new legislation and
regulations may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products
regulated by the FDA. It is impossible to predict whether further legislative or regulatory changes will be enacted, whether FDA regulations, guidance or
interpretations will be changed or what the impact of such changes, if any, may be.
Other U.S. Health Care Laws and Regulations
If our product candidates are approved in the United States, we will have to comply with various U.S. federal and state laws, rules and regulations
pertaining to health care fraud and abuse, including anti-kickback laws and physician self-referral laws, rules and regulations. Violations of the fraud and
abuse laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state health care
programs, including Medicare and Medicaid. These laws include:
● The federal AKS prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or paying remuneration,
directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of,
any good or service, for which payment may be made, in whole or in part, under a federal health care program such as Medicare and Medicaid. A
person or entity does not need to have actual knowledge of the AKS or specific intent to violate it to have committed a violation. In addition, the
government may assert that a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for
purposes of the FCA or federal civil money penalties statute;
● The federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which prohibit, among
other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval
by Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement
material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly
and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable
under the FCA even when they do not submit claims directly to government payers if they are deemed to “cause” the submission of false or
fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government
alleging violations of the FCA and to share in any monetary recovery;
● HIPAA imposes criminal and civil liability for executing a scheme to defraud any health care benefit program or making false statements relating
to health care matters;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, also imposes
obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable
health information;
● The federal transparency requirements under the Physician Payments Sunshine Act require manufacturers of FDA-approved drugs, devices,
biologics and medical supplies covered by Medicare or Medicaid to report, on an annual basis, to the CMS information related to payments and
other transfers of value to physicians, certain advanced non-physician health care practitioners, and teaching hospitals or to entities or individuals
at the request of, or designated on behalf of, such physicians, non-physician health care practitioners, and teaching hospitals as well as certain
ownership and investment interests held by physicians and their immediate family members; and
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● Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving health care items or services reimbursed by nongovernmental third-party payors, including private insurers.
The majority of states also have statutes or regulations similar to the aforementioned federal laws, some of which are broader in scope and apply
to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Some state laws require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, or the relevant compliance guidance
promulgated by the federal government, in addition to requiring drug manufacturers to report information related to payments to physicians and other
health care providers or marketing expenditures to the extent that those laws impose requirements that are more stringent than the Physician Payments
Sunshine Act. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Due to the breadth of these laws and the narrowness of their exceptions and safe harbors, it is possible that business activities can be subject to
challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current
environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have
recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations,
prosecutions, convictions and settlements in the healthcare industry.
Ensuring that business arrangements with third parties comply with applicable healthcare laws and regulations is costly and time consuming. If
business operations are found to be in violation of any of the laws described above or any other applicable governmental regulations a pharmaceutical
manufacturer may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment,
exclusion from governmental funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and
future earnings, additional reporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-
compliance with these laws, and curtailment or restructuring of operations, any of which could adversely affect a pharmaceutical manufacturer’s ability to
operate its business and the results of its operations.
Pharmaceutical Coverage, Pricing, and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities.
Sales of our products, when and if approved for marketing in the United States, will depend, in part, on the extent to which our products will be covered by
third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations. The
process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate
that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or
formulary, which might not include all of the approved products for a particular indication. In addition, these third-party payors are increasingly reducing
reimbursements for medical products, drugs and services. Furthermore, the U.S. government, state legislatures and foreign governments have continued
implementing cost containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic
products. Adoption of price controls and cost containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and
measures, could further limit our net revenue and results. Limited third-party reimbursement for our product candidates or a decision by a third-party payor
not to cover our product candidates could reduce physician usage of our products once approved and have a material adverse effect on our sales, results of
operations and financial condition.
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Healthcare Reform
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or delay marketing approval of product and therapeutic candidates, restrict or regulate post-
approval activities, and affect the ability to profitably sell product and therapeutic candidates that obtain marketing approval. The FDA’s and other
regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of
our product and therapeutic candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or
policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we otherwise may have obtained and we may
not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.
As previously mentioned, the primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other
third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products and services,
implementing reductions in Medicare and other healthcare funding and applying new payment methodologies. In recent years, the U.S. Congress has
considered reductions in Medicare reimbursement levels for medicines and biologics administered by physicians. CMS, the agency that administers the
Medicare and Medicaid programs, also has authority to revise reimbursement rates and to implement coverage restrictions for most drugs and biologics.
Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any
approved products we may market in the future. While Medicare regulations apply only to pharmaceutical benefits for Medicare beneficiaries, private
payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in
reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.
In recent years, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,
which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more
transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program
reimbursement methodologies for drug products. Notably, the CREATES Act, which became effective on December 20, 2019, addresses concerns
articulated by both the FDA and others in the industry that some brand manufacturers have improperly restricted the distribution of their products,
including by invoking the existence of a REMS for certain products, to deny generic and biosimilar product developers access to samples of brand
products. Because generic and biosimilar product developers need samples to conduct certain comparative testing required by the FDA, some have
attributed the inability to timely obtain samples as a cause of delay in the entry of generic and biosimilar products. To remedy this concern, the CREATES
Act establishes a private cause of action that permits a generic or biosimilar product developer to sue the brand manufacturer to compel it to furnish the
necessary samples on “commercially reasonable, market-based terms.” Whether and how generic and biosimilar product developments will use this new
pathway, as well as the likely outcome of any legal challenges to provisions of the CREATES Act, remain highly uncertain and its potential effects on our
future commercial products are unknown.
More recently, in August 2022, President Biden signed into the law the IRA. Among other things, the IRA has multiple provisions that may
impact the prices of drug products that are both sold into the Medicare program and throughout the United States. Starting in 2023, a manufacturer of a
drug or biological product covered by Medicare Parts B or D must pay a rebate to the federal government if the drug product’s price increases faster than
the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate owed to the federal government is
directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, starting in payment year 2026, CMS will
negotiate drug prices annually for a select number of single-source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug
prices for a select number of Part B drugs starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is expected that the
revenue generated from such drug will decrease. CMS has begun to implement these new authorities and entered into the first set of agreements with
pharmaceutical manufacturers to conduct price negotiations in October 2023. However, the IRA’s impact on the pharmaceutical industry in the United
States remains uncertain, in part because multiple large pharmaceutical companies and other stakeholders (e.g., the U.S. Chamber of Commerce) have
initiated federal lawsuits against CMS arguing the program is unconstitutional for a variety of reasons, among other complaints. Those lawsuits are
currently ongoing.
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In addition to the IRA’s drug price negotiation provisions, President Biden’s Executive Order 14087, issued in October 2022, called for the CMS
innovation center to prepare and submit a report to the White House on potential payment and delivery modes that would complement to IRA, lower drug
costs, and promote access to innovative drugs. In February 2023, CMS published its report which described three potential models focusing on
affordability, accessibility and feasibility of implementation for further testing by the CMS Innovation Center. As of February 2024, the CMS Innovation
Center continues to test the proposed models and has started to roll out plans for access model testing of certain product types (e.g., cell and gene therapies)
by states and manufacturers.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In
December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate PBMs and other members of the
healthcare and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area. The FTC in
mid-2022 also launched sweeping investigations into the practices of the PBM industry that could lead to additional federal and state legislative or
regulatory proposals targeting such entities’ operations, pharmacy networks, or financial arrangements. Significant efforts to change the PBM industry as it
currently exists in the United States may affect the entire pharmaceutical supply chain and the business of other stakeholders, including pharmaceutical
developers like us. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what
pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the
ultimate demand for our products, once approved, or put pressure on our product pricing.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive
action, either in the United States or abroad. We expect that additional federal, state, and foreign healthcare reform measures will be adopted in the future,
any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in limited
coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
Regulation Outside the United States
For countries outside of the United States, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary from country to country. In all cases, clinical trials must be conducted in accordance with GCP and the other applicable regulatory requirements. To
the extent that any of our product candidates, once approved, are sold in a foreign country, we and our collaborators will be subject to applicable foreign
laws and regulations, which may include, for instance, post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and
implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals. If we or our
collaborators fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials,
suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution.
For example, to market our future products in the EEA (which is comprised of the 28 Member States of the European Union plus Norway, Iceland
and Liechtenstein) and many other foreign jurisdictions, we must obtain separate regulatory approvals. More concretely, in the EEA, medicinal products
can only be commercialized after obtaining an MA. There are two types of MAs:
● The Community MA, which is issued by the European Commission through the Centralized Procedure, is based on the opinion of the Committee
for Medicinal Products for Human Use of the EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is
mandatory for certain types of products, including medicines containing novel active substances to treat neurodegenerative disorders. The
Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA (other than those intended for the
treatment of HIV/AIDS, cancer, diabetes, neurodegenerative diseases, auto-immune and other immune dysfunctions, or viral diseases, which must
be authorized through the Centralized Procedure), or for products that constitute a significant therapeutic, scientific or technical innovation or
which are in the interest of public health in the EU; and
41
● National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are
available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for
marketing in a Member State of the EEA, this National MA can be recognized in another Member State through the Mutual Recognition
Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in
various Member States through the Decentralized Procedure.
Under the procedures described above, before granting the MA the EMA or the competent authorities of the Member States of the EEA assess the
risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
In April 2023 the European Commission issued a proposal that will revise and replace the existing general pharmaceutical legislation. If adopted
and implemented as currently proposed, these revisions will significantly change several aspects of drug development and approval in the European Union.
Data and Marketing Exclusivity
In the EEA, new products authorized for marketing, or reference products, qualify for eight years of data exclusivity and an additional two years
of market exclusivity upon marketing authorization. The data exclusivity period prevents generic applicants from relying on the nonclinical and clinical
trial data contained in the dossier of the reference product when applying for a generic marketing authorization in the European Union during a period of
eight years from the date on which the reference product was first authorized in the European Union. The market exclusivity period prevents a successful
generic applicant from commercializing its product in the European Union until 10 years have elapsed from the initial authorization of the reference
product in the European Union. The 10-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of
those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific
evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
Our People
Overview
As of December 31, 2023, we had eight employees, all of whom we classify as full-time employees, up from four employees as of December 31,
2022. We consider the relationship with our employees to be good. We also engage outside consultants and contractors with unique expertise and skills for
specific purposes.
Our success depends upon our ability to attract and retain highly qualified management and technical employees. Talent management is critical to
our ability to execute our long-term growth strategy, including providing career growth, on-the-job learning opportunities and competitive compensation.
We are committed to an inclusive culture which values equality, opportunity and respect. We are focused on the engagement and empowerment of our
employees through the demonstration of these foundational values.
None of our employees are represented by labor unions or covered by collective bargaining agreements.
Company Culture; Diversity and Inclusion
We believe that an inclusive culture is required to understand and develop products that benefit all patients. By embracing differences, we aim to
foster an environment of respect and trust in an effort to facilitate creativity, spark passion and help us achieve better outcomes for all those who work at
and with CervoMed. We are committed to creating and maintaining a workplace free from discrimination or harassment, including on the basis of any class
protected by applicable law, and our recruitment, hiring, development, training, compensation, and advancement practices are based on qualifications,
performance, skills, and experience without regard to gender, race, ethnicity or other demographics.
42
Our management team and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace, including
adhering to the standards for appropriate behavior set forth in our code of conduct. An “open door” policy is maintained at all levels of the organization and
any form of retaliation against an employee reporting or registering complaints in the event of any violation of our policies is strictly prohibited.
Compensation and Benefits
We operate in a highly competitive environment for human capital, particularly as we seek to attract and retain talent with relevant experience in
the biotechnology and pharmaceutical sectors. Therefore, we strive to provide a total rewards package to our employees that is competitive with our peer
companies and helps meet the needs of our employees. This package currently includes competitive salaries, a cash bonus plan, a comprehensive healthcare
benefits package (including a 90% employer contribution to family medical coverage), unlimited paid time off, a company-sponsored 401(k) savings plan,
short-term and long-term disability, and other benefits, as well as remote working and flexible work schedules. We also offer every full-time employee the
benefit of equity ownership in CervoMed through stock option grants with vesting conditions designed to facilitate retention through the opportunity to
benefit financially from our growth and profitability, as they generally vest over a three- or four-year period. We believe these grants also help promote
alignment between our employees and our stockholders.
Employee Engagement, Safety and Wellness
At CervoMed, we believe that health matters to everyone and that the success of our business is fundamentally connected to the physical and
mental well-being of our people. Accordingly, the safety health, and wellness of our employees is one of our top priorities. We are committed to developing
and fostering a work environment that is safe, professional, and promotes teamwork, diversity, and trust in order to afford all of our employees the
opportunity to contribute to the best of their abilities. In addition to the benefits package described above, in recent years, we have taken certain measures
and responded to changes in our operational needs, including actions designed to further promote a safe work environment for our employees, such as
investing in technology solutions to support increased work-from-home capabilities and moving to an unlimited paid leave policy.
Development and Training
Our employees are encouraged to attend scientific, clinical, technological, and other relevant meetings and conferences and we strive to provide
employees access to a broad set of internal resources intended to help them be successful, including a variety of training and educational materials. We
have also implemented a comprehensive employee evaluation program tied to the achievement of individual, team, and company goals to help further
support, retain, and develop our people and further promote alignment of interests between our employees and our stockholders.
Our Directors
The table below sets forth, as of March 28, 2024, certain information concerning our current directors.
Name
Joshua S. Boger, Ph.D. (Chair)
John Alam, M.D.
Robert J. Cobuzzi, Jr., Ph.D.
Sylvie Grégoire, PharmD.
Jane Hollingsworth, J.D.
Jeff Poulton
Marwan Sabbagh, M.D.
Frank Zavrl
Age
72
62
58
62
65
56
58
58
Director Since
2024
2023
2023
2023
2020
2023
2023
2023
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Our Executive Officers
The table below sets forth, as of March 28, 2024, certain information concerning our current executive officers.
Name
John Alam, M.D.
William Tanner, Ph.D.
Robert J. Cobuzzi, Jr., Ph.D.
Kelly Blackburn, M.H.A.
William Elder
Our Scientific Advisory Board
Age
62
65
59
60
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Position
President and Chief Executive Officer (Principal Executive Officer)
Chief Financial Officer
Chief Operating Officer
Senior Vice President, Clinical Development
General Counsel and Corporate Secretary (Acting Principal Financial Officer)
We have assembled a highly qualified scientific advisory board comprised of thought leaders in the fields of cell biology, intracellular signal
transduction, neurotherapeutics, and translational neuroscience.
Name
Ole Isacson, Dr.Med.Sci.
Lewis Cantley, Ph.D.
Jeffrey Cummings, M.D.,
Sc.D.
Heidi McBride, Ph.D.
Affiliated Entity
Professor of Neurology at Harvard Medical School, Founding Director of the Neuroregeneration Research Institute
at McLean Hospital
Professor of Cell Biology at Harvard Medical School. Prior to this appointment, he was the Margaret and Herman
Sokol Professor and Meyer Director of the Sandra and Edward Meyer Cancer Center at Weill Cornell Medical
College/Ronald P. Stanton Clinical Cancer Program at New York Presbyterian Hospital (2012-22)
Joy Chambers-Grundy Professor of Brain Science and the Director of the Chambers-Grundy Center for
Transformative Neuroscience at the UNLV School of Integrated Health Sciences. Prior to UNLV, Dr. Cummings
served as founding director of the Cleveland Clinic Lou Ruvo Center for Brain Health in Las Vegas, and as director
of the Mary S. Easton Center for Alzheimer’s Disease Research, and director of the Deane F. Johnson Center for
Neurotherapeutics, both at UCLA
Canada Research Chair in Mitochondrial Cell Biology, Professor in the Department of Neurology and Neurosurgery
at McGill University
Corporate Information
Our History
We were originally incorporated under the laws of the State of Nevada on January 10, 1995 and reincorporated under the laws of the State of
Delaware on June 18, 2015. On August 16, 2023, we completed the merger of Merger Sub with and into EIP, which was treated as a "reverse
recapitalization" under U.S. GAAP pursuant to which EIP’s historical results of operations replaced the Company's for all periods prior to the merger.
Immediately following the closing of the merger, we changed our name from "Diffusion Pharmaceuticals Inc." to "CervoMed Inc."
Where to Find Us
Our principal corporate office is located at 20 Park Plaza, Suite 424, Boston, Massachusetts 02116, and our telephone number is (617) 744-4400.
Our website, www.cervomed.com, including the Investor Relations section, ir.cervomed.com, contains a significant amount of information about the
Company.
However, the information included on our website is not incorporated by reference into, and should not be considered part of, this Annual Report
or any other filings we make with the SEC.
Other Available Information
We make available on or through our website certain reports that we file with or furnish to the SEC in accordance with Exchange Act. These
include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K, as well as any amendments to
those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available free of charge as soon as
reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The SEC also maintains a website, www.sec.gov, that
contains reports, proxy and information statements, and other information regarding the Company and other issuers that file electronically with the SEC.
We also make available, free of charge and through our website, the charters of the committees of the Board, our Corporate Governance Guidelines, and
our Code of Business Conduct and Ethics.
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ITEM 1A.
RISK FACTORS
Investing in our securities involves a high degree of risk. Set forth below are certain material risks and uncertainties known to us that could adversely
affect our business, financial condition, or results of operations or could cause our actual results to differ materially from our expectations expressed in
our filings with the SEC and other public statements. The occurrence of the events contemplated by one or more of the factors we describe below could
cause the market price of our securities to decline, resulting in the loss of all or part of any investment in our common stock. Furthermore, other risks that
are currently unknown to us or that we currently believe to be immaterial may also, nevertheless, adversely affect our business, financial condition, or
results of operations in a way that is material.
You should carefully consider the risk factors set forth below as may updated by our subsequent filings under the Exchange Act together with all the other
information in this Annual Report, including our consolidated financial statements and the related notes included in Part II, Item 8 – Financial Statements
and Supplementary Data of this Annual Report and the information set forth in Part II, Item 7A -- Management’s Discussion and Analysis of Financial
Condition and Results of Operations, as well as in our other filings with the SEC, before making any investment decisions. Furthermore, the risks and
uncertainties described below and in the other information mentioned above are not the only ones the Company faces. Additional risks and uncertainties
not presently known to the Company or that we currently believe to be immaterial could, nevertheless, adversely affect the Company’s business, operating
results and financial condition, as well as adversely affect the value of an investment in the Company’s securities, and the occurrence of any of these risks
might cause you to lose all or part of your investment.
Summary of Risk Factors
● The Company is a clinical stage biopharmaceutical company and has incurred significant losses since its inception. The Company expects its net
losses to continue for the foreseeable future. The Company is not currently profitable and may never achieve or sustain profitability. The Company
is unable to predict the extent of future losses or when it might become profitable, if ever.
● The Company will require additional capital to fund its operations. If the Company fails to obtain necessary financing on acceptable terms, or at
all, it may not be able to complete the development and commercialization of neflamapimod.
● The Company currently does not have, and may never have, any products that generate significant revenues.
● The Company is heavily dependent on the success of its lead product candidate, neflamapimod, which is still under clinical development. If
neflamapimod does not receive regulatory approval or is not successfully commercialized, the Company’s business will be materially harmed.
● The development and commercialization of drug products is subject to extensive regulation, and the regulatory approval processes of the FDA and
comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable. There is no guarantee that the Company’s planned
clinical trials for neflamapimod to treat patients with DLB, or in any other indications that the Company may pursue, will be successful. If the
Company is ultimately unable to obtain regulatory approval for neflamapimod on a timely basis, or at all, its business will be substantially harmed.
● Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. The Company may incur additional costs or
experience delays in completing, or ultimately be unable to complete, the development and commercialization of neflamapimod or any other
product candidates the Company may develop or acquire.
● The Company has concentrated its research and development efforts on the treatment of DLB, a disease that has seen limited success in drug
development. The ability to successfully develop drugs for DLB and other age-related neurologic disorders is extremely difficult and is subject to
a number of unique challenges. In addition, its rationale for neflamapimod in the treatment of DLB is based on a scientific understanding of the
disease that may be wrong.
● Enrollment and retention of participants in clinical trials is an expensive and time-consuming process and could be made more difficult or
rendered impossible by multiple factors outside the Company’s control.
● Results of preclinical studies and early clinical trials may not be indicative of results obtained in later trials. In addition, preliminary, topline and
interim data from the Company’s clinical trials that the Company may announce or publish from time to time may change as more patient data
become available and are subject to audit and verification procedures that could result in material changes in the final data.
● If the Company does not adequately protect its proprietary rights, the Company may not be able to compete effectively.
● The Company has no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for its future
viability.
● Even if neflamapimod or any other product candidate the Company develops receives marketing approval, it may fail to achieve the level of
acceptance necessary for commercial success.
● The Company’s future success depends in large part on the Company’s ability to retain its key employees, as well as its ability to attract, train and
motivate additional qualified personnel. The Company may also encounter difficulties in managing its growth, which could disrupt its operations.
● The Company has identified material weaknesses in its internal control over financial reporting which, if not corrected, could affect the reliability
of the Company’s financial statements and have other adverse consequences. The Company may identify additional material weaknesses in its
internal controls over financial reporting which it may not be able to remedy in a timely manner. If the Company fails to maintain proper and
effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.
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Risks Related to the Company’s Limited Operating History, Financial Condition and Need for Additional Capital
The Company is a clinical stage biopharmaceutical company and has incurred significant losses since its inception. The Company expects its net losses
to continue for the foreseeable future. The Company is not currently profitable and may never achieve or sustain profitability. The Company is unable
to predict the extent of future losses or when it might become profitable, if ever.
Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant
risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval, and become
commercially viable. The Company has incurred net losses since its inception, and as of December 31, 2023, it had an accumulated deficit of
approximately $54.4 million. The Company expects to incur net losses for the foreseeable future as it incurs significant clinical development costs related
to the advancement of neflamapimod. The Company has not commercialized any products and has never generated revenue from neflamapimod or any
other product. In order to obtain revenues from any product candidate, the Company must succeed, either alone or in collaboration with others, in
developing, obtaining regulatory approval for, and manufacturing and marketing drugs with significant market potential. The Company may never succeed
in these activities and may never generate revenues that are significant enough to achieve profitability.
The Company expects to incur significant additional operating losses for at least the next several years as it advances neflamapimod through
clinical development, conducts clinical trials, seeks regulatory approval and commercializes neflamapimod, if it is ultimately approved for marketing. The
costs of advancing product candidates into each successive clinical phase of the clinical development process tend to increase substantially. Therefore, the
total costs to advance neflamapimod to marketing approval in even a single jurisdiction will be substantial. Due to the numerous risks and uncertainties
associated with pharmaceutical product development, the Company is unable to accurately predict the timing or amount of increased expenses, or when or
if it will be able to begin generating revenue from the commercialization of neflamapimod, let alone achieve or maintain profitability.
The amount of the Company’s future net losses will depend, in part, on the rate of future growth of its expenses, if and when neflamapimod is
approved for marketing in various jurisdictions and its ability to generate revenues from any drug candidate that may ultimately be approved. If the
Company is unable to develop and commercialize one or more product candidates, either alone or through collaborations, or if revenues from any product
that receives marketing approval are insufficient, it will not achieve profitability. Even if the Company does achieve profitability, it may not be able to
sustain it, which could materially and adversely affect its business.
The Company will require additional capital to fund its operations. If the Company fails to obtain necessary financing on acceptable terms, or at all, it
may not be able to complete the development and commercialization of neflamapimod.
The Company expects to spend substantial amounts to complete the development of, seek regulatory approvals for, and commercialize
neflamapimod, if it is ultimately approved for marketing. These expenditures will include costs related to the RewinD-LB Trial and costs associated with
its license agreement with Vertex, under which the Company is obligated to make certain payments in connection with the achievement of specified events.
Until such time, if ever, that the Company can generate sufficient product revenue and achieve profitability, it expects to seek to finance future
cash needs through equity or debt financings and/or corporate collaboration, licensing arrangements and grants. Based upon the Company’s current
operating plan, the Company believes that the Company’s cash and cash equivalents as of December 31, 2023, will not be sufficient to enable the Company
to fund its operating expenses and capital expenditure requirements for a period of at least 12 months following the issuance of the financial statements
included elsewhere in this Annual Report without an additional equity or debt financing. On March 28, 2024, the Company entered into a securities
purchase agreement with certain purchasers named therein related to the private placement of an aggregate of 2,532,285 units, each comprised of (i) (A)
one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant. The 2024 Private Placement is expected to close on or about
April 1, 2024, subject to customary closing conditions. The aggregate upfront gross proceeds from the 2024 Private Placement are expected to be
approximately $50 million, before deducting offering fees and expenses, and additional gross proceeds of up to approximately $99.4 million may be
received if the Series A Warrants are exercised in full for cash. The foregoing estimate does not reflect the Company’s expected receipt of proceeds from
the 2024 Private Placement.
The Company’s estimates and expectations regarding its cash runway are based on assumptions that may prove to be incorrect, and changing
circumstances could cause it to consume capital faster or in different ways than the Company currently expects. For example, the RewinD-LB Trial may be
more expensive, time-consuming, or difficult to implement than the Company currently anticipates. Because the length of time and activities associated
with the successful development of neflamapimod are highly uncertain, the Company is unable to estimate the actual funds it will require to complete
research and development and ultimately commercialize its drug candidate for one or more indications.
The Company’s future capital requirements will depend on, and could increase significantly as a result of, many factors, including:
● the enrollment, progress, timing, costs and results of the RewinD-LB Trial and any future phase 3 trial evaluating neflamapimod in DLB, as well
as if and when it pursues additional development plans for neflamapimod in other disease indications, such as recovery after anterior circulation
ischemic stroke or EOAD;
● the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;
● its ability to reach certain milestone events set forth in its collaboration agreements and the timing of such achievements, triggering obligations to
make applicable payments;
● the hiring of additional clinical, scientific and commercial personnel to pursue the Company’s development plans, as well the increased costs of
internal and external resources as to support the Company’s operations as a public reporting company;
● the cost and timing of securing manufacturing arrangements for clinical or commercial production;
● the cost of establishing, either internally or in collaboration with others, sales, marketing and distribution capabilities to commercialize
neflamapimod, if approved;
● the cost of filing, prosecuting, enforcing, and defending its patent claims and other intellectual property rights, including defending against any
patent infringement actions brought by third parties against the Company;
● the ability to receive additional non-dilutive funding, including the Company’s pending request for additional funding under the NIA Grant and
other grants from organizations and foundations;
● the Company’s ability to establish strategic collaborations, licensing or other arrangements with other parties on favorable terms, if at all; and
● the extent to which the Company may in-license or acquire other product candidates or technologies.
46
The Company may raise additional capital in the future through a variety of sources, including public or private equity offerings, debt financings,
grant funding, or strategic collaborations and licensing arrangements. However, adequate additional financing may not be available to the Company on
acceptable terms, or at all. The Company’s failure to raise capital as and when needed would have a negative effect on its financial condition and its ability
to pursue its business strategy. If the Company is unable to secure additional capital in sufficient amounts or on terms acceptable to the Company, it may
have to delay, scale back or discontinue its development or commercialization activities for neflamapimod.
Further, to the extent that the Company raises additional capital through the sale of common stock or securities convertible or exchangeable into
common stock, current stockholder’s ownership interest in the Company will be diluted. In addition, any debt financing may subject the Company to fixed
payment obligations and covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. If the Company raises additional capital through collaborations, strategic alliances or licensing arrangements with third parties, the
Company may have to relinquish certain valuable intellectual property or other rights to its product candidates, technologies, future revenue streams or
research programs or grant licenses on terms that may not be favorable to it. Even if the Company were to obtain sufficient funding, there can be no
assurance that it will be available on terms acceptable to the Company or its stockholders.
The Company currently does not have, and may never have, any products that generate significant revenues.
The Company is a clinical-stage biopharmaceutical company focused on developing treatments for age-related neurologic disorders, currently has
no products that are approved for commercial sale, and it is possible it may never be able to develop a marketable product. To date, the Company has not
generated any revenues from its lead product candidate, neflamapimod, or from any other product candidate. The Company cannot guarantee that
neflamapimod, or any other product candidate that it may develop or acquire in the future, will ever become a marketable product.
The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation in the
U.S. and in other countries. Before the FDA and other regulatory authorities in the European Union and elsewhere will approve neflamapimod (or any
other drug candidate) for commercialization, the Company must demonstrate that it satisfies rigorous standards of safety and efficacy for each of its
intended uses. If approved, in order to compete effectively in the commercial marketplace, drugs must be easy to administer, cost-effective and economical
to manufacture on a commercial scale. The Company may not achieve any of these objectives.
The Company initiated its RewinD-LB Trial in the second quarter of 2023 and anticipates completing enrollment in the study in the second quarter
of 2024. The Company cannot be certain that the RewinD-LB Trial or any future clinical development of neflamapimod will be successful, or that it will
receive the regulatory approvals required to commercialize neflamapimod for any intended use, or that any future research and drug discovery programs
undertaken by the Company will yield a drug candidate suitable for investigation through clinical trials. Even if the Company is able to successfully
develop neflamapimod through approval and commercialization, any revenues from sales of the drug may not materialize for several years, if at all.
The Company has a history of operating losses and expect to continue to incur losses in the foreseeable future, which raises substantial doubt about its
ability to continue as a going concern.
As discussed further in Note 2 to the Company’s consolidated financial statements included elsewhere in this Annual Report, the Company has a
history of operating losses and expects to continue to incur losses in the foreseeable future, which raises substantial doubt regarding the Company’s ability
to continue as a going concern. As described in further detail above, the Company currently has no sources of revenue and its ability to continue as a going
concern is dependent on its ability to raise capital to fund operations and future business plans. Additionally, volatility in the capital markets and general
economic and geopolitical conditions in the U.S. and globally may be a significant obstacle to raising the required funds as and when needed. The
Company’s consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going
concern. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and
liabilities, the reported expenses and the balance sheet classifications used. If the Company is unable to continue as a going concern, its stockholders could
suffer the loss of all or a substantial portion of their investment in us.
47
The RewinD-LB Trial is funded by a non-dilutive grant that is subject to certain conditions for funding in subsequent years.
The Company’s RewinD-LB Trial is funded by a grant from the NIA, the funds from which will be disbursed over the course of the study as costs
are incurred. The Company’s receipt of the funds awarded to support future year costs are subject to both the availability of funds (i.e., the NIA is funded
by Congress in subsequent fiscal years) and the Company’s demonstration of progress in the project that is in line with the timelines provided in the grant.
If such funds are no longer available, including due to a government shutdown that prohibits the disbursal of such funds, or the Company fails to
demonstrate such progress, the Company’s ability to continue its clinical programs may be impaired and delayed, and the Company may otherwise need to
seek additional financing. For example, the Company was granted access to $7.3 million under the NIA Grant in February 2024, 90% of the full amount of
the second year of funding provided for in the NIA Grant, due to current NIA policy as a result of the U.S. government currently being funded on the basis
of a continuing resolution. The timing of the Company’s receipt of the remaining 10% of the grant, or $0.8 million, of current year funding is dependent
upon and subject to U.S. congressional approval of a final appropriations bill.
In addition, in December 2023, we submitted a request for supplemental funds in the amount of $4.0 million, of which, if approved, $3.9 million
would be received in the current year and the remainder would be received in next the funding year. The request for supplemental funds was initially
reviewed by the NIA in January 2024 but, due to the NIA currently working under the Continuing Resolution, completion of the review was delayed and
the request is currently scheduled to be reviewed for approval in May 2024. We currently expect to receive the remaining 10%, or $0.8 million, of the
previously approved year 2 funding upon U.S. congressional approval of a final appropriations bill, the supplemental amount of $4.0 million following
NIA review of our supplement request, and the year 3 funding of $6.2 million in February 2025. However, there can be no guarantee that the NIA will
approve this supplement request and that any such amounts will be received. If the Company is unable to secure additional capital through approval of the
supplemental request or other means, it may have to delay, scale back or discontinue its development or commercialization activities for neflamapimod.
The Company could be subject to audit and repayment of the NIA Grant.
In connection with the NIA Grant, the Company may be subject to routine audits by certain government agencies. As part of an audit, these
agencies may review the Company’s performance, cost structures and compliance with applicable laws, regulations, policies and standards and the terms
and conditions of the applicable NIA Grant. If any of the Company’s expenditures are found to be unallowable or allocated improperly or if the Company
has otherwise violated terms of the NIA Grant, the expenditures may not be reimbursed and/or it may be required to repay funds already disbursed. Any
such audit may result in a material adjustment to the Company’s results of operations and financial condition and harm the Company’s ability to operate in
accordance with its business plan.
The Company may be required to make significant payments to Vertex in connection with the Company’s license agreement.
Pursuant to the Vertex Agreement, the Company previously acquired an exclusive license to develop and commercialize neflamapimod for the
diagnosis, treatment, and prevention of AD and other CNS disorders. Under the Vertex Agreement, the Company is subject to significant potential future
obligations, including payment of development milestones and royalties on net product sales, as well as other material obligations. The Vertex Agreement
sets forth specific regulatory and product approval events and the related payments that the Company would be obligated to make to Vertex, if and when
such events occur.
Among other obligations, the Vertex Agreement provides that the Company will make royalty payments to Vertex in the event aggregate net sales
for a commercialized licensed product meet specified thresholds, subject to adjustment in the event of certain events, such as the absence of a valid patent
claim or if fees are due to a third party for a license necessary for the development, manufacture, sale or use of a licensed product. Such royalties will be on
a sliding scale as a percentage of net sales, depending on the amount of net sales in the applicable years. The Company is also obligated to make a
milestone payment to Vertex upon net sales reaching a certain specified amount in any 12-month period.
48
The first expected milestone events concern filing of an NDA with the FDA for marketing approval of a licensed product in the U.S., or a similar
filing for a non-U.S. major market. Thus, although the Company does not expect any milestone or royalty payments to be due until such time, these
potential obligations represent significant cash amounts that it may ultimately be obligated to pay. The Company cannot guarantee that it will have
sufficient funds available to meet its obligations if and when these payments become due. The obligation to pay some or all of these milestone and royalty
amounts may materially harm the Company’s development efforts, as well as its overall financial condition.
The Company may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or
indications that may be more profitable or for which there is a greater likelihood of success.
The Company intends to focus its limited financial and other resources on developing neflamapimod and future product candidates for specific
indications that the Company identifies as most likely to succeed, in terms of both regulatory approval and commercialization. As a result, the Company
may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential.
The Company’s resource allocation decisions may cause the Company to fail to capitalize on viable commercial products or profitable market
opportunities. Spending on current and future research and development programs and on product candidates for specific indications may not yield any
commercially viable products. If the Company does not accurately evaluate the commercial potential or target market for a particular product candidate, it
may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been
more advantageous for the Company to retain sole development and commercialization rights to such product candidate.
Risks Related to the Company’s Product Development and Regulatory Approval
The Company is heavily dependent on the success of its lead product candidate, neflamapimod, which is still under clinical development. If
neflamapimod does not receive regulatory approval or is not successfully commercialized, the Company’s business will be materially harmed.
The Company has invested almost all of its efforts and financial resources to date in the development of neflamapimod. To date, the Company has
not initiated or completed a pivotal clinical trial, obtained marketing approval for any product candidate, manufactured a commercial scale product or
arranged for a third party to do so on its behalf, or conducted sales and marketing activities necessary for successful product commercialization. The
Company’s future success is substantially dependent on its ability to successfully complete clinical development of, obtain regulatory approval for, and
successfully commercialize neflamapimod as a treatment for DLB and additional indications, which may never occur.
The Company expects a substantial portion of its efforts and expenditures over the next few years will be devoted to the advancement of
neflamapimod’s clinical development. In order to be successful, the Company will need to successfully manage clinical and manufacturing activities, the
pursuit of regulatory approval in multiple jurisdictions, securing manufacturing supply, building a commercial organization, and significant marketing
efforts, among other requirements, before it can generate any revenues from commercial sales. The Company cannot be certain that it will be able to
successfully complete any or all of these activities.
Furthermore, the Company has not submitted an NDA to the FDA or comparable applications to other regulatory authorities for neflamapimod,
and it does not expect to be in a position to do so in the near future, if ever. Significant additional clinical testing and research will be required before it can
file an NDA or any other application seeking approval of neflamapimod for the treatment of DLB, or any other indication. If the Company is unable to
obtain the necessary regulatory approvals for and commercialize neflamapimod, it would materially adversely affect the Company’s financial position, and
the Company may not be able to generate sufficient revenue to continue its business.
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The development and commercialization of drug products is subject to extensive regulation, and the regulatory approval processes of the FDA and
comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable. There is no guarantee that the Company’s planned clinical
trials for neflamapimod to treat patients with DLB, or in any other indications that the Company may pursue, will be successful. If the Company is
ultimately unable to obtain regulatory approval for neflamapimod on a timely basis, or at all, its business will be substantially harmed.
Clinical trials are expensive and can be difficult to design and implement. Such trials can take many years to complete, and their outcomes are
inherently uncertain. Failure can occur at any stage during the clinical development process. The Company may experience difficulties in initiating and
completing the clinical trials that it intends to conduct, and the Company does not know whether such trials will enroll patients on time, need to be
redesigned, or be completed on schedule, if at all. In connection with designing and conducting its clinical trials, the Company faces significant risks,
including that its product candidate may not prove to be efficacious, patients may suffer adverse effects for reasons that may or may not be related to the
product candidate being tested, the results may not confirm the positive results of its earlier preclinical studies and clinical trials, and the results may not
meet the level of statistical significance required by the FDA or other regulatory agencies to support approval.
For example, in the Company’s AscenD-LB Trial, neflamapimod demonstrated improvement versus placebo in dementia severity and motor
function. Although the Company’s ongoing RewinD-LB Trial was designed as a confirmatory, hypothesis-testing, randomized, double-blind placebo-
controlled clinical study of neflamapimod in subjects with DLB, the RewinD-LB Trial may not be successful, or the FDA may disagree with the
Company’s interpretation of the clinical trial data or how those data inform the design of a potentially pivotal Phase 3 clinical trial for the Company’s lead
indication. In addition, even if the AscenD-LB Trial results are confirmed in the RewinD-LB Trial, the Company will still need to successfully complete
additional clinical trials, including a Phase 3 trial, before it is prepared to submit an NDA for regulatory approval of neflamapimod in patients with DLB,
assuming that the data collected from the Company’s clinical trials are deemed sufficient to support the submission of an NDA. The Company cannot
predict with any certainty if or when it might complete its development efforts and submit an NDA for regulatory approval of neflamapimod, or whether
any such NDA will be approved by the FDA. An NDA or comparable foreign submission seeking marketing approval for neflamapimod also may not be
accepted by FDA or foreign regulatory authorities due to, among other reasons, the content or formatting of the submission.
This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in the Company’s failure to obtain
regulatory approval to market neflamapimod as a treatment for DLB or any other indication, which would significantly harm the Company’s business,
results of operations, and prospects. The FDA and comparable foreign regulatory authorities have substantial discretion in the approval process, and
determining when or whether regulatory approval will be obtained for any new product candidate. Accordingly, even if the Company believes the data
collected from its clinical trials are promising, such data may not be sufficient to support approval by the FDA or any comparable foreign regulatory
authority. As a result, the Company may be required to conduct additional nonclinical studies, alter its proposed clinical trial designs, or conduct additional
clinical trials to satisfy the regulatory authorities in each of the jurisdictions in which it hopes to conduct clinical trials and develop and market
neflamapimod or any of other product candidates, if approved.
The Company is also generally required to register certain clinical trials and post the results of completed clinical trials on a government-
sponsored database, such as ClinicalTrials.gov in the U.S., within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and
criminal sanctions.
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Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. The Company may incur additional costs or
experience delays in completing, or ultimately be unable to complete, the development and commercialization of neflamapimod or any other product
candidates the Company may develop or acquire.
The risk of failure in drug development is high. Before obtaining marketing approval from regulatory authorities for the sale of any product
candidate, a company must complete nonclinical development and conduct extensive clinical trials to demonstrate the safety and efficacy of its product
candidates in humans. Clinical trials are expensive, difficult to design and implement and can take several years to complete, and their outcomes are
inherently uncertain with the potential for failure at any time during the clinical development process. Preclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and
early-stage clinical trials have nonetheless failed to obtain marketing approval of their products. It is impossible to predict when or if neflamapimod will
receive marketing approval.
The Company may experience numerous unforeseen events during, or as a result of, its clinical trials that could delay or prevent its ability to
receive marketing approval or commercialize neflamapimod for DLB or any other indication. Clinical trials may be delayed, suspended or prematurely
terminated because costs are greater than the Company anticipates or for a variety of other reasons, such as:
● delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design that the Company is able to
execute;
● delay or failure in obtaining authorization to commence a trial, including approval from the appropriate IRB or ethics committee at each clinical
site to conduct testing of a candidate on human subjects, or inability to comply with conditions imposed by a regulatory authority regarding the
scope or design of a clinical trial;
● delays in reaching, or failure to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, the terms of which can be
subject to extensive negotiation and may vary significantly among different CROs and trial sites;
● inability, delay or failure in identifying and maintaining a sufficient number of trial sites, many of which may already be engaged in other clinical
programs;
● inability, delay or failure in identifying, recruiting, and training suitable clinical investigators;
● delay or failure in recruiting, screening, and enrolling suitable subjects to participate in a trial;
● delay or failure in having subjects complete a trial or return for post-treatment follow-up;
● delays caused by operational issues at clinical trial sites, including insufficient staffing;
● changes to the clinical trial protocols and/or changes in regulatory requirements and guidance that require amending or submitting new clinical
protocols;
● clinical sites and investigators deviating from the clinical protocol, failing to conduct the trial in accordance with Good Clinical Practices or other
regulatory requirements, or dropping out of a trial;
● failure to initiate or delay of or inability to complete a clinical trial as a result of the authorizing IND or foreign clinical trial application being
placed on temporary or permanent clinical hold by the FDA or comparable foreign regulatory authority;
● lack of adequate funding to continue a clinical trial, including as a result of unforeseen costs due to enrollment delays, requirements to conduct
additional clinical trials and increased expenses associated with the services of the Company’s CROs and other third parties, or the cost of clinical
trials being greater than the Company anticipated;
● delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of drug product for use in clinical trials or
the inability to do any of the foregoing;
● developments on trials conducted by competitors for related technology that raise FDA or foreign regulatory authority concerns about risk to
patients of a technology or in any indication more broadly;
● clinical trials of the Company’s product candidates may produce negative or inconclusive results, and the Company may decide, or regulators may
require the Company, to conduct additional nonclinical studies, clinical trials or abandon product development programs;
● the number of patients required for clinical trials of the Company’s product candidates may be larger than the Company anticipates, enrollment in
these clinical trials may be slower than it anticipates or participants may drop out of these clinical trials at a higher rate than it anticipates;
● the Company’s third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to the Company in a
timely manner, or at all;
● regulators, the IRB or a Data Safety Monitoring Board if one is used for the Company’s clinical trials, may require that the Company suspend or
terminate its clinical trials for various reasons, including noncompliance with regulatory requirements, unforeseen safety issues or adverse side
effects, failure to demonstrate a benefit from using a drug, or a finding that the participants are being exposed to unacceptable health risks;
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● the supply or quality of the Company’s product candidates or other materials necessary to conduct clinical trials of the Company’s product
candidates may be insufficient or inadequate;
● transfer of manufacturing processes to larger-scale facilities operated by a CMO, and delays or failure by the Company’s CMOs or the Company
to make any necessary changes to such manufacturing process;
● the FDA or comparable foreign regulatory authorities may require the Company to submit additional data or impose other requirements before
permitting it to initiate a clinical trial; or
● changes in governmental regulations or administrative actions.
Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of
marketing approval for neflamapimod or any other future product candidates. Further, the FDA or comparable foreign regulatory authorities may disagree
with the Company’s clinical trial design and the Company’s interpretation of data from clinical trials or may change the requirements for approval even
after the FDA has reviewed and commented on the design for the Company’s clinical trials.
If the Company is required to conduct additional clinical trials or other preclinical studies of neflamapimod in various disease conditions beyond
those that the Company currently contemplates, if it is unable to successfully complete clinical trials of the Company’s product candidates or other studies,
if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, the Company may:
● be delayed in obtaining marketing approval for its product candidates;
● not obtain marketing approval for its product candidates at all;
● obtain approval for indications or patient populations that are not as broad as intended or desired;
● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings that would reduce the potential market for
its products or inhibit its ability to successfully commercialize the Company’s products;
● be subject to additional post-marketing restrictions or requirements, including post-marketing testing; or
● have the product removed from the market after obtaining marketing approval.
Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for neflamapimod would delay the Company’s
commercialization prospects, substantially increase the costs of commercializing neflamapimod, and severely harm the Company’s business and financial
condition.
The Company has concentrated its research and development efforts on the treatment of DLB, a disease that has seen limited success in drug
development. The ability to successfully develop drugs for DLB and other age-related neurologic disorders is extremely difficult and is subject to a
number of unique challenges. In addition, its rationale for neflamapimod in the treatment of DLB is based on a scientific understanding of the disease
that may be wrong.
Drug development in the field of brain diseases, including age-related neurologic disorders and other neurodegenerative diseases in particular, has
seen very limited success historically. There have been limited efforts by biopharmaceutical and pharmaceutical companies to develop treatments for DLB
and there are no therapies available for patients that have been approved with a specific indication to treat DLB. Only symptomatic therapies that are
approved for other diseases, generally either AD or Parkinson’s disease, are currently utilized to manage patients with DLB. In addition, many potential
disease-modifying therapies have been evaluated in other neurodegenerative diseases, particularly in AD, and these have encountered challenges in their
development and, as a result, only recently two disease-modifying treatments to treat AD have been approved in the U.S. Developing a product candidate
for treatment of these brain diseases is extremely difficult and subjects the Company to a number of challenges, including obtaining regulatory approval
from the FDA and other regulatory authorities who have only a limited set of precedents to rely on.
The Company’s approach to the treatment of DLB focuses in large part on neflamapimod’s ability to inhibit the intra-cellular enzyme p38α. The
expression of p38α is considered to be a critical contributor in the toxicity of inflammation, alpha-synuclein, amyloid-beta and tau to neurons and synapses,
which the Company and other scientific experts believe leads to synaptic dysfunction. Synaptic dysfunction, specifically impaired synaptic plasticity, leads
to disruption of episodic memory and is a significant event in the development and symptomatology of DLB.
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However, the Company cannot be certain that its approach will lead to the development of approvable or marketable products. To date the only
drugs approved by the FDA to treat DLB have addressed the disease’s symptoms. In addition, there has never been an approval of a drug in DLB and
therefore, there are no regulatory precedents for endpoints in that indication. Consequently, the FDA has a limited set of products to rely upon in evaluating
neflamapimod. This could result in a longer than expected regulatory review process, increased expected development costs or the delay or prevention of
commercialization of neflamapimod for the treatment of DLB.
Moreover, given the history of clinical failures in this field, future clinical or regulatory failures by the Company or others may result in further
negative perception of the likelihood of success in this field, which may significantly and adversely affect the Company’s business and the market price of
its common stock.
Enrollment and retention of participants in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered
impossible by multiple factors outside the Company’s control.
The timely completion of clinical trials in accordance with their protocols depends on, among other things, the Company’s ability to enroll a
sufficient number of research participants who remain in the study until its conclusion. The Company may encounter delays in enrolling, or be unable to
enroll, a sufficient number of individuals to complete any of its clinical trials, and even once enrolled the Company may be unable to retain a sufficient
number of participants to complete any of its trials. Subject enrollment and retention in clinical trials depends on many factors, including:
● the eligibility criteria defined in the protocol;
● the size of the patient population required for analysis of the trial’s primary endpoints;
● the nature of the trial protocol;
● the proximity of potential subjects to clinical sites;
● the existing body of safety and efficacy data with respect to the product candidate;
● the Company’s ability to recruit clinical trial investigators with the appropriate competencies and experience;
● clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies;
● competing clinical trials being conducted by other companies or institutions;
● the risk that participants enrolled in clinical trials will drop out of the trials before completion; and
● the operational efficiency of trial sites, including sufficient staffing.
In addition, the U.S. Congress recently amended the FDCA to require sponsors of a Phase 3 clinical trial, or other “pivotal study” of a new drug or
biologic to support marketing authorization, to design and submit a diversity action plan for such clinical trial. The action plan must describe appropriate
diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor will meet them. Although none of our product
candidates has reached Phase 3 of clinical development, we or our licensing partners must submit a diversity action plan to the FDA by the time a Phase 3
trial, or pivotal study, protocol is submitted to the agency for review, unless we or our licensing partners are able to obtain a waiver for some or all of the
requirements for a diversity action plan. It is unknown at this time how the diversity action plan may affect the planning and timing of any future Phase 3
trial for our product candidates or what specific information FDA will expect in such plans. However, initiation of such trials may be delayed if the FDA
objects to a proposed diversity action plans for any future Phase 3 trial of our product candidates, and we or our licensing partners may experience
difficulties recruiting a diverse population of patients in attempting to fulfill the requirements of any approved diversity action plan.
Furthermore, any negative results the Company may report in clinical trials may make it difficult or impossible to recruit and retain subjects in
other clinical trials of that same product candidate. Delays or failures in planned enrollment or retention of clinical trial subjects, including in the
Company’s ongoing RewinD-LB Trial, may result in increased costs or program delays, which could have a harmful effect on the Company’s ability to
develop a product candidate or could render further development impossible.
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Results of preclinical studies and early clinical trials may not be indicative of results obtained in later trials. In addition, preliminary, topline and
interim data from the Company’s clinical trials that the Company may announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data.
The results of preclinical studies and early clinical trials of a product candidate, including neflamapimod, may not be predictive of the results of
later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed
through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry, both generally and in the DLB treatment
space in particular, have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding
promising results in earlier trials. Even if the Company’s clinical trials for neflamapimod are completed as planned, including a future Phase 3 trial, the
Company cannot be certain that their results will support the safety and efficacy sufficient to obtain regulatory approval, and the Company may decide, or
regulators may require it, to conduct additional clinical trials.
In addition, from time-to-time, the Company may announce or publish preliminary, topline, or interim data from its clinical trials, which are based
on a preliminary analysis of then-available data. Such results and related findings and conclusions are subject to change following a more comprehensive
review of the data related to the particular study or trial. The Company also makes assumptions, estimations, calculations and conclusions as part of its
analyses of data, which may prove to be incomplete or flawed, and it may not have received or had the opportunity to fully and carefully evaluate all data.
Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and
more patient data become available. Preliminary or interim data also remain subject to audit and verification procedures that may result in the final data
being materially different from the preliminary data the Company previously published. As a result, preliminary and interim data are not necessarily
predictive of final results and should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and
final data could significantly harm the Company’s business prospects.
Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates
performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain approval from the FDA, the EMA or other regulatory
agencies for their products. Others, including regulatory agencies, may not accept or agree with the Company’s assumptions, estimates, calculations,
conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the
approvability or commercialization of the particular product candidate and the Company in general.
In addition, the information the Company chooses to publicly disclose regarding a particular study or clinical trial is typically selected from a
more extensive amount of available information. Others may not agree with what the Company determines is the material or otherwise appropriate
information to include in its disclosure, and any information the Company determines not to disclose may ultimately be deemed significant with respect to
future decisions, conclusions, views, activities or otherwise regarding neflamapimod, a future product candidate, or the Company’s business. If the interim,
preliminary, or topline data that the Company reports differ from later, final or actual results, or if others, including the FDA and comparable foreign
regulatory authorities, disagree with the conclusions reached, the Company’s ability to obtain approval for and, if approved, commercialize its product
candidates may be harmed, which could harm its business, financial condition, results of operations and prospects.
Regulatory authorities, including the FDA, may not accept data from clinical trials conducted outside of their jurisdiction.
The Company has in the past and may in the future conduct additional clinical trials evaluating its product candidates, including neflamapimod,
outside the U.S. The acceptance of trial data from clinical trials conducted outside the U.S. by the FDA may be subject to certain conditions or may not be
accepted at all, and other comparable non-U.S. regulatory authorities may have similar restrictions and conditions with respect to clinical trials conducted
outside of their jurisdiction. In cases where data from non-U.S. clinical trials are intended to serve as the basis for marketing approval in the U.S., the FDA
will generally not accept such foreign trial data unless: (i) the data are determined to be applicable to the U.S. population and U.S. medical practice; (ii) the
trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the FDA is able to validate the data
through an onsite inspection, if necessary. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical
powering, must be met. Many comparable non-U.S. regulatory authorities have similar approval requirements.
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There can be no assurance that the FDA will accept data from trials conducted outside of the U.S. or that any comparable non-U.S. regulatory
authority will accept data form trials conducted outside of the applicable jurisdiction. If the FDA or any comparable non-U.S. regulatory authority does not
accept such data or believes that additional data is necessary to supplement such data, it would result in the need for additional trials, which would be costly
and time-consuming, could delay a product candidate’s development plan, and which may result in product candidates not receiving approval for
commercialization in the applicable jurisdiction.
Conducting clinical trials outside the U.S. may also expose the Company to additional risks, including risks associated with the following, among
other things: additional foreign regulatory requirements; foreign exchange fluctuations; compliance with foreign manufacturing, customs, shipment and
storage requirements; the failure of enrolled subjects in foreign countries to adhere to clinical protocol as a result of differences in standard-of-care; cultural
differences in medical practice and clinical research; diminished protection of intellectual property rights; and compliance with general local legal
requirements.
Safety issues with neflamapimod or with any other product candidate the Company may develop or acquire in the future, or with product candidates or
approved products of third parties that are similar to the Company’s product candidates, could give rise to delays in the regulatory approval process,
restrictions on labeling or product withdrawal after approval, if any, or may otherwise cause the Company to modify or supplement its clinical
development program.
Results of any clinical trial the Company conducts could reveal a high and unacceptable severity and prevalence of side effects or unexpected
characteristics. Serious adverse events or undesirable side effects caused by neflamapimod, or any other product candidates the Company may develop or
acquire, could cause it or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other comparable foreign authorities. Many compounds that have initially showed promise in clinical or earlier stage
testing are later found to cause undesirable or unexpected side effects that prevented further development of the compound. Further, problems with product
candidates or approved products marketed by third parties that utilize the same therapeutic target or that belong to the same therapeutic class as
neflamapimod or any future product candidates of the Company could adversely affect the development, regulatory approval and commercialization of the
Company’s product candidates.
For example, to date, neflamapimod has been evaluated in over 200 patients, at doses up to 750 mg twice a day, and up to 24 weeks of treatment.
The adverse effects (side effects) seen in more than 5% of neflamapimod-treated patients include headache (10% in neflamapimod-treated patients vs. 5%
in placebo recipients), diarrhea (10% vs. 5%), abdominal pain (6% vs. 5%), respiratory infection (5% vs. 5%), and falls (5% vs. 5%). In each case, these
events were generally mild and in all but one case (a case of diarrhea and abdominal pain) did not lead to treatment discontinuation. In addition, increased
levels of certain “liver enzymes” in the blood are a well-known dose-dependent side effect of p38 MAPK inhibitors. These liver enzymes, aspartate
aminotransferase and alanine aminotransferase, are proteins are commonly produced in the liver, the measurements of which can help doctors evaluate liver
function. In an early 2000s study of neflamapimod conducted by Vertex, during 12 weeks of dosing at 250mg BID (i.e., four-fold higher daily dosing than
the dose in the RewinD-LB Trial) in 44 subjects with rheumatoid arthritis, elevations in such liver enzymes levels were noted in six subjects (14%).
After the Company acquired an exclusive license from Vertex to develop and commercialize neflamapimod for the treatment of AD and other CNS
disorders, the Company submitted an IND application to the DNP in February 2015. The DNP cleared the Company’s clinical trial application in March
2015. However, in August 2015, following a standard review of the long-term animal toxicity studies, the DNP placed a partial clinical hold on the
Company’s then ongoing Phase 2a study in AD and any subsequent studies proposed under the IND. A partial clinical hold means that the FDA suspends
part of the clinical work requested under the IND (e.g., a specific protocol or part of a protocol is not allowed to proceed); however, all other protocols
and/or remaining parts of the protocol are allowed to proceed under the IND. Under DNP’s partial clinical hold that remains in effect for the neflamapimod
IND, the agency limited administration of neflamapimod to doses that lead to plasma drug levels that provide a ten-fold safety margin to human subjects,
based on the plasma drug levels in animals that had previously led to minimal or equivocal toxicity findings. The Company’s current understanding of
plasma drug levels achieved with neflamapimod in humans means that its investigational dosing in the U.S. is limited by this partial clinical hold to no
more than 40 mg three times daily in patients weighing 50 kg (110 lbs.) or more.
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The Company’s ongoing RewinD-LB Trial is being conducted at 40mg three times daily (limited to patients weighing 50 kg (110 pounds) or more
within the U.S., and not so limited outside the U.S.) and the Company does not expect this partial clinical hold to impact its ongoing and planned clinical
trials or its current development plan for neflamapimod. With respect to the adverse effects discussed above, the patients were asymptomatic, there were no
associated increases in bilirubin, and the elevations resolved with treatment discontinuation. Furthermore, no liver enzyme abnormalities were observed in
the AscenD-LB Trial. However, as the Company continues the development and clinical trials of neflamapimod, treatment-related SAEs may arise in the
future. Side effects that are deemed to be drug-related could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in
potential product liability claims. Undesirable side effects in one of the Company’s clinical trials for neflamapimod in one indication could adversely affect
enrollment in clinical trials, regulatory approval and commercialization of the Company’s product candidate in other indications. These side effects may not
be appropriately recognized or managed by the treating medical staff. In addition, discovery of previously unknown class effect problems may prevent or
delay clinical development and commercial approval of product candidates or result in restrictions on permissible uses after their approval. If the Company
or others identify undesirable side effects caused by the mechanisms of action of a product candidate or a class of product candidates, the FDA may require
the Company to conduct additional clinical trials, or to implement a REMS program prior to commercial approval. Alternatively, regulatory authorities may
not approve the product candidate or, as a condition of approval, may require specific warnings and contraindications or place certain limitations on how
the Company can promote the drug. Following a potential future drug product approval, regulatory authorities might also withdraw such approval due to
the discovery of previously unknown safety issues relating to the product and require the Company to take its drug off the market. Any of these occurrences
may harm the Company’s business, financial condition and prospects significantly.
Further, clinical trials, by their nature, utilize a sample of the potential patient population. With a limited number of patients, rare and severe side
effects of neflamapimod or future product candidates may only be uncovered with a significantly larger number of patients exposed to the product
candidate. If neflamapimod, or any other product candidates the Company may develop or acquire, receives marketing approval and the Company or others
identify undesirable side effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant
negative consequences could result, including:
● regulatory authorities may withdraw or limit their approval of such product candidates;
● regulatory authorities may require the addition of labeling statements, such as a “Boxed” Warning or a contraindication;
● the Company may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
● the FDA may require a REMS plan to mitigate risks, which could include medication guides, physician communication plans, or elements to
assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools, and regulatory authorities in other
jurisdictions may require comparable risk mitigation plans;
● the Company may be subject to regulatory investigations and government enforcement actions;
● the FDA or a comparable foreign regulatory authority may require the Company to conduct additional clinical trials or costly post-marketing
testing and surveillance to monitor the safety and efficacy of the product;
● the Company may decide to recall such product candidates from the marketplace after they are approved;
● the Company could be sued and held liable for injury caused to individuals exposed to or taking its product candidates; and
● the Company’s reputation may suffer.
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The Company may be unable to obtain regulatory approval in the U.S. or foreign jurisdictions and, as a result, be unable to commercialize its product
candidates and its ability to generate revenue will be materially impaired.
The time required to obtain FDA and other approvals is unpredictable but typically takes many years following the commencement of clinical
trials, depending upon the type, complexity and novelty of the product candidate. The standards that the FDA and its foreign counterparts use when
regulating companies such as ours are not always applied predictably or uniformly and can change. Any analysis we perform of data from chemistry,
manufacturing and controls, preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay,
limit or prevent regulatory approval. We may also encounter unexpected delays or increased costs due to new government regulations, for example, from
future legislation or administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory
review. It is impossible to predict whether legislative changes will be enacted, or whether FDA or foreign regulations, guidance or interpretations will be
changed, or what the impact of such changes, if any, may be. Any delay or failure in obtaining required approvals could adversely affect our ability to
generate revenues from the particular product candidate for which we are seeking approval.
Furthermore, obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able
to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a
negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, similar
foreign regulatory authorities must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval and
licensure procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the
United States, including additional nonclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory
authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be
approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval. If we fail to comply with
the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to
realize the full market potential of our product candidates will be harmed.
If the Company seeks to enter into collaborative arrangements or strategic alliances for its drug candidates, but fails to enter into and maintain
successful relationships, it may have to reduce or delay its drug development activities or increase its expenditures.
An important element of a biotechnology company’s strategy for developing, manufacturing and commercializing its drug candidates may be to
enter into strategic alliances with pharmaceutical companies or other industry participants to advance its programs and enable it to maintain its financial
and operational capacity. Biotechnology companies at the Company’s stage of development sometimes rely upon collaborative arrangements or strategic
alliances to complete the development and commercialization of drug candidates, particularly after the Phase 2 stage of clinical testing.
To date, the Company has not entered into any collaborative arrangements or strategic alliances, and it may face significant competition in seeking
such relationships. In addition, such arrangements may place the development of the Company’s drug candidates outside its control, require the Company
to relinquish important rights, or may otherwise be on terms unfavorable to the Company. The Company may not be able to negotiate collaborations and
alliances on acceptable terms, if at all. If the Company enters a collaborative arrangement and it proves to be unsuccessful, the Company may have to
delay, or limit the size or scope of, certain of its drug development activities.
Alternatively, if the Company elects to fund drug development or research programs on its own, it will have to increase its expenditures and will
need to obtain additional funding, which may not be available to the Company on acceptable terms, if at all.
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If the Company is unable to take full advantage of regulatory programs designed to expedite drug development or provide other incentives, its
development programs may be adversely impacted.
There are a number of programs administered by the FDA and other regulatory bodies to facilitate and expedite development of drugs in areas of
unmet medical need. For example, neflamapimod received a fast track designation in October 2019 from the FDA for investigation as a treatment of DLB.
Fast track designation is granted by FDA, in response to a sponsor’s request, upon a determination that the product candidate is intended to treat a serious
or life-threatening disease or condition and has the potential to address an unmet medical need, meaning it could provide a therapeutic option for patients
where none exists or a therapy that may be potentially superior to existing therapy based on efficacy or safety factors.
Fast track designation does not ensure that neflamapimod will receive marketing approval or that approval will be granted within any particular
timeframe. Although fast track designation and other available FDA programs may expedite the development or approval process for certain drug
candidates, such programs do not change the standards for approval, and the Company may not experience a faster development or regulatory review or
approval process with fast track designation compared to conventional FDA procedures. In addition, the FDA may withdraw fast track designation for
neflamapimod if it believes that the designation is no longer supported by data from the Company’s clinical development program.
Neflamapimod may not qualify for or maintain designations under this or other programs under any of the FDA’s existing or future programs to
expedite drug development in areas of unmet medical need. The Company’s inability to fully take advantage of these programs may require the Company
to run larger trials, incur delays, lose opportunities that may not otherwise be available to it, and incur greater expense in the development of its product
candidates.
The Company relies on third parties to conduct, supervise and monitor its clinical trials. If those third parties do not successfully carry out their
contractual duties, or if they perform in an unsatisfactory manner, the Company’s business will be harmed.
Although the Company designs and manages its nonclinical studies and clinical trials, it does not currently have the ability to conduct clinical
trials for neflamapimod on its own. The Company has relied, and will continue to rely, on third parties such as CROs, medical institutions, and clinical
investigators to ensure the proper and timely conduct of its clinical trials. The Company’s reliance on CROs for clinical development activities limits its
control over these activities, but the Company remains responsible for ensuring that each of its trials is conducted in accordance with the applicable
protocol, as well as legal and regulatory and scientific standards. The Company has limited control over these third parties, and they may not devote
sufficient time and resources to the Company’s projects, or their performance may be substandard, resulting in clinical trial delays or suspensions, delays in
submission of marketing applications or failure of a regulatory authority to accept the Company’s applications for filing. There is no assurance that the
third parties the Company engages will be able to provide the functions, tests, activities or services as agreed upon, or provide them at the agreed upon
price and timeline or to the Company’s requisite quality standards, including due to geopolitical events, natural disasters, public health emergencies or
pandemics, or poor workforce relations or human capital management.
The Company and its CROs are required to comply with GLP requirements for preclinical studies and GCP requirements for clinical trials, which
are regulations and guidelines enforced by the FDA and required by comparable foreign regulatory authorities. If the Company or its CROs fail to comply
with GCP requirements, the clinical data generated in the Company’s clinical trials may be deemed unreliable, and the FDA or comparable foreign
regulatory authorities may require the Company to perform additional clinical trials before approving marketing applications for the Company’s product
candidates. There is also no assurance these third parties will not make errors in the design, management or retention of the Company’s data or data
systems. Any failures by such third parties could lead to a loss of data, which in turn could lead to delays in clinical development and obtaining regulatory
approval. Third parties may not pass FDA or other regulatory audits, which could also delay or prohibit regulatory approval. In addition, the cost of such
services could significantly increase over time. If these third parties do not successfully carry out their contractual duties or obligations, fail to meet
expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to the Company’s clinical
protocols or regulatory requirements or for any other reason, the Company’s clinical trials may be extended, delayed or terminated, and it may not be able
to obtain regulatory approval for, or successfully commercialize any product candidate that it develops. As a result, the Company’s financial results and the
commercial prospects for neflamapimod would be harmed, its costs could increase, and its ability to generate revenue could be delayed, all of which could
have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.
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The Company has employed several different CROs for clinical trial services. Although the Company believes there are numerous alternatives to
provide these services, in the event that it seeks a new CRO, the Company may not be able to enter into replacement arrangements without delays or
incurring additional expenses. Switching or adding additional CROs involves substantial cost and requires management’s time and focus. In addition, there
is a natural transition period when a new CRO commences work. Though the Company intends to carefully manage its relationships with its CROs, there
can be no assurance that the Company will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse
impact on its business, financial condition and prospects.
The Company’s reliance on third parties for the production of neflamapimod may result in delays in the Company’s clinical trials or regulatory
approvals and may impair the development and ultimate commercialization of neflamapimod, which would adversely impact the Company’s business
and financial position.
The Company has no manufacturing facilities and does not have extensive experience in the manufacturing of drugs or in designing drug-
manufacturing processes. The Company currently relies on third parties for the manufacture of drug substance, the manufacture of drug product, and the
packaging of drug product for clinical use. This reliance on contract manufacturers and suppliers subjects the Company to inherent uncertainties related to
product safety, availability, security and cost. Holders of NDAs, or other forms of FDA approvals, or those distributing a regulated product under their own
name, are ultimately responsible for compliance with manufacturing obligations even if the manufacturing is conducted by a third party.
The Company further intends to rely on third-party CMOs for the production of commercial supply of neflamapimod if it is ultimately approved.
If CMOs cannot successfully manufacture drug substance and drug product for the Company’s neflamapimod program, or any other product candidate that
the Company may develop or acquire in the future, in conformity to its specifications and the applicable regulatory requirements, the Company will not be
able to secure or maintain regulatory approval for the use of that product candidate in clinical trials, or for commercial distribution of that product
candidate, if approved. Additionally, any problems the Company experiences with any such CMOs could delay the manufacturing of its product candidates,
which could harm its results of operations. All drug manufacturers and packagers are required to operate in accordance with FDA-mandated cGMPs. A
failure of any of the Company’s current or future CMOs to establish and follow cGMPs and to document their adherence to such practices may lead to
significant delays in obtaining regulatory approval of product candidates or the ultimate launch of products based on the Company’s product candidates
into the market. In the event of such failure, the Company could also face fines, injunctions, civil penalties, and other sanctions. Further, if the FDA or a
comparable foreign regulatory authority finds deficiencies with or does not approve a CMO’s facilities for the future commercial manufacture of
neflamapimod, or if it withdraws any such approval or finds deficiencies in the future, the Company may need to find alternative manufacturing facilities,
which would delay its development program and significantly impact its ability to obtain regulatory approval for or commercialize neflamapimod.
In addition, if any facility of the Company’s third-party drug manufacturers or suppliers were to suffer an accident or a force majeure event such as
war, missile or terrorist attack, earthquake, major fire or explosion, major equipment failure or power failure lasting beyond the capabilities of its backup
generators or similar event, the Company could be materially adversely affected and any of its clinical trials could be materially delayed. An extended shut
down may force the Company to procure a new research and development facility or another manufacturer or supplier, which could be time-consuming.
The Company’s ongoing RewinD-LB Trial is being conducted with a drug substance (the API) previously manufactured at a third-party CMO.
Future supplies of the neflamapimod drug substance could be interrupted from time to time, and the Company cannot be certain that alternative supplies
could be obtained within a reasonable timeframe, at an acceptable cost, or at all. During this period, the Company may be unable to receive investigational
neflamapimod supplies or any other product candidates it may develop or acquire. In addition, a disruption in the supply of drug substance could delay the
commercial launch of the Company’s product candidates, if approved, or result in a shortage in supply, which would impair its ability to generate revenues
from the sale of its product candidates. Growth in the costs and expenses of raw materials may also impair the Company’s ability to cost effectively
manufacture its product candidates.
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The Company also currently relies on a third-party CMO (different than that for the API) for the manufacture of neflamapimod drug product. The
Company has used the same manufacturer for its neflamapimod drug product in all its clinical trials to date. If neflamapimod is ultimately approved for
commercial sale, the Company expects to continue to rely on third-party contractors for manufacturing the drug product. Although the Company intends to
do so prior to any commercial launch, it has not yet entered into long-term agreements for the commercial supply of either drug substance or drug product
with its current manufacturing providers, or with any alternate manufacturers.
While the Company believes that there are multiple alternative sources available for manufacturing of both drug substance and drug product in its
neflamapimod program, the Company may not be able to enter into replacement arrangements, on acceptable terms or at all, without delays or additional
expenditures. It cannot estimate these delays or costs with certainty but, if they were to occur, they could cause a delay in the Company’s development and
commercialization efforts.
Although the Company generally has not, and does not intend to, begin a clinical trial unless it believes it has on hand, or will be able to obtain, a
sufficient supply of neflamapimod to complete the clinical trial, any significant delay in the supply of neflamapimod drug substance or drug product could
considerably delay conducting the Company’s clinical trials and potential regulatory approval of its product candidates.
Further, third-party suppliers, manufacturers, or distributors may not perform as agreed or may terminate their agreements with the Company,
including due to the effects related to geopolitical events, natural disasters, public health emergencies or pandemics, such as the COVID-19 pandemic, or
force majeure events that affect their facilities or ability to perform. Any significant problem that the Company’s suppliers, manufacturers, distributors or
regulatory service providers experience could delay or interrupt supply of materials necessary to produce the Company’s product candidates. Failure to
obtain the needed quantities of the Company’s product candidates could have a material and adverse effect on its business, financial condition, results of
operations and prospects.
If the Company changes the manufacturers of its product candidates, it may be required to conduct comparability studies evaluating the manufacturing
processes of the product candidates.
The FDA and other regulatory agencies maintain strict requirements governing the manufacturing process for prescription drug products that
would apply to the Company’s product candidates, if approved. For example, when a manufacturer seeks to make any change to the manufacturing process,
the FDA typically requires the applicant to conduct nonclinical and, depending on the magnitude of the changes, potentially clinical comparability studies
that evaluate the potential differences in the product candidates resulting from the change in the manufacturing process. If the Company were to change
manufacturers of its drug substance or drug product during or after the clinical trials and regulatory approval process for neflamapimod or any of its other
product candidates, the Company will be required to conduct comparability studies assessing product candidates manufactured at the new manufacturing
facility. Further, manufacturing changes are generally categorized as having either a substantial, moderate, or minimal potential to adversely affect the
identity, strength or quality of the drug product as they may relate to the safety or effectiveness of the product, and if a change has a substantial potential to
have an adverse effect on the drug product, an applicant must submit and receive FDA approval of a prior approval supplemental application before the
product made with the manufacturing change is distributed. Other forms of notice to the FDA are also required for manufacturing changes that have a
moderate or minimal potential to have an adverse effect on the drug product’s safety or effectiveness. Regardless of the type of manufacturing change, the
methods used and the facilities and controls used for the manufacture, processing, packaging, or holding of human drugs must comply with applicable
cGMP regulations.
Delays in designing and completing a comparability study to the satisfaction of the FDA or other regulatory agencies could delay or preclude the
Company’s development plans and, thereby, delay the Company’s ability to receive marketing approval or limit its revenue and growth, once approved. In
addition, in the event that the FDA or other regulatory agencies do not accept nonclinical comparability data, the Company may need to conduct a study
involving dosing of patients comparing the two products. That study may result in a delay in the approval or launch of any of its product candidates.
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Risks Related to the Company’s Intellectual Property
If the Company does not adequately protect its proprietary rights, the Company may not be able to compete effectively.
The Company relies upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property
related to neflamapimod. The Company’s commercial success depends in part on obtaining and maintaining proprietary rights in the U.S. and in
international jurisdictions, and successfully defending these rights against third-party challenges if and as they occur. The Company seeks to protect its
proprietary position by filing patent applications related to neflamapimod in the U.S. and in other countries.
Although the Company has already obtained several issued patents and is working to expand its estate with additional patent applications, third
parties may challenge the validity, enforceability, or scope of the Company’s patents, which may result in such patents being narrowed, invalidated, or held
unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to the Company could deprive it of rights necessary for
the successful commercialization of neflamapimod, or any other product candidates it may develop. Further, if the Company encounters delays in
regulatory approvals due to patent-related issues, the period of time during which it could market a product candidate under patent protection could be
reduced.
The Company’s issued patents and patent applications also remain subject to uncertainty and continued monitoring. The Company’s patent
applications may fail to result in issued patents with claims that provide further coverage for neflamapimod in the U.S. or in foreign countries. The patent
prosecution process is expensive and time-consuming, and the Company may not be able to file and prosecute all necessary or desirable patent applications
at a reasonable cost or in a timely manner. The Company may also fail to identify further patentable aspects of its research and development output before
it is too late to obtain patent protection, including as a result of the publication of prior art. There is also no assurance that all potentially relevant prior art
relating to the Company’s patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending
patent application.
The patent position of life sciences companies can often involve complex legal and factual questions and in recent years has been the subject of
significant litigation. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other
jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, the Company cannot know with certainty
whether it was the first to make the inventions claimed in its owned or licensed patents or pending patent applications, or that it was the first to file for
patent protection of such inventions. Further, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and the
Company’s patents may be challenged in the courts or patent offices in the U.S. or other jurisdictions. Such challenges may result in patent claims being
narrowed, invalidated, held unenforceable, in whole or in part, or reduced in term. Such a result could limit the Company’s ability to prevent others from
using or commercializing similar or identical technology and products.
Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of the Company’s patents,
requiring it to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may also develop, seek approval for and
launch generic versions of the Company’s products.
Without patent protection for the Company’s current or future product candidates, these candidates may be open to competition from other
products. As a result, the Company’s patent portfolio may not provide the Company with sufficient rights to exclude others from commercializing products
similar or identical to the Company’s.
The Company may also seek to rely on regulatory exclusivity for protection of its product candidates, if approved for commercial sale.
Implementation and enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from
country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or to maintain the extent or duration of such protections that the
Company expects for its product candidates, if approved, could affect the Company’s decision on whether to market the products in a particular country or
countries or could otherwise have an adverse impact on its revenue or results of operations.
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There is currently no composition of matter patent protection that covers neflamapimod.
EIP acquired an exclusive license from Vertex in 2014 to develop and commercialize neflamapimod for the treatment of AD and other CNS
disorders. This license covers know-how, preclinical and clinical data, and certain specified Vertex patent rights, including a composition of matter patent
for neflamapimod that expired in 2017. EIP has thus focused its efforts on discoveries related to neflamapimod that are reflected in issued patents and
patent applications covering a range of subjects, including: methods of treating patients suffering from DLB or AD, as well as methods of reducing amyloid
plaque burden; methods of improving cognition and treating neurologic disorders; methods for promoting recovery of function in patients who have
suffered acute neurologic injuries, including those resulting from various forms of stroke; and methods of treating patients suffering from dementia. In
addition, EIP has filed patents related to formulations of neflamapimod, including pharmaceutical compositions for oral administration exhibiting desirable
pharmacokinetics and processes for the manufacture thereof. In the U.S., the natural expiration of a patent is generally 20 years after it is filed. Although
various extensions may be available, the life of a patent is limited.
Accordingly, there is currently no composition matter patent protection that covers neflamapimod. Rather, the Company’s patents provide
protection around either the use of neflamapimod for specific or medical indication (so called “use patents”) or the administration of neflamapimod in
specific manner (e.g., at a specific dose or in a specific formulation). Patents that are not around composition of matter are narrower in scope (i.e., they do
not protect against development of neflamapimod in an indication other than that the patent defines), may be more difficult to defend against challenges
against validity, and may be more difficult to enforce against infringement. For these reasons, some pharmaceutical companies choose not to develop
and/or license compounds that are not covered by a composition of matter patent. The Company owns a patent that is issued in the U.S. around co-crystals
of neflamapimod, any of which if they were successfully developed would be afforded composition of matter patent protection under this patent.
Accordingly, the lack of composition of matter patent protection that covers neflamapimod may subject the Company to increased risk of third-
party litigation and/or reduce third party collaborators’ interest in or valuation of neflamapimod, any of which could have an adverse effect on the
Company’s business, financial condition or results of operations.
If the Company fails to comply with its obligations under its existing license agreement with Vertex, or with any future intellectual property licenses
with third parties, the Company could lose license rights that are important to its business.
The Company is party to the Vertex Agreement pursuant to which it acquired an exclusive license to develop and commercialize neflamapimod
for the diagnosis, treatment, and prevention of AD and other CNS disorders. Under the terms of the Vertex Agreement, the Company must use
commercially reasonable efforts during the license term to develop and obtain regulatory approval for a licensed product in specified major markets, and to
promptly and effectively commercialize the licensed product once such approval is obtained. The Vertex Agreement also contains certain specified
minimum diligence requirements, including making annual expenditures set forth in a development plan, and commencing a Phase 2 clinical trial of the
licensed product within a specified time period.
The Vertex Agreement provides that either party may terminate the agreement if the other party is in material breach of its obligations thereunder,
following a 60-day notice and cure period, or if the other party files for bankruptcy, reorganization, liquidation, receivership, or an assignment of a
substantial portion of assets to creditors. The Vertex Agreement also provides that in the event the Company materially breaches any of certain specified
diligence obligations as to a specific major market, Vertex’s sole remedy for such breach, following the applicable notice and cure period, would be to
terminate the license as to such specific major market country.
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Accordingly, any uncured, material breach under the Vertex Agreement could result in the loss of certain of its rights to neflamapimod and could
compromise the Company’s development and commercialization efforts. This in turn would have an adverse effect on the Company’s business, which
could be material.
The Company may become subject to third parties’ claims alleging infringement of their patents and proprietary rights, or the Company may need to
become involved in lawsuits to protect or enforce its patents, either of which could be costly and time consuming, potentially delay or prevent the
development and commercialization of the Company’s product candidates, or put its patents and other proprietary rights at risk.
The Company’s commercial success depends, in part, upon the Company’s ability to develop, manufacture, market and sell its lead product
candidate, neflamapimod, without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties.
While the Company is not currently subject to any pending intellectual property litigation, and is not aware of any such threatened litigation, the Company
may be exposed to future litigation by third parties based on claims that its product candidates, technologies or activities infringe the intellectual property
rights of others. Some claimants may have substantially greater resources than the Company does and may be able to sustain the costs of complex
intellectual property litigation to a greater degree and for longer periods of time than the Company. In addition, patent holding companies that focus solely
on extracting royalties and settlements by enforcing patent rights may target the Company in the future. As the biotechnology and pharmaceutical industries
expand and more patents are issued, the risk increases that the Company’s product candidates may be subject to claims of infringement of the intellectual
property rights of third parties.
The Company may be subject to third-party claims including infringement, interference or derivation proceedings, reexamination proceedings,
post-grant review and inter partes review before the USPTO or similar adversarial proceedings or litigation in other jurisdictions. Even if the Company
believes such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and
the holders of any such patents may be able to block the Company’s ability to commercialize its applicable product candidate unless the Company obtained
a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. These proceedings may also
result in the Company’s patent claims being invalidated or narrowed in scope. In addition, a court may hold that a third-party is entitled to certain patent
ownership rights instead of the Company.
As a result of patent infringement claims, or in order to avoid potential infringement claims, the Company may choose to seek, or be required to
seek, a license from the third party, which may require it to pay license fees or royalties or both. These licenses may not be available on acceptable terms,
or at all. Even if a license can be obtained on acceptable terms, the rights may be nonexclusive, which could give the Company’s competitors access to the
same intellectual property rights. If the Company is unable to enter into a license on acceptable terms, it could be prevented from commercializing one or
more of its product candidates, forced to modify such product candidates, or to cease some aspect of the Company’s business operations, which could harm
the Company’s business significantly. In addition, if the breadth or strength of protection provided by the Company’s patents and patent applications is
threatened, it could dissuade companies from collaborating with the Company to license, develop or commercialize current or future product candidates.
If the Company were to initiate legal proceedings against a third party to enforce a patent covering one of its product candidates, the defendant
could counterclaim that the Company’s patent is invalid or unenforceable. The outcome of proceedings involving assertions of invalidity and
unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for example, the Company cannot be certain that there is
no invalidating prior art of which the Company and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal
assertion of invalidity or unenforceability, the Company would lose at least part, and perhaps all, of the corresponding patent protection on its product
candidates. Furthermore, the Company’s patents and other intellectual property rights also will not protect its technology if competitors design around the
Company’s protected technology without infringing its patents or other intellectual property rights.
Finally, even if resolved in the Company’s favor, litigation or other legal proceedings relating to intellectual property claims may cause the
Company to incur significant expenses and could distract its technical and management personnel from their normal responsibilities. In addition, there
could be public announcements of the results of hearings, motions or other interim proceedings or developments, which could damage the Company’s
reputation, harm its business, and the price of its common stock could be adversely affected.
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The Company may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which
might adversely affect the Company’s ability to develop, manufacture and market its product candidates.
From time to time, the Company may identify patents or applications in the same general area as its products and product candidates. The
Company may determine these third-party patents are irrelevant to its business based on various factors including its interpretation of the scope of the
patent claims and its interpretation of when the patent expires. If the patents are asserted against the Company, however, a court may disagree with the
Company’s determinations. Further, while the Company may determine that the scope of claims that will issue from a patent application does not present a
risk, it is difficult to accurately predict the scope of claims that will issue from a patent application, the Company’s determination may be incorrect, and the
issuing patent may be asserted against the Company. The Company cannot guarantee that it will be able to successfully settle or otherwise resolve such
infringement claims. If the Company fails in any such dispute, in addition to being forced to pay monetary damages, it may be temporarily or permanently
prohibited from commercializing certain product candidates. The Company might also be forced to redesign its product candidates so that it no longer
infringes the third-party intellectual property rights, if such redesign is even possible. Any of these events, even if the Company were ultimately to prevail,
could require it to divert substantial financial and management resources that it would otherwise be able to devote to its business.
The Company may be involved in lawsuits to protect or enforce its patents or other intellectual property or the intellectual property of its licensors,
which could be expensive, time-consuming, and unsuccessful.
Competitors may infringe the Company’s patents or other intellectual property or the intellectual property of its licensors. To cease such
infringement or unauthorized use, the Company may be required to file patent infringement claims, which can be expensive and time-consuming and divert
the time and attention of the Company’s management and scientific personnel. The Company’s pending patent applications cannot be enforced against third
parties practicing the technology claimed in such applications unless and until a patent issues therefrom. In addition, in an infringement proceeding or a
declaratory judgment action, a court may decide that one or more of the Company’s patents is not valid or is unenforceable, or may refuse to stop the other
party from using the technology at issue on the grounds that the Company’s patents do not cover the technology in question. An adverse result in any
litigation or defense proceeding could put one or more of the Company’s patents at risk of being invalidated, held unenforceable, or interpreted narrowly
and could put the Company’s patent applications at risk of not issuing. Defense of these claims, regardless of their merit, may involve substantial litigation
expense and may be a substantial diversion of employee resources from the Company’s business.
Interference or derivation proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of
inventions with respect to, or the correct inventorship of, the Company’s patents or patent applications. An unfavorable outcome could result in a loss of the
Company’s current patent rights and could require the Company to cease using the related technology or to attempt to license rights to it from the
prevailing party. The Company’s business could be harmed if the prevailing party does not offer it a license on commercially reasonable terms. Litigation,
interference, derivation or other proceedings may result in a decision adverse to the Company’s interests and, even if the Company is successful, may result
in substantial costs and distract the Company’s management and other employees.
Even if the Company establishes infringement, a court may decide not to grant an injunction against further infringing activity and instead award
only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection
with intellectual property litigation, there is a risk that some of the Company’s confidential information could be compromised by disclosure during this
type of litigation. In addition, there could 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 substantial adverse effect on the price of the Company’s common stock.
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Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing the Company’s ability to protect its
product candidates.
The Company’s success is heavily dependent on intellectual property, particularly patents, and obtaining and enforcing patents in its industry
involves both technological and legal complexity. Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries may
diminish the value of the Company’s patents or narrow the scope of its patent protection.
For example, the AIA, which was passed in September 2011, resulted in significant changes to the U.S. patent system. Pursuant to the AIA, the
U.S. transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different
parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before the Company could therefore be
awarded a patent covering an invention of the Company’s even if the Company made the invention before it was made by the third party. This requires the
Company to be cognizant going forward of the time from invention to filing of a patent application.
The AIA also introduced changes that provide opportunities for third parties to challenge any issued patent with the USPTO. Because of a lower
evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party
could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be
insufficient to invalidate the claim if first presented in a district court action. Such changes could increase the uncertainties and costs surrounding the
prosecution of the Company’s patent applications and the enforcement or defense of its issued patents.
In addition, the laws of other countries may not protect the Company’s rights to the same extent as the laws of the U.S. The complexity and
uncertainty of European patent laws has increased in recent years, and the European patent system is relatively stringent in the type of amendments that are
allowed during prosecution. Complying with these laws and regulations could limit the Company’s ability to obtain new patents in the future that may be
important for its business.
The Company enjoys only limited geographical protection with respect to certain patents, and it may not be able to protect its intellectual property
rights throughout the world.
Filing, prosecuting and defending patents covering the Company’s product candidates in all countries throughout the world would be prohibitively
expensive and time-consuming with diminishing marginal returns. Competitors may use the Company’s technologies in jurisdictions where it has not
obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where the Company has patent
protection, but enforcement is not as strong as that in the U.S. or the European Union. These products may compete with the Company’s product
candidates, and its patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Although the Company intends to seek protection of its intellectual property rights in its expected significant markets, the Company cannot ensure
that it will be able to initiate or maintain similar efforts in all jurisdictions in which the Company may wish to market its product candidates. The Company
may also decide to abandon national and regional patent applications before grant. The grant proceeding of each national or regional patent is an
independent proceeding, which may lead to situations in which applications might in some jurisdictions be refused by the relevant patent offices, while
granted by others.
The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could
make it difficult for the Company to stop the infringement of its patents or marketing of competing products in violation of the Company’s proprietary
rights generally. Proceedings to enforce its patent rights in other jurisdictions, whether or not successful, could result in substantial costs and divert its
efforts and attention from other aspects of the Company’s business, could put the Company’s patents at risk of being invalidated or interpreted narrowly
and its patent applications at risk of not issuing, and could provoke third parties to assert claims against the Company. The Company may not prevail in any
lawsuits that it initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful.
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Some countries also have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have
limited remedies, which could materially diminish the value of such patent. If the Company is forced to grant a license to any third parties with respect to
any patents relevant to the Company’s business, its competitive position may be impaired.
The lives of the Company’s patents may not be sufficient to effectively protect the Company’s products and business.
Patents have a limited lifespan. For example, in the U.S., if all maintenance fees are paid timely, the natural expiration of a patent is generally 20
years after its first effective filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. 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 product candidates are commercialized. Even if patents covering the Company’s product candidates are obtained, once the
patent life has expired for a product, the Company may be open to competition from biosimilar or generic medications. The launch of a generic version of
one of the Company’s products, in particular, would be likely to result in an immediate and substantial reduction in the demand for that product, which
could have a material adverse effect on the Company’s business, financial condition, results of operations and prospects. As a result, the Company’s patent
portfolio may not provide it with sufficient rights to exclude others from commercializing product candidates similar or identical to the Company’s product
candidates. In addition, although upon issuance in the U.S. a patent’s life can be increased based on certain delays caused by the USPTO, this increase can
be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. A patent term extension based on regulatory
delay may be available in the U.S. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once,
for a single product. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but
instead only to the scope of the product as approved. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws
governing the ability to obtain multiple patents from a single patent family. Additionally, the Company may not receive an extension if the Company fail to
exercise due diligence during the testing phase or regulatory review process, apply within applicable deadlines, fail to apply prior to expiration of relevant
patents or otherwise fail to satisfy applicable requirements. If the Company is unable to obtain patent term extension or restoration, or the term of any such
extension is less than the Company requests, the period during which the Company will have the right to exclusively market the Company’s product will be
shortened and the Company’s competitors may obtain approval of competing products following the Company’s patent expiration and may take advantage
of the Company’s investment in development and clinical trials by referencing the Company’s clinical and preclinical data to launch their product earlier
than might otherwise be the case, and the Company’s revenue could be reduced, possibly materially. If the Company does not have sufficient patent life to
protect the Company’s products, the Company’s business and results of operations will be adversely affected.
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Intellectual property discovered or developed through government funded programs may be subject to federal regulations such as “march-in” rights,
certain reporting requirements and a manufacturing preference for U.S.-based companies. Compliance with such regulations may limit the Company’s
exclusive rights and limit its ability to contract with non-U.S. manufacturers.
The Company received the NIA Grant to support its ongoing RewinD-LB Trial. Pursuant to the Bayh-Dole Act, the U.S. government may have
certain rights in any invention developed or reduced to practice with this funding. In addition, in the future the Company may discover, develop, acquire, or
license intellectual property that has been generated through the use of U.S. government funding or grants in which the U.S. government may have certain
rights pursuant to the Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use
inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require the Company to
grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (1) adequate steps have not
been taken to commercialize the invention; (2) government action is necessary to meet public health or safety needs; or (3) government action is necessary
to meet requirements for public use under federal regulations (also referred to as “march-in rights”). Such “march-in” rights would apply to new subject
matter arising from the use of such government funding or grants and would not extend to pre-existing subject matter or subject matter arising from funds
unrelated to the government funding or grants. If the U.S. government exercises its march-in rights in the Company’s intellectual property rights that are
generated through the use of U.S. government funding or grants, the Company could be required to license or sublicense intellectual property discovered or
developed by it or that it licenses on terms unfavorable to the Company, and there can be no assurance that the Company would receive compensation from
the U.S. government for the exercise of such rights. The U.S. government also has the right to take title to these inventions if the grant recipient fails to
disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. Intellectual property
generated under a government funded program is also subject to certain reporting requirements, compliance with which may require the Company to
expend substantial resources. Should any of these events occur, it could significantly harm the Company’s business, results of operations and prospects. In
addition, the U.S. government requires that, in certain circumstances, any products embodying any of these inventions or produced through the use of any
of these inventions be manufactured substantially in the U.S. This preference for U.S. industry may be waived by the federal agency that provided the
funding if the owner or assignee of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar
terms to potential licensees that would be likely to manufacture substantially in the U.S. or that under the circumstances domestic manufacture is not
commercially feasible. This preference for U.S. industry may limit the Company’s ability to contract with non-U.S. product manufacturers for products
covered by such intellectual property.
The Company’s reliance on third parties requires the Company to share its trade secrets, which increases the possibility that its trade secrets will be
misappropriated or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets
and protect other proprietary information.
The Company may rely on trade secrets or confidential know-how to protect various aspects of its business, especially where patent protection is
believed by the Company to be of limited value. Due to its reliance on third parties in various aspects of its business, including CMC, R&D and
collaborations, the Company must, at times, share trade secrets with such parties. The Company may also conduct joint research and development
programs that require it to share trade secrets under the terms of the Company’s research and development partnerships or similar agreements. Such trade
secrets or confidential know-how can be difficult to protect as confidential.
To protect this type of information against disclosure or appropriation by competitors, the Company’s policy is to require its employees,
consultants, contractors and advisors to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or
other similar agreements with the Company prior to beginning research or disclosing proprietary information. However, current or former employees,
consultants, contractors and advisers may unintentionally or willfully disclose the Company’s confidential information to competitors, and confidentiality
agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party
obtained illegally and is using trade secrets or confidential know-how is expensive, time-consuming and unpredictable. In addition, the enforceability of
confidentiality agreements may vary from jurisdiction to jurisdiction.
Despite the Company’s efforts to protect its trade secrets, the Company’s competitors may discover the Company’s trade secrets, either through
breach of the Company’s agreements with third parties, independent development or publication of information by any of its third-party collaborators. A
competitor’s discovery of the Company’s trade secrets could impair its competitive position and have an adverse impact on its business.
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Intellectual property rights do not necessarily address all potential threats to the Company’s competitive advantage.
The degree of future protection afforded by the Company’s intellectual property rights is uncertain because intellectual property rights have
limitations and may not adequately protect the Company’s business or permit the Company to maintain its competitive advantage. For example:
● others may be able to make product candidates that are similar to ours but that are not covered by the claims of the patents that the Company owns
or has exclusively licensed;
● others may independently develop similar or alternative technologies or duplicate any of the Company’s technologies without infringing the
Company’s intellectual property rights;
● it is possible that the Company’s pending patent applications will not lead to issued patents;
● the Company may not develop additional proprietary technologies that are patentable;
● the Company may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a
patent covering such intellectual property;
● the Company may fail to adequately protect and police the Company’s trademarks and trade secrets; and
● the patents of others may have an adverse effect on the Company’s business, including if others obtain patents claiming subject matter similar to or
improving that covered by the Company’s patents and patent applications.
Should any of these events occur, they could significantly harm the Company’s business, results of operations and prospects.
Obtaining and maintaining the Company’s patent protection depends on compliance with various procedural, document submission, fee payment, and
other requirements imposed by governmental patent agencies, and the Company’s patent protection could be reduced or eliminated for non-compliance
with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of
the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and
other similar provisions during the patent application process. Although 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. Noncompliance events that could result in abandonment or
lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to
properly legalize and submit formal documents. In any such event, the Company’s competitors might be able to enter the market, which would have a
material adverse effect on the Company’s business.
Risks Related to Commercialization
The Company has no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for its future viability.
The Company has not yet demonstrated, either on its own or through collaboration with third parties, an ability to successfully complete a large-
scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial product, or conduct sales and marketing activities necessary for
successful product commercialization. Consequently, predictions about its future success or viability may not be as accurate as they may be if the Company
had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.
In addition, as a business with a limited operating history, the Company may encounter unforeseen expenses, complications, delays and other
known and unknown factors. If it is able to successfully develop neflamapimod, the Company may eventually need to transition from a company with a
research focus to a company capable of supporting commercial activities. The Company may not be successful in such a transition and, as a result, its
business may be adversely affected.
As the Company continues to build its business, the Company expects that its financial condition and operating results may fluctuate significantly
from quarter to quarter and year to year due to a variety of factors, many of which are beyond its control. Accordingly, investors should not rely upon the
results of any particular quarterly or annual period as indications of the Company’s future operating performance.
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The Company’s business operations are subject to applicable healthcare laws and regulations. If neflamapimod is approved, the Company will also be
subject to stringent regulation and ongoing regulatory obligations and restrictions, which could delay its marketing and commercialization activities
and also expose it to penalties if the Company fails to comply with applicable regulations.
Although the Company does not currently have any products on the market, once it begins commercializing neflamapimod or any other future
product candidates, it will be subject to additional healthcare statutory and regulatory requirements and oversight by federal and state governments as well
as foreign governments in the jurisdictions in which the Company conducts its business. Physicians, other healthcare providers and third party payors will
play a primary role in the recommendation, prescription and use of any product candidates for which the Company obtains marketing approval. The
Company’s future arrangements with such third parties may expose the Company to broadly applicable fraud and abuse and other healthcare laws and
regulations that may constrain the business or financial arrangements and relationships through which it markets, sells and distributes any products for
which the Company obtains marketing approval. Among others, restrictions under applicable domestic and foreign healthcare laws and regulations include:
● the U.S. federal AKS, which prohibits, 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;
● U.S. federal false claims, false statements and civil monetary penalties laws, including the U.S. federal False Claims Act, which impose criminal
and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal
government;
● HIPAA, which imposes (i) criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and
willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services and (ii) obligations on certain covered entity healthcare providers, health plans, and healthcare
clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health
information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable
health information;
● analogous state and foreign laws and regulations relating to healthcare fraud and abuse, such as state anti-kickback and false claims laws, which
may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party
payors, including private insurers;
● the U.S. federal “Physician Payments Sunshine Act”, which requires manufacturers of drugs, devices, biologics and medical supplies that are
reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to CMS information related to physician payments
and other transfers of value to physicians, certain advanced non-physician health care practitioners, and teaching hospitals, as well as the
ownership and investment interests of physicians and their immediate family members;
● analogous state and foreign laws that require pharmaceutical companies to track, report and disclose to the government or the public information
related to payments, gifts, and other transfers of value or remuneration to physicians and other healthcare providers, marketing activities or
expenditures, or product pricing or transparency information, or that require pharmaceutical companies to implement compliance programs that
meet certain standards or to restrict or limit interactions between pharmaceutical manufacturers and members of the healthcare industry;
● U.S. federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain
discounts or rebates to government authorities or private entities, often as a condition of reimbursement under federal healthcare programs; and
● state and foreign laws that govern the privacy and security of health information in certain circumstances, including state security breach
notification laws, state health information privacy laws and federal and state consumer protection laws, many of which differ from each other in
significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government
authorities, can be time- and resource-consuming and can divert a company’s attention from the business. Efforts to ensure that the Company’s business
arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. The scope and enforcement of
each of these laws is uncertain and subject to rapid change in the current environment of health care reform, including due to lack of applicable precedent
and regulations. Any action against the Company for violation of these laws, even if the Company successfully defends against it, could cause the
Company to incur significant legal expenses and divert its management’s attention from the operation of its business. The shifting compliance environment
and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting
requirements increases the possibility that a health care company may run afoul of one or more of the requirements. If the FDA or a comparable foreign
regulatory authority approves any of the Company’s product candidates, the Company will be subject to an expanded number of these laws and regulations
and will need to expend resources to develop and implement policies and processes to promote ongoing compliance. It is possible that governmental
authorities will conclude that the Company’s 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, resulting in government enforcement actions.
If the Company’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to the
Company, it may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from federal
healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of the Company’s operations. If any of the physicians or other
healthcare providers or entities with whom the Company expects to do business is found to be not in compliance with applicable laws, they may be subject
to criminal, civil or administrative sanctions, including exclusions from federal healthcare programs.
Even if neflamapimod or any other product candidate the Company develops receives marketing approval, it may fail to achieve the level of acceptance
necessary for commercial success.
If neflamapimod, or any other product candidate the Company may develop or acquire in the future, receives marketing approval, it may
nonetheless fail to gain sufficient market acceptance by physicians, health care professionals, patients, third-party payors and others in the medical
community. If the Company’s drug does not achieve an adequate level of acceptance, the Company may not generate significant product revenues or
become profitable. The degree of market acceptance will depend on a number of factors, including but not limited to:
● the ability to provide acceptable evidence of efficacy and potential advantages compared to alternative treatments;
● the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
● the Company’s ability to offer its drug for sale at competitive prices, which may be subject to regulatory control;
● the availability of third-party insurance coverage and adequate reimbursement;
● the availability of alternative treatments and the cost of a new treatment in relation to those alternatives, including any similar generic treatments;
● the relative convenience and ease of administration of a new treatment compared to alternatives, and the prevalence and severity of any side
effects of a new treatment;
● the strength and effectiveness of the Company’s sales, marketing and distribution capabilities, either internally or in collaboration with others;
● any restrictions on the use of the Company’s product together with other medications; and
● any restrictions on the distribution of the Company’s product such as those imposed under a mandatory REMS program.
If neflamapimod or any other product candidate that the Company may develop in the future does not provide a treatment regimen that is at least
as beneficial as the current standard of care or otherwise does not provide some additional patient benefit over the current standard of care, that product will
not achieve market acceptance, and the Company will not generate sufficient revenues to achieve profitability. Because the Company expects sales of its
product candidates, if approved, to generate substantially all of its revenues for the foreseeable future, the failure of the Company’s product candidates to
find market acceptance would materially harm its business.
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If the market opportunity for any product candidate that the Company develops is smaller than it believes, its revenue may be adversely affected and its
business may suffer.
The Company intends to initially focus its product candidate development on treatments for various CNS and neurodegenerative indications, in
particular DLB. The addressable patient populations that may benefit from treatment with the Company’s product candidates, if approved, are based on its
estimates. These estimates, which have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations and
market research, may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these CNS and neurodegenerative
diseases. Any regulatory approval of the Company’s product candidates would be limited to the therapeutic indications examined in the Company’s clinical
trials and as determined by the FDA, which would not permit the Company to market its products for any other therapeutic indications not expressly
reviewed and approved as safe and effective. Additionally, the potentially addressable patient population for the Company’s product candidates may not
ultimately be amenable to treatment with the Company’s product candidates. Even if the Company receives regulatory approval for any of its product
candidates, such approval could be conditioned upon label restrictions that materially limit the addressable patient population. The Company’s market
opportunity may also be limited by future competitor treatments that enter the market. If any of the Company’s estimates prove to be inaccurate, the market
opportunity for any product candidate that the Company or its strategic partners develop could be significantly diminished and have an adverse material
impact on its business.
The Company faces substantial competition from other biotechnology and pharmaceutical companies, and its operating results will suffer if it fails to
compete effectively.
The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. If
neflamapimod is approved, it will face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies,
specialty pharmaceutical companies, biopharmaceutical companies in the U.S. and other jurisdictions, academic institutions and governmental agencies and
public and private research institutions. These organizations may have significantly greater resources than the Company does. They may also conduct
similar research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing and marketing of products that
may compete with neflamapimod.
Currently, there are a limited number of companies and disease modifying approaches for DLB. However, given the potential market opportunity
for the treatment of DLB and other neurodegenerative diseases, an increasing number of established pharmaceutical firms and smaller
biotechnology/biopharmaceutical companies are pursuing a range of potential therapies for these diseases in various stages of clinical development. In
addition to these current and potential competitors, the Company anticipates that more companies will enter the DLB market in the future. The Company’s
potential competitors could have significantly greater financial resources, as well as drug development, manufacturing, marketing, and sales expertise.
They may also be able to develop and commercialize products that are safer, more effective, less expensive, more convenient, easier to administer, or have
fewer severe effects, than existing treatments or, if it is ultimately approved, neflamapimod. Competitors may also obtain FDA or other regulatory approval
for their product candidates more rapidly than the Company may obtain approval for neflamapimod, which could result in their establishing or
strengthening a commercial position before the Company is able to enter the market. The highly competitive nature of the biotechnology and
pharmaceutical industries, as well as the rapid technological changes in those fields, could limit The Company’s ability to advance neflamapimod
commercially. If the Company is unable to compete effectively, this could have a material adverse effect on its business and results of operations.
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The successful commercialization of neflamapimod, or any other product candidate the Company may develop or acquire, will depend in part on the
extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels, and pricing policies. Enacted and
future healthcare legislation may increase the difficulty and cost for the Company to obtain marketing approval of and commercialize its product
candidates, if approved, and also affect the prices it may set. Failure to obtain or maintain coverage and adequate reimbursement for the Company’s
product candidates, if approved, could limit its ability to market those products and decrease its ability to generate revenue.
There have been, and the Company expects will continue to be, a number of legislative and regulatory proposals and changes to the healthcare
systems in the U.S. and other jurisdictions that could affect the Company’s future results of operations. In particular, a number of initiatives at the U.S.
federal and state levels have aimed to reduce healthcare costs and improve the quality of healthcare. Existing regulatory policies may change and additional
government regulations may be enacted that could prevent, limit or delay regulatory approval of neflamapimod or any future product candidates the
Company may develop or acquire. The Company cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative action, either in the U.S. or abroad. If the Company is slow or unable to adapt to changes in existing requirements or the
adoption of new requirements or policies, or if it is not able to maintain regulatory compliance, the Company may lose any marketing approval that it may
have obtained, and it may not achieve or sustain profitability.
In the U.S., the availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid,
private health insurers, and other third-party payors are essential for most patients to be able to afford prescription medications such as neflamapimod, if it
is approved. The Company’s ability to achieve acceptable levels of coverage, payment, and reimbursement for products by governmental authorities,
private health insurers and other organizations will have an effect on the Company’s ability to successfully commercialize neflamapimod and any other
potential future product candidates. Assuming the Company obtains coverage for neflamapimod by a third-party payor, the resulting reimbursement
payment rates may not be adequate or may require co-payments that patients find unacceptably high. the Company cannot be sure that coverage, payment,
and reimbursement in the U.S. or elsewhere will be available for or any drug product that the Company may develop, and any reimbursement that may
become available may be decreased or eliminated in the future.
There have recently been and may continue to be a number of significant legislative initiatives in the U.S. to contain healthcare costs. Federal and
state governments continue to propose and pass legislation designed to reform delivery of, or payment for, healthcare, which include initiatives to reduce
the cost of healthcare. For example, in March 2010, the U.S. Congress enacted the ACA, which substantially changed the way healthcare is financed by
both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. We expect that future changes or additions to the
ACA, the Medicare and Medicaid programs, and changes stemming from other healthcare reform measures, especially with regard to healthcare access,
financing or other legislation in individual states, could have a material adverse effect on the healthcare industry in the United States.
In August 2022, President Biden signed into law the IRA, which, among other things, requires manufacturers of certain drugs to engage in price
negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare
Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting
program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services to implement many of these provisions
through guidance, as opposed to regulation, for the initial years. In addition, multiple large pharmaceutical companies and other stakeholders (e.g., the U.S.
Chamber of Commerce) have initiated federal lawsuits against CMS arguing the program is unconstitutional for a variety of reasons, among other
complaints. For these and other reasons, the implementation of the IRA and its impact on the Company’s business is currently unclear.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological
product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and
transparency measures. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate
PBMs and other members of the health care and pharmaceutical supply chain, an important decision that may lead to appears to be leading to further and
more aggressive efforts by states in this area. The Federal Trade Commission in mid-2022 also launched sweeping investigations into the practices of the
PBM industry, and members of Congress continue to propose reforms for the PBM industry, all or each of which could lead to additional federal and state
legislative or regulatory proposals targeting such entities’ operations, pharmacy networks, or financial arrangements. In addition, in the last few years,
several states have formed PDABs with the authority to implement UPLs on drugs sold in their respective jurisdictions. There are several pending federal
lawsuits challenging the authority of states to impose UPLs, however.
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Further, if neflamapimod is approved in any jurisdictions outside of the U.S., the Company may also be subject to extensive governmental price
controls and other market regulations in those countries. Governments outside of the U.S., particularly the countries of the European Union, tend to impose
strict price controls on prescription pharmaceutical products. In these countries, pricing negotiations with governmental authorities can take considerable
time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, the Company may be required to
conduct a clinical trial that compares the cost-effectiveness of its product candidate to other available therapies. If reimbursement of the Company’s
products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, the Company’s business could be harmed, possibly
materially. As a result, the Company might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that
delay its commercial launch of the product and negatively impact the revenue the Company is able to generate from the sale of the product in that country.
Adverse pricing limitations may hinder the Company’s ability to recoup its investment in its product candidates, even after obtaining regulatory approval.
The Company cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative
action in the U.S. or any other jurisdiction. In the U.S., future laws and regulation may result in more rigorous coverage criteria and increased downward
pressure on the price pharmaceutical companies may receive for any approved product. Reductions in reimbursement from Medicare or other government
programs may result in similar reductions in payments from private payors. The implementation of cost containment measures or other healthcare reforms
may prevent the Company from being able to generate revenue, attain profitability or commercialize its product candidates. Further, if the Company or any
third parties with whom it engages in the future are slow or unable to adapt to changes in existing requirements or policies, or if the Company is not able to
maintain regulatory compliance, its ability to generate revenue, attain profitability, or commercialize neflamapimod or any other products for which it
receives regulatory approval may be materially and adversely affected.
If the Company is unable to obtain adequate coverage and payment levels for its products from third-party payors, physicians may limit how much
or under what circumstances they will prescribe or administer them, and patients may decline to purchase them. This in turn would affect the Company’s
ability to successfully commercialize any approved products and thereby adversely impact its profitability, results of operations, and financial condition.
If the Company is unable to establish sales, marketing and distribution capabilities either on its own or in collaboration with third parties, it may not be
successful in commercializing neflamapimod, if approved.
The Company does not currently have any infrastructure for the sales, marketing or distribution of an approved drug product, and the cost of
establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market and successfully commercialize
neflamapimod, if approved, the Company must build its sales, distribution, marketing, managerial and other non-technical capabilities, or make
arrangements with third parties to perform these services.
There are significant expenses and risks involved in establishing the Company’s own sales, marketing and distribution functions, including the
Company’s ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and
marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Alternatively, to the extent that the Company depends
on third parties for such services, any revenues it receives will depend upon the efforts of those third parties, and there can be no assurance that such efforts
will be successful.
If the Company is unable to establish adequate sales, marketing and distribution capabilities, either on its own or in collaboration with others, the
Company will not be successful in commercializing neflamapimod, if it is ultimately approved, and it may never become profitable. The Company will be
competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third
party to perform marketing and sales functions, the Company may be unable to compete successfully against these more established companies.
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Consumers may sue the Company for product liability, which could result in substantial liabilities that exceed its available resources and damage its
reputation.
Researching, developing, and commercializing drug products entail significant product liability risks. The use of neflamapimod or any other
product candidates the Company may develop in clinical trials and the sale of any products for which it obtains marketing approval exposes it to the risk of
product liability claims. Product liability claims might be brought against the Company by clinical trial participants, patients, healthcare providers,
pharmaceutical distributors or others selling or otherwise coming into contact with its product candidates or future commercial products. The Company has
obtained limited product liability insurance coverage for its clinical trials, which the Company believes to be reasonable given its current operations.
However, the Company’s insurance coverage may not reimburse the Company or may not be sufficient to reimburse it for any expenses or losses it may
suffer.
Although the Company currently has limited product liability insurance that covers its clinical trials, it will need to increase and expand this
coverage as it commences larger scale trials, as well as if neflamapimod is ultimately approved for commercial sale. This insurance may be extremely
expensive or may not fully cover the Company’s potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to
protect against potential product liability claims could prevent or inhibit the commercialization of neflamapimod, if it is approved. Product liability claims
could have a material adverse effect on the Company’s business and results of operations.
Any product candidate for which the Company obtains marketing approval will be subject to extensive post-marketing regulatory requirements and
could be subject to post-marketing restrictions or withdrawal from the market, and the Company may be subject to penalties if it fails to comply with
regulatory requirements or if it experiences unanticipated problems with its products, when and if any of them are approved.
If the FDA or a comparable foreign regulatory authority approves neflamapimod or any of the Company’s future product candidates for
marketing, activities such as the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and
recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. The FDA or a comparable foreign regulatory authority may
also impose requirements for costly post-marketing nonclinical studies or clinical trials (often called “Phase 4 trials”) and post-marketing surveillance to
monitor the safety or efficacy of the product. If the Company or a regulatory authority discovers previously unknown problems with a product, such as
adverse events of unanticipated severity or frequency, production problems or issues with the facility where the product is manufactured or processed, such
as product contamination or significant not-compliance with applicable cGMPs, a regulator may impose restrictions on that product, the manufacturing
facility or the Company. If the Company or its third party providers, including the Company’s CMOs, fail to comply fully with applicable regulations, then
the Company may be required to initiate a recall or withdrawal of its products.
The Company must also comply with requirements concerning advertising and promotion for any of its product candidates for which it obtains
marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be
consistent with the information in the product’s approved labeling. Thus, the Company will not be able to promote any products it develops for indications
or uses for which they are not approved. The FDA and other agencies closely oversee the post-approval marketing and promotion of drugs to ensure drugs
are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on
manufacturers’ communications regarding use of their products, and if the Company promotes its products beyond their approved indications, it may be
subject to enforcement actions or prosecution arising from that off-label promotion. Violations of the FDCA relating to the promotion of prescription drugs
may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws. Accordingly,
to the extent the Company receives marketing approval for neflamapimod, the Company and its CMOs and other third-party partners will continue to
expend time, money and effort in all areas of regulatory compliance, including promotional and labeling compliance, manufacturing, production, product
surveillance, and quality control. If the Company is not able to comply with post-approval regulatory requirements, it could have marketing approval for
any of its products withdrawn by regulatory authorities and its ability to market any future products could be limited, which could adversely affect its
ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on the Company’s
operating results and financial condition.
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The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval of
the Company’s product candidates. If the Company is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or
policies, or if it is not able to maintain regulatory compliance, it may lose any marketing approval that it may have obtained, which would adversely affect
the Company’s business, prospects and ability to achieve or sustain profitability.
Risks Related to Ownership of the Company’s Securities
The Company’s stock price may be volatile, there may be limited liquidity in the trading market for the Company’s common stock, and the market price
of its common stock may drop in the future.
The market price of the Company’s common stock may be subject to significant fluctuations. Market prices for securities of early-stage
pharmaceutical, biotechnology and other life sciences companies have historically been volatile. Some of the factors that may cause the market price of the
Company’s common stock to fluctuate include among others:
● the ability of the Company or its partners to develop product candidates and conduct clinical trials that demonstrate such product candidates are
safe and effective;
● the ability of the Company or its partners to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;
● failure of any of the Company’s product candidates to demonstrate safety and efficacy, receive regulatory approval and achieve commercial
success;
● failure by the Company to maintain its existing third-party license, manufacturing and supply agreements;
● failure by the Company or its licensors to prosecute, maintain, or enforce its intellectual property rights;
● changes in laws or regulations applicable to the Company’s product candidates;
● any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices;
● adverse regulatory authority decisions;
● introduction of new or competing products by the Company’s competitors;
● failure to meet or exceed financial and development projections the Company may provide to the public;
● the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
● announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by the Company or its competitors;
● disputes or other developments relating to proprietary rights, including patents, litigation matters, and the Company’s ability to obtain intellectual
property protection for its technologies;
● additions or departures of key personnel;
● significant lawsuits, including intellectual property or stockholder litigation;
● if securities or industry analysts do not publish research or reports about the Company, or if they issue an adverse or misleading opinions regarding
its business and stock;
● changes in the market valuations of similar companies;
● general market or macroeconomic conditions;
● sales of its common stock by the Company or its stockholders in the future;
● the trading volume of the Company’s common stock;
● the limited percentage of the Company’s outstanding shares that are currently freely tradeable as a result of the significant holdings of the
Company’s directors and officers;
● adverse publicity relating to the Company’s markets generally, including with respect to other products and potential products in such markets;
● changes in the structure of health care payment systems; and
● period-to-period fluctuations in the Company’s financial results.
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Accordingly, the market price of Company’s common stock may be highly volatile and could fluctuate widely in price as a result of these or other
factors. In particular, the Company has relatively few shares of common stock outstanding in the “public float” as a higher percentage of the Company’s
outstanding shares are held by a small number of shareholders. In addition, the shares of common stock may be sporadically or thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small quantities of shares by shareholders may disproportionately influence the price of those
shares in either direction, particularly over short periods of time. The price for such shares could, for example, decline precipitously in the event that a large
number of the shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales
without a material reduction in share price. An active trading market for the Company’s shares of common stock may never develop or be sustained. If an
active market for its common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at
all.
Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the
market price of its securities. The Company may in the future be the target of similar litigation if its stock continues to experience price volatility. Securities
litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
The Company has funded its operations to date through the issuance of securities, including common stock, warrants to purchase common stock
(including pre-funded warrants), convertible preferred stock, and convertible debt securities, and expects that in the future it will need to raise
additional capital through similar means to fund its continued operations and liquidity needs. Assuming funding is available on acceptable terms, any
future issuance of common stock or securities convertible for or exchangeable into common stock will result in dilution to the Company’s existing
stockholders and could depress the market price of its common stock. Furthermore, the terms of future financing transactions may contain provisions
that restrict our operations or require us to relinquish certain rights to our product candidates or other technologies.
The Company will likely need to raise additional funds in the future to continue its operations, fund research and development, and, if approved,
commercialize its product candidates. The Company currently plans to continue to finance operations with a combination of equity issuances, debt
arrangements, and, potentially, licensing, or other partnering relationships. The Board may determine at any time to raise additional capital if it believes the
terms are in the best interests of the Company’s stockholders. In addition, the Company may also issue securities to counterparties as part of an acquisition,
merger, or similar transaction, including as part of our strategic review process.
Any issuance or sale of shares, or the perception in the market of an intent to issue or sell shares in the near-term, by the Company or holders of a
large number of shares could reduce the market price of the Company’s common stock, including in connection with the 2024 Private Placement which is
expected to close on or about April 1, 2024, subject to customary closing conditions. The Company also cannot assure you that any such sale of common
stock or other securities will be at a price per share that is equal to or greater than the price per share paid by you for the Company’s common stock.
Furthermore, a depressed stock price could limit the Company’s ability to raise necessary capital through the sale of additional equity securities on terms
that are acceptable.
In addition, in connection with the 2024 Private Placement, the Company issued the Series A Warrants pursuant to which the holders thereof are
entitled to purchase an aggregate of 2,532,285 shares of common stock at an exercise price equal to $39.24 per share. The Series A Warrants are
exercisable immediately and will expire at the earlier of (i) April 1, 2027 or (ii) 180 days after the date that the Company makes a public announcement of
positive top-line data from the RewinD-LB Trial, subject to certain beneficial ownership limitations and other conditions set forth therein. Any future
issuance of common stock upon exercise of the Series A Warrants will result in dilution to the Company’s existing stockholders and could depress the
market price of its common stock.
The Company may become obligated to pay liquidated damages if we fail to file, obtain effectiveness and maintain effectiveness of a registration
statement in accordance with the terms of the securities purchase agreement related to its 2024 Private Placement.
In connection with the 2024 Private Placement, the Company granted the purchasers of securities in the offering certain resale registration rights
pursuant to the terms of the securities purchase agreement. In addition to the registration rights, the purchaser may be entitled to receive liquidated damages
upon the occurrence, or failure to occur, of a number of events relating to the filing, effectiveness and maintenance of effectiveness of a registration
statement related to the common stock sold in the 2024 Private Placement. The liquidated damages will be payable upon the occurrence, or failure to occur,
of each of those events and each monthly anniversary thereof until cured. The amount of liquidated damages payable per monthly period would be equal to
1% of the aggregate purchase price paid by the purchaser, provided, however, the maximum aggregate liquidated damages payable to the purchaser would
be 5% of the aggregate amount paid by such purchaser for the purchaser of such securities in the 2024 Private Placement.
Ownership of the Company’s common stock is highly concentrated among its officers and directors, which may prevent the Company’s stockholders
from influencing significant corporate decisions and may result in perceived conflicts of interest that could cause the Company stock price to decline.
As of March 26, 2024, executive officers and directors of the Company owned, directly or indirectly, approximately 47.4% of the outstanding
shares of the Company common stock. Accordingly, these stockholders, in the aggregate, may exercise substantial influence over the outcome of corporate
actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the Company assets
or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the Company, even if such a change of
control would benefit the other stockholders of the Company. The significant concentration of stock ownership may adversely affect the trading price of the
Company’s common stock due to investors’ perception that conflicts of interest may exist or arise.
Future sales of shares by existing stockholders could cause the Company’s stock price to decline.
If existing stockholders of the Company sell, or indicate an intention to sell, substantial amounts of the Company’s common stock in the public
market after certain legal and contractual restrictions on resale lapse, the trading price of the common stock of the Company could decline.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the Company, its business, or its
market, its stock price and trading volume could decline.
The trading market for the Company’s common stock will be influenced by the research and reports that equity research analysts may publish
about it and its business from time to time. Equity research analysts may elect not to provide or continue research coverage of the Company’s common
stock, which may adversely affect the market price of the stock. In the event the Company does have equity research analyst coverage at any given time,
the Company will not have any control over the analysts, or the content and opinions included in their reports. The price of the Company’s common stock
could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity
research analysts cease coverage of the Company or fails to publish reports on the Company regularly, demand for the Company’s common stock could
decrease, which in turn could cause its stock price or trading volume to decline.
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If the Company cannot continue to satisfy the Nasdaq Capital Market continued listing standards and other Nasdaq rules, its common stock could be
delisted, which could harm the Company’s business, the trading price of its common stock, the Company’s ability to raise additional capital and the
liquidity of the market for its common stock.
The Company’s common stock is currently listed on the Nasdaq Capital Market. To maintain this listing, the Company is required to meet certain
listing requirements related to, among other things, the trading price of the Company’s common stock, the Company’s market capitalization and certain
corporate governance-related requirements. In the event the Company’s common stock is delisted from Nasdaq for a failure to meet such requirements and
is not eligible for quotation or listing on another market or exchange, trading of the Company’s common stock could be conducted only in the over-the-
counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it
could become more difficult for the Company to raise capital and for the Company’s stockholders to dispose of, or obtain accurate price quotations for, the
Company’s common stock. There would likely also be a decline in the liquidity of the trading market for the Company’s common stock and a reduction in
the Company’s coverage by securities analysts and the news media, which could cause the price of the Company’s common stock to decline further.
Provisions in the Company’s corporate charter documents and under Delaware law could make an acquisition of the Company, which may be
beneficial to the Company’s stockholders, more difficult and may prevent attempts by the Company’s stockholders to replace or remove its current
directors and members of management.
Provisions in the Company’s certificate of incorporation, as amended, and its amended and restated bylaws may discourage, delay or prevent a
merger, acquisition or other change in control of the Company that stockholders may consider favorable, including transactions in which the Company’s
stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors are willing to pay in the future
for shares of the Company’s common stock, thereby depressing the market price of its common stock. In addition, because the Board is responsible for
appointing the members of its management team, these provisions may frustrate or prevent any attempts by the Company’s stockholders to replace or
remove its current management by making it more difficult for stockholders to replace members of the Board. Among other things, these provisions:
● allow the authorized number of the Company’s directors to be changed only by resolution of the Board;
● limit the manner in which stockholders can remove directors from the Board;
● establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to the Board;
● limit who may call stockholder meetings and the Company stockholders’ ability to act by written consent;
● authorize the Board to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to
dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by the Board; and
● require the approval of the holders of at least 2/3 of the votes that all the Company’s stockholders would be entitled to cast to amend or repeal
specified provisions of the Company’s certificate of incorporation, as amended, or for stockholders to amend or repeal the Company’s amended
and restated bylaws.
Moreover, because the Company is incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which generally
prohibits a person who, together with their affiliates and associates, owns 15% or more of a company’s outstanding voting stock from, among other things,
merging or combining with the company for a period of three years after the date of the transaction in which the person acquired ownership of 15% or more
of the company’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
The Company’s certificate of incorporation designates the state courts in the State of Delaware as the sole and exclusive forum for certain types of
actions and proceedings that may be initiated by its stockholders, which could discourage lawsuits against the company and its directors, officers and
employees.
The Company’s certificate of incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, the
Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the federal district court for
the District of Delaware) will be the sole and exclusive forum for certain proceedings, including: (1) any derivative action or proceeding brought on the
Company’s behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of the Company’s directors, officers, employees or
stockholders to the company or its stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or as to which the DGCL
confers jurisdiction on the Court of Chancery of the State of Delaware or (4) any action asserting a claim arising pursuant to any provision of the
Company’s certificate of incorporation or amended and restated bylaws (in each case, as they may be amended from time to time) or governed by the
internal affairs doctrine. These choice of forum provisions will not apply to suits brought to enforce a duty or liability created by the Securities Act, the
Exchange Act or any other claim for which federal courts have exclusive jurisdiction.
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These exclusive-forum provisions may make it more expensive for Company stockholders to bring a claim than if the stockholders were permitted
to select another jurisdiction, and may limit the ability of the Company’s stockholders to bring a claim in a judicial forum that such stockholders find
favorable for disputes with the Company or its directors, officers or employees, which may discourage such lawsuits against the Company and its directors,
officers and employees. Alternatively, if a court were to find the choice of forum provisions contained in the Company’s certificate of incorporation to be
inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which
could materially adversely affect its business, financial condition and operating results.
The Company does not anticipate that it will pay any cash dividends in the foreseeable future.
The Company’s current expectation is that it will retain future earnings, if any, to fund the development and growth of the Company’s business. As
a result, capital appreciation, if any, will be your sole source of potential gain on an investment in the Company’s common stock for the foreseeable future.
General Risks Related to the Company’s Business and Operations
The Company’s future success depends in large part on the Company’s ability to retain its key employees, as well as its ability to attract, train and
motivate additional qualified personnel. The Company may also encounter difficulties in managing its growth, which could disrupt its operations.
The Company has a small number of employees, and it is highly dependent on the principal members of its management team, including its
President and Chief Executive Officer, John Alam, M.D. Although the Company has employment agreements or offer letters with its executive officers and
certain key employees, these agreements do not prevent them from terminating their services at any time.
Competition in the biotechnology industry for skilled and experienced employees is intense, particularly in the greater Boston, Massachusetts area,
where the Company’s headquarters is located, and the Philadelphia, Pennsylvania area, where approximately 50% of the employee’s workforce is located.
The Company also faces competition for the hiring of scientific and clinical personnel from universities and research institutions, many of which are near
the Company’s headquarters. The loss of the services of any member of the Company’s senior management, clinical development or scientific staff, or any
other key employee, may significantly delay or prevent the achievement of drug development and other business objectives and could have a material
adverse effect on the Company’s business, operating results and financial condition.
The Company also relies on consultants and advisors to assist it in formulating and executing its business strategy. Many of the Company’s
consultants and advisors are either self-employed or employed by other organizations, and they may have conflicts of interest or other commitments, such
as consulting or advisory contracts with other organizations, which may affect their ability to contribute to the Company.
As the Company continues to develop neflamapimod for the treatment of DLB, and also to expand into clinical trials for other CNS disorders, the
Company expects to experience significant growth in the number of employees and the scope of its operations. This strategy will require it to recruit
additional clinical development, regulatory, scientific, and technical personnel, as well as sales and marketing personnel if neflamapimod is approved. If the
Company is unable to attract, retain and motivate a sufficient number of highly qualified personnel to match such growth, its ability to further develop and
commercialize neflamapimod, or any future product candidates the Company may develop or acquire, will be limited.
The Company may also be required to implement and improve managerial, operational and financial systems to manage its potential growth. Due
to its limited financial and personnel resources, the Company may not be able to effectively manage the expansion of its operations or recruit and train a
sufficient number of additional qualified personnel. The expansion of the Company’s operations may lead to significant costs and may divert its
management and business development resources. Any inability to manage growth could delay the execution of the Company’s business plans or disrupt its
operations.
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The Company has identified material weaknesses in its internal control over financial reporting which, if not corrected, could affect the reliability of
the Company’s financial statements and have other adverse consequences. The Company may identify additional material weaknesses in its internal
controls over financial reporting which it may not be able to remedy in a timely manner. If the Company fails to maintain proper and effective internal
controls, its ability to produce accurate financial statements on a timely basis could be impaired.
The Company is subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of Nasdaq. The
Sarbanes-Oxley Act requires, among other things, that the Company maintain effective disclosure controls and procedures and internal control over
financial reporting. The Company must perform system and process evaluation and testing of its internal control over financial reporting to allow
management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K filing for that year, as
required by Section 404 of the Sarbanes-Oxley Act. This requires that the Company incur substantial professional fees and internal costs to expand its
accounting and finance functions and that it expends significant management efforts. The Company may experience difficulty in meeting these reporting
requirements in a timely manner.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the Company’s consolidated financial statements would not be prevented or detected on a timely basis. The
identified material weaknesses, if not corrected, could result in a material misstatement to the Company’s consolidated financial statements that may not be
prevented or detected. The Company may discover weaknesses in its system of internal financial and accounting controls and procedures that could result
in a material misstatement of its financial statements.
For example, in connection with the audit of the Company’s financial statements for the years ended December 31, 2023 and 2022, material
weaknesses in the Company’s internal control over financial reporting were identified related to (i) the Company’s recording of significant complex
transactions, and (ii) the absence of effective controls regarding the accurate identification, evaluation and proper recording of various expense accounts.
The Company may identify additional material weaknesses in its internal controls over financing reporting in the future which it may not be able to remedy
in a timely manner. Any material weaknesses will not be considered remediated until a remediation plan has been fully implemented, the applicable
controls operate for a sufficient period of time, and it has been concluded, through testing, that the newly implemented and enhanced controls are operating
effectively.
If the Company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and
effective internal controls, the Company may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its
common stock could decline and it could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. More generally, any
failure by the Company to implement and maintain effective internal control over financial reporting could result in errors in the Company’s financial
statements that could result in a restatement of the Company’s financial statements and could cause the Company to fail to meet its reporting obligations,
any of which could diminish investor confidence in the Company and cause a decline in the price of the Company’s common stock.
The Company’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
The Company is subject to the periodic reporting requirements of the Exchange Act and its disclosure controls and procedures are designed to
reasonably assure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is accumulated and
communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. The
Company believes 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.
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These inherent limitations include the realities that judgments in decision-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.
The Company’s information technology systems, or those of its vendors, collaborators or other contractors or consultants, may fail or suffer security
incidents, loss of data and other disruptions, which could result in a material disruption of its product development programs, compromise sensitive
information related to its business or prevent it from accessing critical information, potentially exposing it to liability or otherwise adversely affecting
its business.
In the ordinary course of the Company’s business, the Company collects and stores sensitive data, intellectual property, and proprietary business
information. This data encompasses a wide variety of business-critical information including research and development information, clinical trial
information, commercial information, and business and financial information. The Company faces risks relative to protecting this critical information
including loss of access, unauthorized disclosure, unauthorized modification, and inadequate monitoring of its controls over these risks.
Despite the implementation of security measures, the Company’s internal IT systems and those of its current and any future third-party vendors,
collaborators and other contractors or consultants are vulnerable to system failures, accidents, security incidents, damage, interruption or data theft from
computer viruses, computer hackers, malicious code, employee theft or misuse, ransomware, social engineering (including phishing attacks), denial-of-
service attacks, sophisticated nation-state and nation-state-supported actors, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures. As use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to
computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of the Company’s IT systems and
networks and the confidentiality, availability and integrity of the Company’s data. There can be no assurance that the Company will be successful in
preventing cybersecurity incidents or successfully mitigating their effects.
Any such disruption or security incident could cause interruptions to its operations and result in disruption of the Company’s development
programs and business operations. For example, the loss of clinical trial data from future clinical trials could result in delays in the Company’s regulatory
approval efforts and significantly increase its costs to recover or reproduce the data. If the Company were to experience a significant cybersecurity incident
that impacts its information systems or data, the costs associated with the investigation, remediation, and potential notification of the cybersecurity incident
to counterparties, regulatory authorities, and data subjects could be material. In addition, the Company’s remediation efforts may not be successful.
Cybersecurity incidents could also lead to significant business disruption, including transaction errors, supply chain or manufacturing interruptions,
processing inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary information. In addition, the Company’s recently-
increased remote workforce could increase the Company’s cybersecurity risk, create data accessibility concerns, and make the Company more susceptible
to communication disruption.
To the extent that any disruption or cybersecurity incident were to result in a loss of, or damage to, the Company’s or its third-party vendors’,
collaborators’ or other contractors’ or consultants’ data or applications, or inappropriate disclosure of confidential or proprietary information, the Company
could incur liability including litigation exposure, penalties and fines, the Company could become the subject of regulatory actions or investigations, its
competitive position could be harmed and the further development and commercialization of its product candidates could be delayed. Any of the above
could have a material adverse effect on the Company’s business, financial condition, reputation, competitive advantage, results of operations or prospects.
While the Company maintains cyber-liability insurance, such insurance may not be adequate to cover any losses experienced as a result of a cybersecurity
incident.
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The Company’s business may be affected from time-to-time by government investigations and litigation with third parties, including its ongoing matter
with Paul Feller.
The Company may from time to time receive inquiries and subpoenas and other types of information requests from government authorities and
other third parties and may become subject to claims and other actions related to its business activities. While the ultimate outcome of investigations,
inquiries, information requests and legal proceedings is difficult to predict, defense of litigation claims (even if ultimately successful) can be expensive,
time-consuming and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modifications to business
practices, costs and significant payments, any of which could have a material adverse effect on the Company’s business, financial condition, results of
operations and prospects.
For example, in August 2014, Paul Feller, the former Chief Executive Officer of the Company’s legal predecessor, filed a complaint asserting
various causes of action related to his past affiliations with the Company’s legal predecessor. While the Company believes it has meritorious defense to the
claims alleged in this matter and is defending itself vigorously, the Company is unable to predict the outcome and possible loss or range of loss, if any,
associated with its resolution or any potential effect the matter may have on the Company’s financial position. Depending on the outcome or resolution of
this matter, it could have a material effect on the Company’s consolidated financial position, results of operations and cash flows.
Now that the Merger has closed, there can be no further recourse by either party or its stockholders for a breach of representation or warranty by any
of the parties to the Merger Agreement.
The representations and warranties of Diffusion, EIP and Merger Sub contained in the Merger Agreement or any certificate or instrument
delivered pursuant to the Merger Agreement terminated at the Effective Time. To the extent that any such party’s breach of any representations and
warranties is discovered or occurs in the future, there is no mechanism pursuant to which the other parties can pursue recourse or remedy.
The Company’s business is, or may in the future become, subject to complex and evolving U.S. and foreign laws and regulations relating to privacy and
data protection. These laws and regulations are subject to change and uncertain interpretation, and the Company’s actual or perceived failure to
comply with such obligations could result in liability or reputational harm and could harm its business.
A wide variety of provincial, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure,
transfer and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and may result in increased
regulatory and public scrutiny and escalating levels of enforcement and sanctions. In the U.S., numerous federal and state laws and regulations, including
state data breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use,
disclosure and protection of health-related and other personal information. Failure to comply with data protection laws and regulations, where applicable,
could result in government enforcement actions, which could include civil or criminal penalties, private litigation and/or adverse publicity and could
negatively affect our operating results and business. For example, California has enacted the CCPA, which went into effect in January of 2020. The CCPA
gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and
receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of
action for data breaches that may increase data breach litigation. Although the CCPA includes exemptions for certain clinical trials data, and HIPAA
protected health information, the law may increase the Company’s compliance costs and potential liability with respect to other personal information the
Company collects and processes about California residents. Additionally in 2020, California voters passed the CPRA, which went into full effect on
January 1, 2023. The CPRA significantly amends the CCPA, potentially resulting in further uncertainty, additional costs related to our compliance efforts
and additional potential for harm and liability if we fail to comply. Among other things, the CPRA established a new regulatory authority, the California
Privacy Protection Agency, which is tasked with enacting new regulations under the CPRA and will have expanded enforcement authority. In addition to
California, more U.S. states are enacting similar legislation, increasing compliance complexity and increasing risks of failures to comply. In 2023,
comprehensive privacy laws in Virginia, Colorado, Connecticut, and Utah all took effect, and laws in Montana, Oregon, and Texas will take effect in 2024.
In addition, laws in other U.S. states are set to take effect beyond 2024, and additional U.S. states have proposals under consideration, all of which could
increase the Company’s regulatory compliance costs and risks, exposure to regulatory enforcement action and other liabilities.
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Numerous other countries have, or are developing, laws governing the collection, use and transmission of personal information as well. For
example, the European Parliament and the Council of the European Union adopted a comprehensive general data privacy framework called the GDPR
which became fully effective in May 2018 and governs the collection and use of personal data in the European Union, including by companies outside of
the European Union., The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States. The GDPR
imposes stringent data protection requirements and provides for penalties for noncompliance of up to the greater of €20 million or four percent of
worldwide annual revenues. The GDPR and many other laws and regulations relating to privacy and data protection are still being tested in courts, and they
are subject to new and differing interpretations by courts and regulatory officials. The Company may be required to devote significant additional resources
to complying with these laws and regulations, and it is possible that the GDPR or other laws and regulations relating to privacy and data protection may be
interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction or inconsistent with the Company’s current policies and practices.
Applicable data privacy and data protection laws may conflict with each other, and by complying with the laws or regulations of one jurisdiction,
the Company may find that it is violating the laws or regulations of another jurisdiction. Despite the Company’s efforts, the Company may not have fully
complied in the past and may not in the future. That could require the Company to incur significant expenses, which could significantly affect its business.
Failure to comply with data protection laws or to protect personal data or other data the Company processes or maintains may expose the Company to risk
of enforcement actions taken by data protection authorities or other regulatory agencies, private rights of action in some jurisdictions, potential significant
fines, penalties and other liabilities if it is found to be non-compliant, and damage to the Company’s reputation, any of which could materially affect its
business, financial condition, results of operations and prospects. Furthermore, the number of government investigations related to data security incidents
and privacy violations continue to increase and government investigations typically require significant resources and generate negative publicity, which
could harm the Company’s business and reputation.
Past or future transactions resulting in an ownership change under Section 382 of the Code may subject the Company’s NOL carryforwards and
certain other tax attributes to limitation.
As of December 31, 2023, the Company had U.S. federal NOL carryforwards of approximately $38.9 million. Under Sections 382 and 383 of the
Code and corresponding provisions of state law, if a corporation undergoes an “ownership change” (within the meaning of Section 382), the corporation’s
NOL carryforwards and certain other tax attributes (such as research tax credits) arising before the ownership change are subject to limitation on use after
the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders
that exceeds fifty percentage points (by value) over a rolling three-year period. Similar rules may apply under state tax laws. Past or future transactions to
which the Company is a party may, alone or in the aggregate, result in such an ownership change and, accordingly, the Company’s NOL carryforwards and
certain other tax attributes may be subject to limitations (or disallowance) on their use in the future. Consequently, even if the Company achieves
profitability, it may not be able to utilize a material portion of its NOL carryforwards and other tax attributes, which could have a material adverse effect on
cash flow and results of operations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons,
the Company’s existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.
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The Company incurs costs and demands upon management as a result of complying with the laws, rules and regulations affecting public companies.
The Company incurs significant legal, accounting and other expenses associated with public company reporting requirements. The Company also
incurs costs associated with corporate governance requirements, including requirements under the laws, rules and regulations of the SEC, as well as the
rules and regulations of Nasdaq. These laws, rules and regulations also may make it difficult and expensive for the Company to obtain directors’ and
officers’ liability insurance. As a result, it may be more difficult for the Company to attract and retain qualified individuals to serve on the Company’s
Board or as executive officers of the Company, which may adversely affect investor confidence in the Company and could cause the Company’s business
or stock price to suffer.
The Company may fail to comply with evolving privacy and data protection laws, which could adversely affect the Company’s business, results of
operations and financial condition.
In California, the CCPA, which became effective in 2020, broadly defines personal information, gives California residents expanded individual
privacy rights and protections and provides for civil penalties for violations and a private right of action for data breaches. Further, the CPRA, which
became effective in 2023 and amends the CCPA, creates additional obligations with respect to processing and storing personal information. While there is
limited exception for protected health information that is subject to HIPAA and clinical trial regulations, the CCPA may regulate or impact our processing
of personal information depending on the context. Unlike other state privacy laws, the CCPA also regulates personal information collected in a business to
business and in human resources contexts. Further, there continues to be some uncertainly about how provisions of the CCPA and the new regulations will
be interpreted and how the law will be enforced. In addition to the CCPA, broad consumer privacy laws recently went into effect in Virginia on January 1,
2023, in Colorado and Connecticut on July 1, 2023, and in Utah on December 31, 2023. New privacy laws will also become effective in Florida, Montana
and Texas in 2024, in Tennessee and Iowa in 2025, and in Indiana in 2026 and numerous other states are considering new privacy laws. Furthermore, other
U.S. states, such as New York, Massachusetts, and Utah have enacted stringent data security laws and numerous other states have proposed similar privacy
laws. The existence of differing comprehensive privacy laws in different states in the country will make the Company’s compliance obligations more
complex and costly and may require us to modify the Company’s data processing practices and policies and to incur substantial costs and potential liability
in an effort to comply with such legislation.
In the European Union and the United Kingdom, the Company may also face particular privacy, data security, and data protection risks in
connection with requirements of the GDPR. The GDPR applies to any company established in the European Union as well as to those outside the European
Union if they collect and use personal data in connection with the offering of goods or services to individuals in the European Union or the monitoring of
their behavior. The GDPR imposes a broad range of data protection obligations on companies subject to the GDPR, including, for example, imposing
obligations on companies around how they process personal data, stricter requirements relating to processing health and other sensitive data, ensuring there
is a legal basis to justify the processing of personal data, stricter requirements relating to obtaining consent of individuals, expanded disclosures about how
personal information is to be used, limitations on retention of information, mandatory data breach notification requirements, implementing safeguards to
protect the security and confidentiality of personal data, taking certain measures on engagement with third parties, restrictions on transfers outside of the
European Union to third countries deemed to lack adequate privacy protections, and has created onerous new obligations and liabilities on services
providers or data processors. Non-compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of worldwide revenue,
whichever is higher. Moreover, data subjects can claim damages resulting from infringement of the GDPR. The GDPR further grants non-profit
organizations the right to bring claims on behalf of data subjects. The GDPR and other changes in laws or regulations associated with the enhanced
protection of certain types of personal data, such as healthcare data or other sensitive information, could greatly increase the Company’s cost of providing
the Company’s products and services or even prevent us from offering certain services in jurisdictions that the Company may operate in. The GDPR may
increase the Company’s responsibility and liability in relation to personal data that the Company processes where such processing is subject to the GDPR,
and the Company may be required to put in place additional mechanisms to ensure compliance with the GDPR, including as implemented by individual
countries. Ensuring the Company’s continued compliance with the GDPR is a rigorous and time-intensive process that may increase the Company’s cost of
doing business or require us to change the Company’s business practices, and despite those efforts, there is a risk that the Company may be subject to fines
and penalties, litigation, and reputational harm in connection with the Company’s European activities. Many jurisdictions outside of U.S. and Europe are
also considering and/or enacting comprehensive data protection legislation that could have an impact on market expansion and clinical trials as well.
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On July 10, 2023, the European Commission adopted an adequacy decision for a new mechanism for transferring data from the European Union to
the United States – the EU-U.S. Data Privacy Framework, which provides European Union individuals with several new rights, including the right to
obtain access to their data, or obtain correction or deletion of incorrect or unlawfully handled data. The adequacy decision followed the signing of an
executive order introducing new binding safeguards to address the perceived deficiencies in the protection of EU-U.S. data transfers raised in the
Maximilian Schrems vs. Facebook (Case C-311/18) decision by the Court of Justice of the European Union. The European Commission will continually
review developments in the United States along with its adequacy decision. Adequacy decisions can be adapted or even withdrawn in the event of
developments affecting the level of protection in the applicable jurisdiction. Future actions of EU data protection authorities are difficult to predict. Some
customers or other service providers may respond to these evolving laws and regulations by asking us to make certain privacy or data-related contractual
commitments that we are unable or unwilling to make. This could lead to the loss of current or prospective customers or other business relationships.
Because the interpretation and application of many privacy and data protection laws (including those state laws in the U.S. and the GDPR),
commercial frameworks, and standards are uncertain, it is possible that these laws, frameworks, and standards may be interpreted and applied in a manner
that is inconsistent with the Company’s existing data management practices and policies. If so, in addition to the possibility of fines, lawsuits, breach of
contract claims, and other claims and penalties, the Company could be required to fundamentally change the Company’s business activities and practices or
modify the Company’s solutions, which could have an adverse effect on the Company’s business. Any inability to adequately address privacy and security
concerns, even if unfounded, or comply with applicable privacy and security or data security laws, regulations, and policies, could result in additional cost
and liability to us, damage the Company’s reputation, inhibit the Company’s ability to conduct trials, and adversely affect the Company’s business.
The Company’s business and operations could suffer in the event of system failures, cyberattacks, or deficiency in the Company’s cyber security.
The Company relies on information technology systems and networks, including third-party "cloud-based" service providers, and the Company’s
third-party CROs, to process, transmit and store electronic information in connection with the Company’s business activities. This includes crucial systems
such as email, other communication tools, electronic document repositories, and archives. As use of digital technologies has increased, cyber incidents,
including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication.
These threats pose a risk to the security of the Company’s systems and networks and the confidentiality, availability and integrity of the Company’s data.
Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the
deployment of harmful malware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and
availability. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not
recognized until launched against a target, the Company may be unable to anticipate these techniques or implement adequate preventative measures. The
Company may also experience security breaches that may remain undetected for an extended period. A successful cyberattack could cause serious negative
consequences for us, including, without limitation, the disruption of operations, the misappropriation of confidential business information, including
financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. As of the date of this Annual Report, there have been no
cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company’s business strategy, results of operations, or
financial condition. However, there can be no assurance that the Company will be successful in preventing cyber-attacks or successfully mitigating their
effects.
The Company’s business activities may be subject to the FCPA and similar anti-bribery and anti-corruption laws.
The Company’s business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other
countries in which the Company operates, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving, or authorizing others
to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action, or otherwise obtain or retain
business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the
corporation and to devise and maintain an adequate system of internal accounting controls. The Company’s business is heavily regulated and therefore
involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care
providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, any
Company dealings with these prescribers and purchasers are subject to regulation under the FCPA. The SEC and U.S. Department of Justice have recently
increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all the Company’s
employees, agents, contractors, or collaborators, or those of the Company’s affiliates, will comply with all applicable laws and regulations, particularly
given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against the Company, its
officers, or its employees, the closing down of facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries,
implementation of compliance programs, and prohibitions on the conduct of its business. Any such violations could include prohibitions on the Company’s
ability to offer its products in one or more countries and could materially damage the Company’s reputation, its brand, future international expansion
efforts, its ability to attract and retain employees, and its business, prospects, operating results, and financial condition.
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The Company’s employees, independent contractors, consultants, vendors and future commercial partners, if any, may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements.
The Company is exposed to the risk of fraud, misconduct or other illegal activity by its employees, independent contractors, consultants, vendors
and other third parties. Misconduct by these parties could include intentional, reckless and negligent conduct that may fail to, among other things: comply
with the rules and regulations of the FDA, EMA and other comparable foreign regulatory authorities; provide true, complete and accurate information to
such authorities; comply with manufacturing standards the Company has established; comply with healthcare fraud and abuse laws; or report financial
information or data accurately or to disclose unauthorized activities to the Company. If the Company obtains FDA approval of any of its product candidates
and begins commercializing those products, its potential exposure under such laws will increase significantly, and its costs associated with compliance with
such laws are also likely to increase. In particular, research, sales, marketing, education and other business arrangements in the healthcare industry are
subject to extensive legal and regulatory requirements designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer
incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the
course of subject recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to the Company’s reputation. The
Company has adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees and third parties,
and the precautions the Company takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions
are instituted against the Company, and the Company is not successful in defending itself or asserting its rights, those actions could have a significant
impact on its business, including the imposition of significant fines or other sanctions.
Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other
personnel, prevent new products and services from being developed or commercialized in a timely manner, or otherwise prevent those agencies from
performing normal business functions on which the operation of the Company’s business may rely, which could negatively impact the Company’s
business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding
levels, its ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times
at the agency have fluctuated in recent years as a result. In addition, government funding of the FDA, the NIA, the SEC and other government agencies on
which the Company’s operations may rely, including those that fund research and development activities, is subject to the political process, which is
inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for clinical trial applications and/or marketing applications for new
drugs to be reviewed or approved, which would adversely affect the Company’s business. Over the last several years, the U.S. government has shut down
several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical staff and stop critical activities. If a prolonged
government or slowdown shutdown occurs, it could significantly impact the ability of the NIA to disburse funds for the Company’s clinical trial and for the
FDA to timely review and process the Company’s regulatory submissions, which could have a material adverse effect on the Company’s business.
For example, the Company received access to $7.3 million under the NIA Grant in February 2024, 90% of the full amount of current year funding
provided for in the NIA Grant, due to current NIA policy as a result of the U.S. government currently being funded on the basis of a continuing resolution.
The timing of the Company’s receipt of the remaining 10%, or $0.8 million, of current year funding is dependent upon and subject to U.S. congressional
approval of a final appropriations bill.
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Future government shutdowns or slowdowns could also result in delays in the Company’s interactions with the SEC and other government
agencies, which could impact the Company’s ability to access the public markets and obtain necessary capital in order to properly capitalize and continue
its operations.
U.S. federal income tax reform or other changes in applicable tax law could adversely affect the Company’s business and financial condition.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and
by the Internal Revenue Service, the U.S. Treasury Department and other governmental bodies. In recent years, many such changes have been made and
may continue to occur in the future. For example, in March 2020, the CARES Act was signed into law, which included certain changes in tax law intended
to stimulate the U.S. economy in response to the COVID-19 coronavirus outbreak, including temporary beneficial changes to the treatment of net operating
losses, interest deductibility limitations and payroll tax matters. Additionally, in December 2017, the TCJA was signed into law, which significantly
reformed the Code. The TCJA included significant changes to corporate and individual taxation, some of which could adversely impact an investment in
the Company’s common stock. For example, under the TCJA, in general, NOLs generated in taxable years beginning after December 31, 2017 may offset
no more than 80 percent of such year’s taxable income and there is no ability for such NOLs to be carried back to a prior taxable year. The CARES Act
modified the TCJA with respect to the TCJA’s limitation on the deduction of NOLs and provided that NOLs arising in taxable years beginning after
December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising
in taxable years beginning after December 31, 2020 may not be carried back. In addition, the CARES Act eliminated the limitation on the deduction of
NOLs to 80 percent of current year taxable income for taxable years beginning before January 1, 2021 (but reinstated the limitation for taxable years
beginning after December 31, 2020). As a result of such limitations, the Company may be required to pay federal income tax in some future year
notwithstanding that it had a net loss for all years in the aggregate.
More generally, recent and future changes in tax laws could have a material adverse effect on the Company’s business, cash flow, financial
condition or results of operations.
The Company faces risks associated with increased geopolitical uncertainty.
Ongoing and potential military actions across the globe, including the ongoing conflicts in Ukraine and the Middle East, as well as the sanctions,
bans and other measures taken by governments, organizations and companies against the involved countries and certain citizens of those countries in
response thereto, has increased the global political uncertainty and has strained the relations between a significant number of governments, including the
U.S. The duration and outcome of these conflicts, any retaliatory actions or escalation, and the impact on regional or global economies is unknown but
could have a material adverse effect on the Company’s business, financial condition and results of its operations.
Unfavorable global economic conditions could adversely affect the Company’s business, financial condition or results of operations.
The Company’s results of operations could be adversely affected by general conditions in the global economy and in the global financial markets.
For example, in 2008, the global financial crisis caused extreme volatility and disruptions in the capital and credit markets and, more recently, the COVID-
19 pandemic caused significant volatility and uncertainty in U.S. and international markets. A severe or prolonged economic downturn, or additional global
financial crises, could result in a variety of risks to the Company’s business, including weakened demand for its product candidates, if approved, or its
ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain the Company’s suppliers,
possibly resulting in supply disruption. Any of the foregoing could harm the Company’s business and it cannot anticipate all of the ways in which the
current economic climate and financial market conditions could adversely impact its business.
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Epidemics, pandemics or other public health crises, including COVID-19, could adversely affect the Company’s business.
The Company’s operations could be significantly adversely affected by the effects of a widespread outbreak of epidemics, pandemics or other
health crises, including COVID-19. The Company cannot accurately predict the impact of epidemics and pandemics would have on our operations and the
ability of third parties to meet their obligations under contracts or arrangements with the Company, including uncertainties relating to the ultimate
geographic spread of epidemics and pandemics, the severity of the underlying diseases, the duration of outbreaks, and the length of travel and quarantine
restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in
a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could
further affect the Company’s operations and ability to finance the Company’s operations.
Political uncertainty may have an adverse impact on the Company’s operating performance and results of operations.
General political uncertainty may have an adverse impact on the Company’s operating performance and results of operations. In particular, the
United States continues to experience significant political events that cast uncertainty on global financial and economic markets, especially in light of the
upcoming presidential election. It is presently unclear exactly what actions a new administration in the United States would implement, and if
implemented, how these actions may impact the pharmaceutical industry in the United States.
The Company holds its cash and cash equivalents that it uses to meet its working capital needs in deposit accounts that could be adversely affected if
the financial institutions holding such funds fail.
The Company holds its cash and cash equivalents that it uses to meet working capital needs in deposit accounts at certain third party financial
institutions. The balances held in these accounts may exceed the FDIC, standard deposit insurance limit or similar government guarantee schemes. If a
financial institution in which the Company holds such funds fails or is subject to significant adverse conditions in the financial or credit markets, the
Company could be subject to a risk of loss of all or a portion of such uninsured funds or be subject to a delay in accessing all or a portion of such uninsured
funds. Any such loss or lack of access to these funds could adversely impact the Company’s short-term liquidity and ability to meet its obligations.
For example, on March 10, 2023, Silicon Valley Bank, and on March 12, 2023, Signature Bank, were closed by state regulators and the FDIC was
appointed receiver for each bank. The FDIC created successor bridge banks and all deposits of Silicon Valley Bank and Signature Bank were transferred to
the bridge banks under a systemic risk exception approved by the U.S. Department of the Treasury, the Federal Reserve and the FDIC. While the Company
did not hold any of its funds in accounts with either of these institutions, if financial institutions in which the Company holds funds for working capital
were to fail, the Company cannot provide any assurances that such governmental agencies would take action to protect its uninsured deposits in a similar
manner.
The Company may also, from time to time, maintain investment accounts with other financial institutions in which it holds its investments and, if
access to the funds the Company uses for working capital is impaired, the Company may not be able to sell investments or transfer funds from its
investment accounts to new accounts on a timely basis sufficient, or without incurring a loss or penalty as a result of such sale, to meet its working capital
needs.
Certain stockholders could attempt to influence changes within the Company which could adversely affect the Company’s operations, financial
condition and the value of its common stock.
One or more of the Company’s stockholders may from time to time seek to acquire a significant or controlling stake in the Company, engage in
proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes to the Company’s Board or corporate governance policies.
Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term stockholder value
through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to
proxy contests and other actions by activist stockholders can be costly and time-consuming, could disrupt the Company’s operations and divert the
attention of the Company Board and senior management, and could adversely affect the Company’s operations, financial condition, and the value of its
common stock.
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The Company may not be able to enter into a transaction with a suitable acquiror or licensee for its product candidate TSC or any transaction entered
into may not be on terms that are favorable to the Company.
As previously announced, in connection with Diffusion’s strategic review process during 2022-23, Diffusion made the decision to voluntarily
pause the development program for TSC, Diffusion's lead drug candidate prior to the Merger. Currently, the Company does not intend to pursue the
development of TSC and believes the primary path available to derive value from its TSC-related assets would be to find a suitable acquiror or licensee.
Although the Company’s management has contacted numerous parties to assess their potential interest in such a transaction, to date, the Company has been
unable to identify an interested counterparty. Furthermore, even if the Company is able to identify such a counterparty, supporting diligence activities
conducted by potential acquirors or licensees and negotiating the financial and other terms of an agreement or license are typically long and complex
processes, and the results of such processes cannot be predicted. There can be no assurance that the Company will enter into any transaction as a result of
these effort or that any transaction involving the Company’s TSC-related assets will be entered into or, if entered into, will be on terms that are favorable to
the Company. Furthermore, the Company cannot predict the impact that such a transaction or, alternatively, a failure to monetize the TSC assets in any
material way, might have on its stock price.
Artificial intelligence presents risks and challenges that can impact the Company’s business including by posing security risks to confidential
information, proprietary information, and personal data.
Issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm,
liability, or other adverse consequences to the Company’s business operations. The Company may adopt and integrate generative artificial intelligence tools
into our systems for specific use cases reviewed by legal and information security. The Company’s vendors may incorporate generative artificial
intelligence tools into their offerings, and the providers of these generative artificial intelligence tools may not meet existing or rapidly evolving regulatory
or industry standards with respect to privacy and data protection and may inhibit the Company’s or its vendors’ ability to maintain an adequate level of
service and experience. If the Company, its vendors, or its third-party partners experience an actual or perceived violation of applicable privacy or data
protection laws or regulations, or a cybersecurity incident due to the use of generative artificial intelligence, the Company could be subject to regulatory
fines, investigations, enforcement actions, penalties and other liabilities, claims for damages from affected individuals, and the Company may lose valuable
intellectual property and confidential information and its reputation and the public perception of the effectiveness of its privacy or cybersecurity measures
could be harmed. Any of these outcomes could damage the Company’s reputation, result in the loss of valuable property and information, and adversely
impact its business.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.
CYBERSECURITY
Cybersecurity Risk Management Program Overview
We recognize the critical role that properly managing cybersecurity risk plays in maintaining the trust and confidence of our stockholders, the
patients in our clinical trials, our employees, our business partners and our other stakeholders. Accordingly, our cybersecurity program is designed to
identify, assess, manage and mitigate material risks from cybersecurity threats through a variety measures, including risk assessments, implementation of
security measures, and ongoing monitoring of systems and networks. In collaboration with our third-party information technology service providers, a
cross-functional team comprised of representatives from our administrative, finance and legal functions actively monitor the current threat landscape in an
effort to identify material risks arising from new and evolving cybersecurity threats. We also engage external experts, including information technology
experts, other consultants, and auditors to evaluate our cybersecurity measures and risk management processes.
We also identify our cybersecurity threat risks by comparing our processes to industry standards and best practices as well as by engaging experts
to manage our information systems. To provide for the availability of critical data and systems, maintain regulatory compliance, manage our material risks
from cybersecurity threats, and protect against and respond to cybersecurity incidents, we undertake the following activities:
● monitor emerging data protection laws and implement changes to our processes that are designed to comply with such laws;
● through our policies, practices and contracts (as applicable), require employees, as well as third parties that provide services on our behalf, to treat
confidential information and data with care;
● employ technical safeguards that are designed to protect our information systems from cybersecurity threats, which are evaluated and improved
through vulnerability assessments and other evaluations on a routine basis;
● provide training for our employees regarding cybersecurity threats as a means to equip them with effective tools to address cybersecurity threats,
and to communicate our evolving information security policies, standards, processes and practices;
● leverage threat intelligence available to us and our third party IT service provider to help us identify, protect, detect, respond and recover when
there is an actual or potential cybersecurity incident; and
● carry information security risk insurance that provides protection against the potential losses arising from a cybersecurity incident.
Board Oversight of Cybersecurity Risk Management and Governance
Our Board is responsible for general oversight of our risk environment and associated management policies and practices and has delegated to its
Audit Committee the responsibility for oversight of our certain major risk categories and exposures, including with respect to cybersecurity and
management’s processes to monitor and control them. The Audit Committee meets regularly throughout the year and, on no less than a quarterly basis,
receives and reviews a report from management, including the Company’s General Counsel, regarding the Company’s IT, cybersecurity, data security, and
physical security risk, including any suspected material or immaterial cybersecurity incidents during the preceding quarter, if any, and discusses such
matters with appropriate management and other personnel. In addition, on a semi-annual basis, the Audit Committee receives a report from the Company’s
primary third-party information technology and cybersecurity regarding the Company’s IT environment, overall cybersecurity risk management program
and strategy and education regarding emerging trends and threats.
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Management's Role in Cybersecurity Risk Management and Governance
Our executive management team is responsible for assessing and managing material risks from cybersecurity threats and possess relevant
experience and expertise in various disciplines that are key to effectively managing such risks. The experience and expertise of our executive management
team is also supplemented by our external IT service providers that collectively have extensive, broad experience and expertise in these areas. Our
executive management team reports information about such risks to the Audit Committee of the Board on at least a quarterly basis.
We depend on and engage various other third parties, including suppliers, vendors, and service providers, to support key elements of our business
including our information technology infrastructure. Our processes address cybersecurity threat risks associated with our use of such third-party service
providers. In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers. We perform diligence on third
parties that have access to our systems, data or facilities that house such systems or data, and continually monitor cybersecurity threat risks identified
through such diligence. Our management is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents,
including through the receipt of notifications from service providers and reliance on communications with risk management, legal, information technology,
and/or compliance personnel.
In response to an identified cybersecurity incident, a group comprised of appropriate management personnel, our third-party information
technology service provider and, depending on the scope and severity of the incident, additional third-party subject matters experts, will be assembled to
develop and implement a response strategy to contain, control, and remediate the cybersecurity incident, including securing our affected systems and/or
information, mitigating harmful effects of the incident, preventing further compromises, and communicating information to affected parties, regulatory
agencies and law enforcement, as necessary. This group will also report any such cybersecurity incident to the Audit Committee of the Board.
Assessment of Cybersecurity Risk
The potential impact of risks from cybersecurity threats are assessed on an ongoing basis by both management and the Board, including how such
risks could materially affect our business strategy, operational results, and financial condition.
As of the date of this Annual Report, we have not experienced a cybersecurity incident that results in a material effect on our business strategy,
results of operations or financial condition, but we cannot provide assurance that we will not be materially affected in the future by such an incident or risks
related thereto.
We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have
materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the
heading Item 1A. Risk Factors – General Risks Related to the Company’s Business and Operations,” which disclosures are incorporated by reference
herein.
ITEM 2.
PROPERTIES
We currently have a short-term lease for office space in Boston, Massachusetts and, in addition, previously had a short-term agreement to utilize
membership-based co-working space in Charlottesville, Virginia, which was terminated in the first quarter of 2024. Rent expense related to the Company’s
short-term agreements was approximately $34,000 and $45,000 for the years ended December 31, 2023 and 2022, respectively.
We believe the space is adequate to meet our near-term needs.
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ITEM 3.
LEGAL PROCEEDINGS
The information in Note 10, Commitments and Contingencies — Legal Proceedings to our consolidated financial statements included in, Part II
— Item 8 — Financial Statements and Supplementary Data of this Annual Report is incorporated herein by reference.
In addition, from time to time, we are subject to various pending or threatened legal actions and proceedings, including those that arise in the
ordinary course of its business, which may include employment matters, breach of contract disputes and stockholder litigation. Such actions and
proceedings are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of
time. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, when
we have assessed that a loss is probable and an amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we record the
most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. We disclose a
contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may
have been incurred. In the opinion of management, as of the date hereof, the amount of liability, if any, with respect to these matters, individually or in the
aggregate, will not materially affect our consolidated results of operations, financial position or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Our common stock trades publicly on the Nasdaq Capital Market under the symbol “CRVO.”
Holders
As of March 26, 2024, there were 115 record holders of our common stock. This does not include beneficial owners of our common stock whose
stock is held in nominee or “street name”.
Dividends
To date, we have not declared or paid any cash dividends on our common stock and do not intend to do so in the near future.
Securities Authorized for Issuance Under Equity Compensation Plans
The information set forth in, Part III — Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters) of this Annual Report is incorporated herein by reference to the extent required by Item 201(d) of Regulation S-K.
Recent Unregistered Sales of Equity Securities and Use of Proceeds
On March 28, 2024, we entered into a securities purchase agreement with certain purchasers named therein related to the private placement of an
aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant. The
2024 Private Placement is expected to close on or about April 1, 2024, subject to customary closing conditions. The aggregate upfront gross proceeds from
the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and expenses, and additional gross proceeds of up
to approximately $99.4 million may be received if the Series A Warrants are exercised in full for cash.
The 2024 Private Placement is exempt from the registration requirements of the Securities Act pursuant to the exemption for transactions by an
issuer not involving any public offering under Section 4(a)(2) of the Securities Act and in reliance on similar exemptions under applicable state laws, as
well as in accordance with applicable Nasdaq rules. The purchasers in the 2024 Private Placement represented that they were institutional accredited
investors within the meaning of rules promulgated under the Securities Act and were acquiring the securities for investment only and with no present
intention of distributing any of such securities or any arrangement or understanding regarding the distribution thereof. The securities were offered without
any general solicitation by us or our representatives. The securities sold and issued in the 2024 Private Placement will not be registered under the Securities
Act or any state securities laws and may not be offered or sold in the U.S. absent registration with the SEC or an applicable exemption from the registration
requirements.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6.
[RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis contains information related to historical and prospective events intended to enable you to assess our financial condition and
results of operations. The information contained in this discussion and analysis should be read in conjunction with our consolidated financial statements
and the related notes contained elsewhere in this Annual Report, as well as the risks and uncertainties discussed under the headings, "Item 1A — Risk
Factors" and “Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage biotechnology company focused on developing treatments for age-related neurologic disorders. We are currently focused
on the development of our lead drug candidate, neflamapimod, an investigational, orally administered, small molecule brain penetrant that inhibits p38α in
the neurons (nerve cells) within the brains of people with neurodegenerative diseases. Neflamapimod has the potential to treat and improve synaptic
dysfunction, the reversible aspect of the underlying disease processes in DLB and certain other major neurological disorders, and is currently being
evaluated in our ongoing RewinD-LB Trial, a Phase 2b study in patients with DLB funded by a $21.0 million grant from the NIA. We expect to complete
enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-controlled portion of the study during
the fourth quarter of 2024.
Our novel approach focuses on reducing the impact of inflammation in the brain, or neuroinflammation, which we believe is a key factor in the
manifestation of degenerative diseases of the brain, including DLB. Chronic activation of the enzyme p38α in the neurons (nerve cells) within the brains of
people with neurodegenerative diseases is believed to impair how neurons communicate through synapses (the connections between neurons). This
impairment, termed synaptic dysfunction, leads to deterioration of cognitive and motor abilities. Left untreated, synaptic dysfunction can result in neuronal
loss that leads to devastating disabilities, significant reliance on a caretaker, long term care living, and, ultimately, death. However, before neuronal loss
commences, disease progression in major neurodegenerative disorders, including DLB, initially involves a protracted period of functional loss, particularly
with respect to the synapses. We believe that inhibiting p38α activity in the brain, by interfering with key pathogenic drivers of disease, has the potential to
reverse the clinical progression observed in early-stage neurodegenerative diseases, and that it is possible to slow further progression by delaying
permanent synaptic dysfunction and neuron death.
We believe we are a leader in the industry in developing a treatment for DLB, as we are the only company of which we are aware with an asset
that has shown statistically significant improvements compared to placebo in a Phase 2a clinical trial (our AscenD-LB Trial) and has initiated a Phase 2b
clinical evaluation (our ongoing RewinD-LB Trial), from which we expect initial results before the end of 2024. The clinical symptoms in DLB are most
directly linked to synaptic dysfunction in cholinergic neurons (neurons producing the neurotransmitter acetylcholine) in a part of the brain named the basal
forebrain. Based on available preclinical and clinical data, we believe if neflamapimod is given in the early stages of certain degenerative diseases of the
brain, it may reverse synaptic dysfunction and improve neuron health and function. In preclinical studies, neflamapimod has been shown to reverse the
neurodegenerative process in the BFC system. Following earlier clinical studies demonstrating blood-brain-barrier penetration, target (p38α) engagement,
and identification of dose-response, we obtained positive Phase 2a clinical data in patients with DLB in our AscenD-LB Trial. Specifically, statistically
significant improvement was observed in patients treated with neflamapimod compared to patients treated with placebo on measures of dementia severity
(as measured by CDR-SB) and functional mobility (i.e., walking ability, as measured by the TUG test) in the primary (intention-to-treat) analysis that
includes all patients randomized into the study that had at least one measurement of the endpoint analyzed. In addition, in a secondary analysis,
neflamapimod demonstrated statistically significant improvement compared to placebo in a battery of cognitive tests, particularly with respect to tests that
measured attention.
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In October 2023, the major clinical neurology journal, Neurology, published additional analyses of the AscenD-LB Trial data that further
strengthened these conclusions regarding neflamapimod’s potential efficacy and identified the DLB patient population most responsive to neflamapimod
treatment. In these analyses, the results were stratified by pre-treatment levels of plasma ptau181, which recent scientific literature has identified as a
biomarker to differentiate DLB patients with AD-associated co-pathology – a form of mixed dementia which we sometimes refer to as “DLB+AD” – from
DLB patients without AD-associated co-pathology – which we sometimes refer to as “pure DLB.” In pure DLB patients, who generally represent early-
stage patients with limited neurodegeneration in the hippocampus, the treatment response to neflamapimod in the AscenD-LB Trial was substantial
(Cohen’s d effect size ≥ 0.7 and statistically significant vs. placebo on the CDR-SB, TUG, cognitive tests of attention and working memory) and greater
than the overall patient population. In a February 2024 publication in the Journal of Prevention of Alzheimer’s Disease, results from our prior clinical trials
of neflamapimod in AD and DLB were integrated to show not only the demonstrated effects of neflamapimod on cognition and function, but on other
biomarkers such as EEG and brain volume and functional connectivity in the basal forebrain.
Our ongoing RewinD-LB Trial is a double-blind, placebo-controlled, 16-week Phase 2b study in 160 patients with pure DLB funded by a $21.0
million grant from the NIA. The trial is intended to confirm the efficacy findings from the AscenD-LB Trial and definitively demonstrate proof-of-concept.
We have utilized our subsequent analyses of the AscenD-LB data and the other information described above to optimize the RewinD-LB Trial’s design and
bolster the trial’s statistical power. Critically, the RewinD-LB Trial will exclude patients with Alzheimer’s disease related co-pathology as evaluated by
plasma ptau181 levels (i.e. the study will only enroll patients with pure DLB) and, to enrich for such patients, the global CDR-SB score at entry will be
limited to 0.5 or 1.0. Together with additional modifications to the Phase 2a design related to dosing regimen and primary endpoint, sample size
calculations indicate that the RewinD-LB Phase Trial has greater than 95% statistical power (approaching 100%) to meet its primary objective of
demonstrating improvement relative to placebo on change in CDR-SB over the course of the study.
We expect to complete enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-
controlled portion of the study during the fourth quarter of 2024. The results of the RewinD-LB Trial are intended to provide the data necessary to finalize
our design of a Phase 3 clinical trial, the general framework of which, including a 24-week treatment duration, has been agreed upon with the FDA.
In addition to neflamapimod’s potential to treat DLB, we believe the benefit of targeting neuroinflammation-induced synaptic dysfunction in the
BFC system can be applied to other neurologic indications in which treatment of BFC dysfunction and degeneration would be expected to be clinically
beneficial, including as treatment promoting recovery in the three months after ischemic stroke, as a disease-modifying treatment for early-stage
Alzheimer’s disease, and as a treatment for certain forms of frontotemporal dementia.
Financial Summary
As of December 31, 2023, we had cash and cash equivalents of approximately $7.8 million. To date, we have not had any products approved for
sale and have not generated any revenue from product sales and our ability to do so in the future will depend on the successful development and eventual
commercialization of neflamapimod (or another product candidate that we could acquire or develop in the future). We do not expect to generate revenue
from product sales until such time, if ever.
Our accumulated deficit as of December 31, 2023 was $54.4 million. We have never been profitable, and we will continue to require additional
capital to develop neflamapimod and fund operations for the foreseeable future. We have historically incurred net losses in each year since inception. Our
net loss was $2.2 million and $5.8 million in the years ended December 31, 2023 and December 31, 2022, respectively. We expect our expenses will
increase in connection with our ongoing activities, as we:
● advance neflamapimod through clinical trials, including our ongoing Phase 2b trial for DLB, through to initiation of a Phase 3 trial in DLB;
● manufacture supplies for our nonclinical studies and clinical trials;
● obtain, maintain, expand, and protect our intellectual property portfolio;
● hire additional personnel to support our operations and growth; and
● continue to operate as a public company.
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Based on our current operating plan, we believe that our cash and cash equivalents on hand as of December 31, 2023, along with the remaining
funds expected to be received from the NIA Grant, will not be sufficient to allow us to fund our current operations and continue as a going concern through
at least one year from the date of the issuance of our consolidated financial statements. We expect to incur substantial expenditures for the foreseeable
future for the development of neflamapimod and will require additional financing to continue this development.
On March 28, 2024, we entered into a securities purchase agreement with certain purchasers named therein related to the private placement of an
aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant. The
aggregate upfront gross proceeds for the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and
expenses, and up to an additional approximately $99.4 million in gross proceeds if the Series A Warrants are fully exercised for cash. The 2024 Private
Placement is expected to close on or about April 1, 2024, subject to customary closing conditions. The information contained in this Management’s
Discussion and Analysis of Financial Condition and Results of Operations, including information regarding our liquidity, capital resources and cash
runway, does not reflect the anticipated consummation of, or our anticipated receipt of proceeds from, the 2024 Private Placement. For additional
information regarding the 2024 Private Placement, the terms thereof (including the conditions to closing), and our expected use of the net proceeds
therefrom, refer to our Current Report on Form 8-K filed with the SEC on March 28, 2024.
Financial Operations Overview
Revenue
To date, we have not generated any revenue from product sales and we do not expect to do so in the near future. In January 2023, we were
awarded our $21.0 million NIA Grant. Funding from the NIA Grant is recognized as grant revenue as the qualifying expenses related thereto are incurred.
As of December 31, 2023, $7.1 million of grant funding was recognized as revenue, of which $6.2 million has been received and the remaining $0.9
million has been recorded as grant receivable. As the NIA Grant was initially awarded in January 2023, there was no grant revenue in the year ended
December 31, 2022.
Research and Development Expenses
Research and development expenses account for a significant portion of our operating expenses and primarily consist of costs incurred for the
discovery and development of our product candidates, including:
● expenses incurred under agreements with CROs, preclinical testing organizations, consultants, and other third-party vendors, collaborators and
service providers;
● costs related to production of clinical materials, including fees paid to CMOs;
● vendor expenses related to the execution of preclinical studies and clinical trials;
● personnel-related expenses, including salaries, benefits, and stock-based compensation for personnel engaged in research and development
functions;
● costs related to the preparation of regulatory submissions;
● third-party license fees; and
● expenses for rent and other supplies.
We recognize research and development expenses as incurred. Costs for certain development activities are recognized based on an evaluation of
the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators, and third-party service providers. Non-
refundable advance payments made by us for future research and development activities are capitalized and expensed as the related goods are delivered and
as services are performed.
Specific program expenses include expenses associated with the development of our lead product candidate, neflamapimod, which recently
initiated a Phase 2b clinical trial for treatment of subjects with DLB. Personnel or other operating expenses incurred for our research and development
programs primarily relate to salaries and benefits, stock-based compensation, and facility expenses.
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
development of, and obtain regulatory approval for, neflamapimod, or for any other product candidates that we may develop or acquire. We expect our
research and development expenses to increase substantially for the foreseeable future as we continue to invest in R&D activities related to developing
neflamapimod such as conducting larger clinical trials, seeking regulatory approval and incurring expenses associated with hiring personnel to support
other R&D efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the
successful development of product candidates, including neflamapimod, is highly uncertain.
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General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including stock-based compensation for our personnel in
executive, finance and accounting, and other administrative functions. General and administrative expenses also include legal fees relating to intellectual
property and corporate matters, professional fees paid for accounting, auditing, consulting, and tax services, insurance costs, and facility costs.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued
research and development activities and as we continue development activities pursuant to the NIA Grant. We also anticipate that we will incur increased
expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of any
national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other
administrative and professional services.
Other Income (Expense)
Other income (expense) consists of interest earned on our cash and cash equivalents and the change in fair value of the previously outstanding EIP
Convertible Notes.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations:
Grant revenue
Operating expenses:
Research and development
General and administrative
Loss from operations
Other income (expense):
Other income (expense)
Interest income
Interest expense
Total other income (expense)
Net loss
$
Grant Revenue
December 31,
2023
2022
$ Change
% Change
$
7,144,872 $
- $
7,144,872
8,438,499
6,519,268
(7,812,895)
5,421,592
219,430
-
5,641,022
(2,171,873) $
1,336,469
2,139,065
(3,475,534)
(2,389,152)
62,226
(587)
(2,327,513)
(5,803,047) $
7,102,030
4,380,203
(4,337,361)
7,810,744
157,204
587
7,968,535
3,631,174
100%
531%
205%
125%
-327%
253%
-100%
-342%
-63%
Grant revenue was $7.1 million for the year ended December 31, 2023 which was a result of services performed during the year ended December
31, 2023 related to the $21.0 million grant awarded to us by the NIA in January 2023 to support a Phase 2b study of neflamapimod in DLB. At December
31, 2023, we had a receivable of $0.9 million for expenses incurred but not yet refunded by the NIA. As the NIA Grant was initially awarded in January
2023, there was no grant revenue in 2022.
Research and Development Expenses
Research and development expenses were $8.4 million for the year ended December 31, 2023, compared to $1.3 million for the year ended
December 31, 2022. The increase of $7.1 million was primarily due to our DLB Phase 2b trial beginning in the first quarter of 2023 resulting in an increase
in outsourced CRO and related site expenses.
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General and Administrative Expenses
General and administrative expenses were $6.5 million for the year ended December 31, 2023, compared to $2.1 million for the year ended
December 31, 2022. The increase of $4.4 million was primarily due to the Merger and public company related costs. The drivers of the increase were
outsourced accounting/audit fees of $1.3 million, insurance costs of $1.0 million (including a one-time cost related to the merger of $0.8 million),
headcount costs of $0.8 million, and investor/public relations costs of $0.7 million.
Other Income (Expense)
Other income (expense) was $5.4 million for the year ended December 31, 2023, compared to $(2.4) million for the year ended December 31,
2022. The amount for the year ended December 31, 2022 was driven by an increase in the estimated fair value of the Convertible Notes while the increase
in the year ended December 31, 2023 was driven by the stock price on the date of conversion as a result of the Merger.
Interest income
Interest income was $0.2 million and $0.1 million for the years ended December 31, 2023 and 2022, respectively. The increase was primarily due
to higher interest earned as a result of an increased cash equivalents balance.
Liquidity and Capital Resources
Capital Requirements
From the date of our inception through December 31, 2023, our operations had primarily been financed through the issuance of common stock,
convertible preferred stock and convertible debt financings. As of December 31, 2023, we had approximately $7.8 million of cash and cash equivalents. We
have not generated positive cash flows from operations and as of December 31, 2023, we had an accumulated deficit of approximately $54.4 million. In
January 2023, we were awarded a $21.0 million grant from the NIA to support the Phase 2b study of neflamapimod in DLB, which is expected to be
received over a three-year period. As of December 31, 2023, total cash funding of $6.2 million had been received from the NIA Grant.
In addition, we are party to our 2022 Sales Agreement with BTIG LLC (“BTIG”). The 2022 Sales Agreement is an "at-the-market" sales
agreement pursuant to which we may, from time to time and through BTIG as our agent, sell up to an aggregate of $20.0 million in shares of common stock
by any permissible method deemed an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act. As of the date of this Annual Report,
however, we have not sold any shares pursuant to the 2022 Sales Agreement.
On March 28, 2024, we entered into a securities purchase agreement with certain purchasers named therein related to the private placement of an
aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant. The
2024 Private Placement is expected to close on or about April 1, 2024, subject to customary closing conditions. The aggregate upfront gross proceeds from
the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and expenses, and additional gross proceeds of up
to approximately $99.4 million may be received if the Series A Warrants are exercised in full for cash.
Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our programs
and, to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these
expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Our losses from operations, negative operating cash flows and accumulated deficit, as well as the additional capital needed to fund operations
within one year of the issuance date of our financial statements for the period ended December 31, 2023, raise substantial doubt about our ability to
continue as a going concern.
Any product candidates we may develop may never achieve commercialization, and we anticipate that we will continue to incur losses for the
foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to
increase. In addition, we expect to incur costs associated with operating as a public company. As a result, until such time, if ever, as we can generate
substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources,
including potential collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, costs related
to clinical research, manufacturing and development services; compensation and related expenses; costs relating to the build-out of our headquarters, other
offices and laboratories; license payments or milestone obligations that may arise; laboratory expenses and costs for related supplies; manufacturing costs;
legal and other regulatory expenses and general overhead costs.
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Based on our current operating plan, we believe that our existing cash and cash equivalents on hand as of December 31, 2023, along with the
remaining funds expected to be received from the NIA Grant (but without giving effect to the expected proceeds from the 2024 Private Placement), are not
sufficient to enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of the issuance of this Annual
Report. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we
currently expect. We will continue to require additional financing to advance our current product candidates through clinical development, to develop,
acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity
offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable
to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or
private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect our stockholders’ rights. If we raise additional capital through a debt financing, we may be subject to covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure
to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If
we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs, including our development or commercialization
activities for neflamapimod. We might also be required to seek funds through arrangements with third parties that require us to relinquish certain of our
rights to neflamapimod or otherwise agree to terms unfavorable to us.
Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are
unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on, and could increase significantly
as a result of, many factors, including:
● the enrollment, progress, timing, costs and results of the RewinD-LB Trial, as well as additional development plans for neflamapimod in other
disease indications, such as Recovery after Anterior Circulation Ischemic Stroke and FTD;
● the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;
● our ability to reach certain milestone events set forth in our collaboration agreements and the timing of such achievements, triggering our
obligation to make applicable payments;
● the hiring of additional clinical, scientific and commercial personnel to pursue our development plans, as well the increased costs of internal and
external resources as to support our operations as a public reporting company;
● the cost and timing of securing manufacturing arrangements for clinical or commercial production;
● the cost of establishing, either internally or in collaboration with others, sales, marketing and distribution capabilities to commercialize
neflamapimod, if approved;
● the cost of filing, prosecuting, enforcing, and defending our patent claims and other intellectual property rights, including defending against any
patent infringement actions brought by third parties against us;
● the ability to receive additional non-dilutive funding, including grants from organizations and foundations;
● our ability to establish strategic collaborations, licensing or other arrangements with other parties on favorable terms, if at all; and
● the extent to which we may in-license or acquire other product candidates or technologies.
A change in the outcome of any of these or other variables could significantly alter the costs and timing associated with the development of
neflamapimod. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital
requirements associated with such operating plans.
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Cash Flows
Net cash used in operating activities
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
December 31,
2023
2022
$
$
(7,449,847) $
11,149,114
3,699,267 $
(2,572,759)
-
(2,572,759)
For the year ended December 31, 2023, cash used in operating activities was $7.4 million. The net cash outflow from operations primarily resulted
from net loss of $2.2 million which included a $5.4 million non-cash gain due to a change in fair value of convertible debt and changes in operating assets
and liabilities of $0.3 million, offset by a non-cash charge of $0.4 million for stock-based compensation.
For the year ended December 31, 2022, cash used in operating activities was $2.6 million. The net cash outflow from operations primarily resulted
from net loss of $5.8 million and change in fair value of convertible debt of $2.4 million, offset by a non-cash charge of $0.3 million for stock-based
compensation, $0.1 million of capital in lieu of executive compensation and changes in operating assets and liabilities of $0.4 million.
Financing Activities
For the year ended December 31, 2023, net cash provided by financing activities was $11.1 million. The net cash provided by financing activities
primarily resulted from the net assets assumed in connection with the reverse recapitalization and sale of common stock offset by the payment of offering
costs.
Investing Activities
We did not have any cash provided by or used in investing activities for the years ended December 31, 2023 or 2022.
Contractual Obligations and Other Commitments
We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, nonclinical studies and
manufacturing, and other services for operating purposes. The amount and timing of contractual obligations may vary based on the timing of services. We
can generally elect to discontinue the work under these agreements at any time. In the future, we could also enter into additional collaborative research,
contract research, manufacturing and supplier agreements which may require upfront payments or long-term commitments of cash.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC that have or are reasonably likely to have a
material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or
capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these
arrangements.
99
Critical Accounting Polices and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical
experience and on 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 readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions, and any such differences may be material. We believe that the accounting policies discussed below are critical to
understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
We believe the following are our more significant estimates and judgments used in the preparation of our financial statements.
Research and Development Costs
Research and development costs are expensed as incurred and consist primarily of new product development. Research and development costs
include salaries and benefits, consultants’ fees, process development costs and stock-based compensation, as well as fees paid to third parties that conduct
certain research and development activities on our behalf.
A substantial portion of our ongoing research and development activities are conducted by third-party service providers. We record accrued
expenses for estimated preclinical study and clinical trial expenses. Estimates are based on the services performed pursuant to contracts with research
institutions, contract research organizations in connection with clinical studies, investigative sites in connection with clinical studies, vendors in connection
with preclinical development activities, and contract manufacturing organizations in connection with the production of materials for clinical trials. Further,
we accrue expenses related to clinical trials based on the level of subject enrollment and activity according to the related agreement. We monitor subject
enrollment levels and related activity to the extent reasonably possible and make judgments and estimates in determining the accrued balance in each
reporting period. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred,
and are reflected in the financial statements as prepaid or accrued research and development.
If we underestimate or overestimate the level of services performed or the costs of these services, actual expenses could differ from estimates. To
date, we have not experienced significant changes in our estimates of preclinical studies and clinical trial accruals.
Stock-based Compensation
Stock-based compensation for employee and non-employee awards is measured on the grant date based on the fair value of the award and
recognized on a straight-line basis over the requisite service period. The fair value of stock options to purchase common stock are measured using the
Black-Scholes option pricing model. We account for forfeitures as they occur. The fair value of stock options is determined by us using the methods and
assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment and estimation by management.
Expected Term. The expected term represents the period that stock-based awards are expected to be outstanding. We use the “simplified method”
to estimate the expected term of stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the
contractual term of ten years and the weighted-average vesting term of our stock options, taking into consideration multiple vesting tranches. We utilize this
method due to lack of historical data and the plain-vanilla nature of our stock-based awards.
Expected Volatility. We have limited information on the volatility of common stock as the shares were not actively traded on any public markets
until recently. As such, expected volatility is derived from the historical stock volatilities of comparable peer public companies within our industry. These
companies are considered to be comparable to our business over a period equivalent to the expected term of the stock-based awards.
Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S.
Treasury notes with maturities approximately equal to the stock options expected term.
100
Expected Dividend Rate. The expected dividend is zero as we have not paid, nor do we anticipate paying, any dividends on our stock options in
the foreseeable future.
In periods prior to the Merger, the grant date fair value of EIP Common Stock was typically determined by EIP’s Board of Directors with the
assistance of management and a third party valuation specialist.
For additional information regarding stock-based compensation in periods following the Merger, see Note 12 to the consolidated financial
statements included elsewhere in this Annual Report.
Valuation of Convertible Notes
The fair value of the Convertible Notes as of December 31, 2022 were estimated as the combination of a zero-coupon bond and a call option. The
combined values for each of the Convertible Notes as of December 31, 2022 were then weighted by the probability of completing a financing or reverse
merger. This approach resulted in the classification of the Convertible Notes as of December 31, 2022 as Level 3 of the fair value hierarchy (see Note 9 to
the consolidated financial statements included elsewhere in this Annual Report). The assumptions utilized to value the 2020 Notes and the 2021 Notes as of
December 31, 2022 were an estimated term of 0.94 years, volatility of 80.0% and a market yield of 55.2%.
In connection with the closing of the Merger, all outstanding EIP Convertible Notes converted into shares of EIP Common Stock at the fixed
conversion price of $1.47 per share of EIP Common Stock, which shares of EIP Common Stock were subsequently converted into the right to receive
shares of our CervoMed common stock (or pre-funded warrants in lieu thereof) upon closing of the Merger.
Recently Issued Accounting Pronouncements
The information in Note 3, Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements set forth
in, “Part II — Item 8 — Financial Statements” of this Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a “smaller reporting company” (as such term is defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information
described in Item 305 of Regulation S-K and, accordingly, the information required by Item 7A of Form 10-K has been omitted from this Annual Report.
101
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description
Report of Independent Registered Public Accounting Firm (PCAOB ID: 49)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023 and 2022
Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended
December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022
Notes to the Consolidated Financial Statements
102
Page
103
104
105
106
107
108
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CervoMed Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CervoMed Inc. and its subsidiaries (the Company) as of December 31, 2023 and 2022,
the related consolidated statements of operations, changes in convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then
ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations since inception and will be required to raise additional capital to fund
operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also
are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical
audit matter or on the accounts or disclosures to which they relate.
Accounting for Reverse Recapitalization
As discussed in Note 4 of the accompanying financial statements, on August 16, 2023, EIP Pharma, Inc. (“EIP”) merged with Merger Sub, a wholly-owned
subsidiary of Diffusion Pharmaceuticals Inc. (“Diffusion”), whereby EIP became the surviving entity and a wholly-owned subsidiary of Diffusion (“the
Merger”). Immediately following the Merger, the Company changed its name to CervoMed Inc. (“the Company”). The Merger was accounted for as a
reverse recapitalization under the United States generally accepted accounting principles (“U.S. GAAP”), in which EIP was determined to be the
accounting acquirer based upon the terms of the Merger and other certain factors.
We identified the accounting for the reverse recapitalization as a critical audit matter because of the complexity in the determination of the proper treatment
of the transaction in accordance with U.S. GAAP, including judgments made by management to arrive at the proper conclusion. This required subjective
auditor judgment and increased level of effort when performing audit procedures, including the involvement of professionals with specialized skills and
knowledge.
103
Our audit procedures related to the Company’s accounting for the reverse recapitalization included the following, among others:
● Obtained the relevant agreements and compared the underlying terms and conditions to management’s analysis and supporting documentation.
● With assistance from professionals with specialized skills and knowledge, obtained and evaluated management’s analysis and conclusions
regarding the accounting treatment of the transaction, including determination of the accounting acquirer and whether the acquiree was considered
to be a business.
● Tested the conversion of shares in common stock of the Company, including the conversion of EIP convertible notes and preferred stock and the
recalculation of shares issued to Diffusion shareholders.
/s/ RSM US LLP
We have served as the Company’s auditor since 2017.
Boston, Massachusetts
March 29, 2024
104
CervoMed Inc.
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Prepaid expenses
Grant receivable
Total current assets
Other assets
Total assets
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Convertible notes
Total liabilities
Commitments and Contingencies (Note 10)
Convertible preferred stock:
Series A preferred stock $0.001 par value; 30,000,000 and 0 shares authorized at December 31, 2023 and
2022, respectively, 0 shares issued and outstanding at December 31, 2023 and December 31, 2022
Series A-1 preferred stock, $0.001 par value; 0 and 1,960,600 shares authorized at December 31, 2023 and
2022, respectively; 0 and 1,960,600 shares issued and outstanding at December 31, 2023 and December
31, 2022, respectively
Series A-2 preferred stock, $0.001 par value; 0 and 335,711 shares authorized at December 31, 2023 and
2022, respectively; 0 and 335,711 shares issued and outstanding at December 31, 2023 and December 31,
2022, respectively
Series B preferred stock, $0.001 par value; 0 and 1,034,890 shares authorized at December 31, 2023 and
2022, respectively; 0 and 1,034,890 shares issued and outstanding at December 31, 2023 and December
31, 2022, respectively
Total convertible preferred stock
Stockholders’ Equity (Deficit):
Common stock, $0.001 par value: 1,000,000,000 and 4,163,600 shares authorized as of December 31,
2023 and 2022, respectively, 5,674,520 and 518,140 shares issued and outstanding at December 31, 2023
and December 31, 2022, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity (deficit)
Total liabilities, convertible preferred stock and stockholders' equity (deficit)
December 31,
2023
2022
$
$
$
7,792,846 $
1,256,501
915,404
9,964,751
7,770
9,972,521 $
4,093,579
64,127
-
4,157,706
-
4,157,706
662,471 $
1,933,276
-
2,595,747
97,302
644,252
12,414,000
13,155,554
-
-
-
246,849
-
4,173,267
-
-
19,867,095
24,287,211
5,674
61,811,889
(54,440,789)
7,376,774
9,972,521 $
518
18,983,339
(52,268,916)
(33,285,059)
4,157,706
$
$
See accompanying notes to the consolidated financial statements
105
CervoMed Inc.
Consolidated Statements of Operations
Grant revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Other income (expense)
Interest income
Interest expense
Total other income (expense)
Net loss
Per share information:
Net loss per share of common stock - basic and diluted
Weighted average shares outstanding - basic and diluted
Years Ended December 31,
2023
2022
$
7,144,872 $
-
8,438,499
6,519,268
14,957,767
(7,812,895)
5,421,592
219,430
-
5,641,022
(2,171,873) $
(0.82) $
2,661,416
1,336,469
2,139,065
3,475,534
(3,475,534)
(2,389,152)
62,226
(587)
(2,327,513)
(5,803,047)
(11.20)
518,140
$
$
See accompanying notes to the consolidated financial statements
106
CervoMed Inc.
Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Series A-1 Preferred
Stock
Series A-2 Preferred
Stock
Series B Preferred Stock
Common Stock
Additional
Accumulated
Years Ended December 31, 2023 and 2022
Shares
Amount Shares Amount
Shares
Amount
Shares
Amount
Paid in
Capital
Deficit
Total
Stockholders'
Equity
(Deficit)
1,960,600 246,849 335,711 4,173,267 1,034,890 19,867,095
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,960,600 $ 246,849 335,711 $ 4,173,267 1,034,890 $ 19,867,095
518,140
518
18,521,988 (46,465,869)
(27,943,363)
-
-
333,835
-
333,835
-
-
-
-
127,516
-
-
(5,803,047)
127,516
(5,803,047)
518,140 $
518 $ 18,983,339 $ (52,268,916) $ (33,285,059)
(1,960,600) (246,849) (335,711) (4,173,267) (1,034,890) (19,867,095) 2,936,566
2,937
24,284,274
-
24,287,211
-
-
-
-
-
-
795,905
796
6,988,953
-
6,989,749
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
- 1,360,244
63,422
-
1,360
63
10,337,754
809,937
-
-
10,339,114
810,000
-
77
-
407,632
-
407,632
-
359
-
-
-
-
-
-
(193)
-
-
-
-
-
-
(2,171,873)
-
(2,171,873)
- 5,674,520 $
5,674 $ 61,811,889 $ (54,440,789) $
7,376,774
See accompanying notes to the consolidated financial statements
107
Balance at January 1,
2022
Stock-based
compensation
expense
Contributed capital in
lieu of executive
compensation
Net loss
Balance at January 1,
2023
Conversion of
convertible preferred
stock to common
stock
Issuance of common
stock upon settlement
of Convertible Notes
Issuance of common
stock to Diffusion
stockholders in
reverse
recapitalization, net of
issuance costs
Sale of common stock
Stock-based
compensation
expense, including
vesting of RSUs
Issuance of common
stock from exercises
of stock options
Repurchase of
common stock from
net settled stock
option
Net loss
Balance at December
31, 2023
CervoMed Inc.
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
Capital in lieu of executive compensation
Change in fair value of convertible debt
Changes in operating assets and liabilities:
Prepaid expenses, deposits and other assets
Grant receivable
Accounts payable
Acccrued expenses and other liabilities
Net cash used in operating activities
Net assets assumed in connection with reverse recapitalization
Proceeds from sale of common stock
Payment of reverse recapitalization costs
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of non-cash financing activities:
Conversion of Convertible Notes
Conversion of convertible preferred stock
Years Ended December 31,
2022
2023
$
(2,171,873) $
(5,803,047)
407,632
-
(5,424,251)
(1,200,144)
(915,404)
565,169
1,289,024
(7,449,847)
11,887,757
810,000
(1,548,643)
11,149,114
3,699,267
4,093,579
7,792,846 $
6,989,749 $
24,287,211 $
333,835
127,516
2,389,000
85,104
-
79,154
215,679
(2,572,759)
-
-
-
-
(2,572,759)
6,666,338
4,093,579
-
-
$
$
$
See accompanying notes to the consolidated financial statements
108
CervoMed Inc.
Notes to the Consolidated Financial Statements
1. The Company and Description of Business
The Company is a corporation organized under the laws of the state of Delaware and headquartered in Boston, Massachusetts. The Company is a
biotechnology company developing treatments for age-related neurologic disorders. The Company is currently developing its product candidate
neflamapimod, an investigational orally administered small molecule brain penetrant that inhibits p38α. Neflamapimod has the potential to treat synaptic
dysfunction, the reversible aspect of the underlying neurodegenerative processes that cause disease in DLB and certain other major neurological disorders
and is currently being evaluated in a Phase 2b study in patients with DLB.
On March 30, 2023, Diffusion Pharmaceuticals Inc. (“Diffusion”), Dawn Merger Inc., a wholly-owned subsidiary of Diffusion (“Merger Sub”) and EIP
Pharma, Inc. (“EIP”) entered into the Merger Agreement (Note 4), pursuant to which, at the Effective Time, Merger Sub merged with and into EIP, with
EIP surviving the Merger as a wholly-owned subsidiary of the Company. In connection with the Merger, on August 16, 2023, the Company changed its
corporate name from “Diffusion Pharmaceuticals Inc.” to “CervoMed Inc.”
On August 16, 2023, Diffusion approved a one-for-1.5 reverse stock split which was consummated for historical Diffusion shares in connection with the
Merger. In addition, upon consummation of the Merger, all historical EIP shares were adjusted using an exchange ratio of 0.1151. All information in the
accompanying consolidated financial statements and notes thereto regarding share amounts of common stock, price per share of common stock and the
conversion factor for preferred stock into common stock has been adjusted to reflect the application of the reverse stock split and the exchange ratio on a
retroactive basis.
All shares of EIP common stock outstanding immediately prior to the Effective Time, after giving effect to the conversion of EIP preferred stock and the
Convertible Notes (and excluding shares held as treasury stock by EIP, shares held or owned by the Company and any dissenting shares), converted into the
right to receive, in the aggregate, 4,314,033 shares of the Company’s common stock and prefunded warrants to purchase 495,995 shares of common stock,
based on an exchange ratio of 0.1151.
2. Liquidity and Capital Resources
The Company has generated negative cash flows from operations and, as of December 31, 2023, had an accumulated deficit of approximately $54.4
million. In January 2023, the Company was awarded a $21.0 million grant from the NIA to support its ongoing RewinD-LB Trial, which is expected to be
received over a three-year period. In July 2023, the Company sold common stock for proceeds of $0.8 million. In addition, the Company received $12.7
million in cash and cash equivalents through the reverse recapitalization. The Company expects to continue to generate operating losses for the foreseeable
future. The Company’s future viability is dependent on its ability to raise additional capital to finance its operations and pursue its business strategies.
There can be no assurances that additional funding will be available on terms acceptable to the Company, or at all. These conditions cause substantial doubt
regarding the Company’s ability to continue as a going concern.
The Company will continue to require additional financing to advance current product candidates through clinical development, to develop, acquire or in-
license other potential product candidates and to fund operations for the foreseeable future. The Company expects that its existing cash and cash
equivalents as of December 31, 2023, along with the remaining funds expected to be received from the NIA Grant, will not be sufficient to enable it to fund
its operating expenses and capital expenditure requirements, and continue as a going concern for at least twelve months following the issuance of these
consolidated financial statements. The Company will continue to seek funds through equity offerings, debt financings or other capital sources, including
potential collaborations, grants, licenses and other similar arrangements. However, the Company may be unable to raise additional funds or enter into such
other arrangements when needed on favorable terms or at all. Without additional funding, the Company would be forced to delay, reduce or eliminate its
research and development programs. Accordingly, since the financing discussed below has not been completed, substantial doubt exists about the
Company’s ability to continue as a going concern within one year after the date these financial statements are issued. The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal
course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
On March 28, 2024, the Company entered into a securities purchase agreement with certain purchasers named therein related to the private placement of an
aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant. The
aggregate upfront gross proceeds for the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and
expenses, and up to an additional approximately $99.4 million in gross proceeds if the Series A Warrants are fully exercised for cash. The 2024 Private
Placement is expected to close on or about April 1, 2024, subject to customary closing conditions. The consolidated financial statements do not reflect and
do not include any adjustments for the Company’s expected receipt of proceeds from the 2024 Private Placement.
109
3. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements have been prepared in conformity with US GAAP as defined by the FASB.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, grant revenue, expenses, and related disclosures. On an ongoing basis, the Company’s management evaluates its
estimates, including estimates related to money market accounts, clinical trial accruals, stock-based compensation expense, grant revenue, Convertible
Notes, and expenses during the reporting period. The Company bases its estimates on historical experience and other market-specific or relevant
assumptions that it believes to be reasonable under the circumstances. Actual results may differ significantly from those estimates or assumptions.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company maintains
its cash and cash equivalent balances with financial institutions that management believes are creditworthy. The Company has no financial instruments with
off-balance-sheet risk of loss. The Company has not experienced any losses in such accounts.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cash equivalents.
Cash equivalents, which consist of amounts invested in money market funds, are stated at fair value. There are no unrealized gains or losses on the money
market funds for the years ended December 31, 2023 and 2022.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts payable, previously outstanding Convertible Notes and
accrued liabilities. The Company’s cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to their relatively short
maturities. The Company determined the fair value of the Convertible Notes as described in Note 9. In connection with the consummation of the Merger
(Note 4) on August 16, 2023, the Convertible Notes were converted into EIP Common Stock which was subsequently converted into the right to exchange
such shares of EIP Common Stock for shares of the Company’s common stock.
110
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability
in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value
hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or
similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities; and
Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no
market data.
The following table presents the Company’s assets that are measured at fair value on a recurring basis:
Assets
Cash equivalents (money market accounts)
Total assets measured at fair value
Assets
Cash equivalents (money market accounts)
Total assets measured at fair value
Liabilities
Convertible Notes
Total liabilities measured at fair value
$
$
$
$
$
$
(Level 1)
December 31, 2023
(Level 2)
(Level 3)
7,792,846 $
7,792,846 $
- $
- $
(Level 1)
December 31, 2022
(Level 2)
(Level 3)
4,093,579 $
4,093,579 $
- $
- $
- $
- $
- $
- $
12,414,000
12,414,000
-
-
-
-
The following table presents a roll-forward of the fair value of the Convertible Notes (Note 9) for which fair value is determined by Level 3 inputs:
Beginning balance
Fair value adjustment
Reclassification to additional paid in capital upon conversion
Ending balance
111
Year Ended
December 31,
2023
12,414,000 $
(5,424,251)
(6,989,749)
- $
December 31,
2022
10,025,000
2,389,000
-
12,414,000
$
$
Valuation techniques used to measure fair value maximize the use of relevant observable inputs and minimize the use of unobservable inputs (Note 9). The
Company’s Convertible Notes are classified within Level 3 of the fair value hierarchy because the fair value measurement is based, in part, on significant
inputs not observed in the market.
There were no transfers among Level 1, Level 2 or Level 3 categories in the years ended December 31, 2023 or 2022.
The fair value of the 2020 Notes and the 2021 Notes, and collectively the Convertible Notes (Note 9) as of December 31, 2022 were estimated as the
combination of a zero-coupon bond and a call option. The combined values for each of the 2020 Notes and the 2021 Notes as of December 31, 2022 were
then weighted by the probability of completing a financing or reverse merger. This approach resulted in the classification of the 2020 Notes and the 2021
Notes as of December 31, 2022 as Level 3 of the fair value hierarchy. The assumptions utilized to value the 2020 Notes and the 2021 Notes as of December
31, 2022 were an estimated term of 0.94 years, volatility of 80.0% and a market yield of 55.2%. The measurement of fair value incorporates expected
future cash flows associated with interest payments; as such, there is no separate accrual for interest accrued but not yet paid.
Leases
In February 2016, the FASB issued ASU No. 2016-02, “Leases”, which establishes a ROU model. That requires a lessee to recognize an ROU asset and
corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense recognition in the statement of operations as well as the reduction of the ROU asset. The
new standard provides a number of optional practical expedients in transition. The Company has elected to apply (i) the practical expedient, which allows
us to not separate lease and non-lease components, for new leases and (ii) the short-term lease exemption for all leases with an original term of less than 12
months, for purposes of applying the recognition and measurements requirements in the new standard.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances, the
existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. Operating lease liabilities and their
corresponding ROU assets are recorded based on the present value of future lease payments over the expected lease term. The interest rate implicit in lease
contracts is typically not readily determinable. As such, the Company will utilize the incremental borrowing rate, which is the rate incurred to borrow on a
collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The Company has elected to combine lease and non-lease components as a single component. Operating leases will be recognized on the consolidated
balance sheet as ROU assets, lease liabilities current and lease liabilities non-current. Fixed rent payments are included in the calculation of the lease
balances, while variable costs paid for certain operating and pass-through costs are excluded. Lease expense is recognized over the expected term on a
straight-line basis.
Research and Development
Research and development costs are expensed as incurred and consist primarily of new product development. Research and development costs include
salaries and benefits, consultants’ fees, process development costs and stock-based compensation, as well as fees paid to third parties that conduct certain
research and development activities on the Company’s behalf.
A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers. The Company records
accrued expenses for estimated preclinical study and clinical trial expenses. Estimates are based on the services performed pursuant to contracts with
research institutions, contract research organizations in connection with clinical studies, investigative sites in connection with clinical studies, vendors in
connection with preclinical development activities, and contract manufacturing organizations in connection with the production of materials for clinical
trials. Further, the Company accrues expenses related to clinical trials based on the level of subject enrollment and activity according to the related
agreement. The Company monitors subject enrollment levels and related activity to the extent reasonably possible and makes judgments and estimates in
determining the accrued balance in each reporting period. Payments for these activities are based on the terms of the individual arrangements, which may
differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development.
112
If the Company underestimates or overestimates the level of services performed or the costs of these services, actual expenses could differ from estimates.
To date, the Company has not experienced significant changes in its estimates of preclinical studies and clinical trial accruals.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the
recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the consolidated statements of operations.
Stock-based Compensation
Stock-based compensation for employee and non-employee awards is measured on the grant date based on the fair value of the award and recognized on a
straight-line basis over the requisite service period. The fair value of stock options to purchase common stock are measured using the Black-Scholes option
pricing model. The Company accounts for forfeitures as they occur.
The fair value of stock options is determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and
generally requires significant judgment and estimation by management.
Expected Term—The expected term represents the period that stock-based awards are expected to be outstanding. The Company uses the “simplified
method” to estimate the expected term of stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the
contractual term of ten years and the weighted-average vesting term of the Company stock options, taking into consideration multiple vesting tranches. The
Company utilizes this method due to lack of historical data and the plain-vanilla nature of the Company’s stock-based awards.
Expected Volatility—The Company has limited information on the volatility of its common stock as the shares were not actively traded on any public
markets until recently. The expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry.
These companies are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stock-based awards.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury
notes with maturities approximately equal to the and stock options expected term.
Expected Dividend Rate—The expected dividend is zero as the Company has not paid, nor does it anticipate paying, any dividends on its stock options in
the foreseeable future.
Grant Revenue Recognition
The Company generates revenue from government contracts that reimburse the Company for certain allowable costs for funded projects.
The Company recognizes funding received as grant revenue for the Company’s grant from the NIA, rather than as a reduction of research and development
expenses, because the Company is the principal in conducting the research and development activities and these contracts are central to its ongoing
operations. Revenue is recognized as the qualifying expenses related to the contracts are incurred. Revenue recognized upon incurring qualifying expenses
in advance of receipt of funding is recorded in the Company’s consolidated balance sheets as accounts receivable. Funding received in advance of services
rendered are recorded in the Company’s consolidated balance sheets as deferred grant revenue. The related costs incurred by the Company are included in
research and development expense in the Company’s consolidated statements of operations.
113
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and
liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in
effect for the year in which the differences are expected to recover or settle. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income for the period that includes the enactment date.
The deferred tax assets are recognized to the extent the Company believes that these assets are more likely than not to be realized. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s historical operating
performance and the recorded cumulative net losses in prior fiscal periods, the net deferred tax assets have been fully offset by a valuation allowance.
The Company records uncertain tax positions using a two-step process. First, the Company determines whether it is more likely than not that the tax
positions will be sustained on the basis of the technical merits of the position. Second, for those tax positions that meet the more-likely-than-not recognition
threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related
tax authority.
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits on the interest expense line and other expense line, respectively,
in the accompanying statements of operations. Accrued interest and penalties are included on the related liability lines in the consolidated balance sheets.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period (and
potential shares of common stock that are exercisable for little or no consideration). Diluted loss per share includes the effect, if any, from the potential
exercise or conversion of securities such as common stock warrants and stock options which would result in the issuance of incremental shares of common
stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that
when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. The pre-funded warrants to purchase common
stock issued in connection with the Merger are included in the calculation of basic and diluted net loss per share as the exercise price of $0.001 per share is
non-substantive and is virtually assured. The pre-funded warrants are more fully described in Note 11.
The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding, as they
would be anti-dilutive:
Preferred Series A-1
Preferred Series A-2
Preferred Series B
Warrants
Stock options
Total
December 31,
2023
2022
-
-
-
598,457
349,384
947,841
1,960,600
335,711
1,034,890
43,618
114,516
3,489,335
114
Segments
The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations
on a consolidated basis for purposes of allocating resources.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which was effective immediately
and permits entities to elect certain optional expedients and exceptions when accounting for derivatives and certain hedging relationships affected by
changes in interest rates and the transition. Additionally, ASU 2022-06 “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”
defers the sunset date of ASC 848 from December 31, 2022 to December 31, 2024. The new guidance is effective for fiscal years beginning after December
31, 2024. The Company does not currently believe that this transition from LIBOR will have a material impact on its financial statements.
In November 2023, the FASB issued ASU No. 2023-07 "Segment Reporting - Improvements to Reportable Segment Disclosures" (“ASU 2023-07”), which
updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to
assess segment performance. The guidance is effective for the Company beginning in the year ended December 31, 2025, with early adoption permitted.
The Company expects the new guidance will have an immaterial impact on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): “Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU
No. 2023-09 is intended to improve income tax disclosure requirements by requiring (1) consistent categories and greater disaggregation of information in
the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax
disclosure requirements. The guidance in ASU 2023-09 will be effective for annual reporting periods in fiscal years beginning after December 15, 2024.
The Company is currently evaluating the impact that the adoption of ASU 2023-09 will have on its consolidated financial statements and disclosures.
4. Merger
On August 16, 2023, the Company completed the Merger of EIP and Merger Sub as discussed in Note 1. For financial reporting purposes, EIP was
determined to be the accounting acquirer based upon the terms of the Merger and other factors, including: (i) EIP securityholders immediately prior to the
Merger owning approximately 76% of the Company immediately following the Merger, (ii) EIP appointing the majority (five of seven) of the Company’s
Board immediately following the Merger and (iii) former EIP management holding the majority of key positions of management, including the Chief
Executive Officer and Chairman of the Board positions, immediately following the Merger. The Merger was also accounted for as a reverse recapitalization
under US GAAP because the primary assets of the Company immediately prior to the Merger were cash and cash equivalents. Accordingly, (i) for all
periods prior to the Merger, EIP’s historical financial statements and results of operations replace and are deemed to be the Company’s financial statements
and results of operations for such periods, (ii) the Merger was treated as the equivalent of EIP issuing shares of common stock to the holders of the
Company's common stock immediately prior to the Merger as consideration to acquire the net assets of the Company, and (iii) the net assets of the
Company as of immediately prior to the Merger were recorded at their acquisition-date fair value in the consolidated financial statements of EIP.
Immediately after the Merger, there were approximately 5,674,277 shares of the Company’s common stock outstanding.
115
The following table shows the net assets acquired in the Merger:
Cash and cash equivalents
Prepaid and other assets
Accounts payable and accrued expenses
Total net assets assumed
Minus: Transaction costs
Total net assets assumed minus transaction costs
5. Significant Agreements and Contracts
Vertex Option and License Agreement
August 16,
2023
12,705,140
406,488
(1,223,871)
11,887,757
(1,548,643)
10,339,114
$
$
In August 2012, the Company entered the Vertex Agreement, as amended, to acquire an exclusive license to develop and commercialize a drug candidate
“VX-745” from Vertex. In August 2014, the Company exercised its
option to acquire the license and paid an option fee of $100,000, which was expensed as incurred as a component of research and development expense.
The Vertex Agreement granted the Company the exclusive worldwide use of VX-745 in the field of diagnosis, treatment and prevention of Alzheimer’s
disease and related central nervous system disorders in humans.
As part of the Vertex Agreement, the Company is obligated to make certain payments totaling up to approximately $117.0 million upon achievement of
certain regulatory and sales milestones, and royalties on net sales of products on indications covered by the Vertex Agreement. The first expected milestone
events concern filing of an NDA, with the FDA for marketing approval of neflamapimod, in the U.S., or a similar filing for a non-U.S. major market, as
specified in the Vertex Agreement, and such royalties will be on a sliding scale of percentages of net sales in the low- to mid-teens, depending on the
amount of net sales in the applicable years. The Company is also obligated to make a milestone payment to Vertex upon net sales reaching a certain
specified amount in any 12-month period. The Vertex Agreement states that royalties will be reduced by 50% during any portion of the royalty term when
there is no valid claim of an issued patent within specified patent rights covering the licensed product. The Company also has the right to deduct, on a
country by country basis, from royalties otherwise payable to Vertex under the terms of the Vertex Agreement, 50% of all royalties, upfront fees, milestones
and other payments paid by the Company or any of the Company’s affiliates or sublicensees to third parties under licenses that are necessary for the
development, manufacture, sale or use of a licensed product, provided that in no event will the royalty payable to Vertex be reduced to less than 50% of the
rates specified in the Vertex Agreement, subject to certain adjustments specified therein. The Company has made a total of $100,000 in payments to Vertex
related to the Vertex Agreement. No payments were made during the years ended December 31, 2023 and 2022.
National Institute of Aging Grant
In January 2023, the Company was awarded a $21.0 million grant from the NIA to support a Phase 2b study of neflamapimod in dementia with Lewy
bodies. The grant monies are expected to be received over a period of three years including $6.7 million in 2023, $8.1 million in 2024 and $6.2 million in
2025.
The total revenue recognized from the NIA Grant was $7.1 million year ended December 31, 2023. As of December 31, 2023, total cash funding of $6.2
million has been received from the NIA Grant, resulting in approximately $15.8 million in funding remaining. In addition, $0.9 million has been recorded
as a receivable in the consolidated balance sheet at December 31, 2023, which was received subsequent to December 31, 2023.
The Company received access to the current year 2 (i.e., the year ending December 31, 2024) funding in the amount of $7.3 million in February 2024. This
amount was 90% of the full year 2 amount provided for in the NIA Grant due to current NIA policy as a result of the U.S. government currently being
funded on the basis of a continuing resolution (the “Continuing Resolution”).
116
6. Prepaid Expenses
Prepaid expenses consisted of the following:
Prepaid clinical expenses
Insurance
Rent
Prepaid professional services
Other
Total
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
Employee compensation costs
Clinical development costs
Professional fees
State franchise and excise tax
Other
Total
8. Line of Credit
December 31,
2023
2022
711,362 $
436,859
-
37,917
70,363
1,256,501 $
-
9,937
2,455
-
51,735
64,127
December 31,
2023
2022
1,026,054 $
389,045
309,062
120,456
88,659
1,933,276 $
364,070
23,185
206,675
-
50,322
644,252
$
$
$
$
The Company established a line of credit with a lender during the year ended December 31, 2020 in the amount of $2.5 million with a variable interest rate
of 1.75% over the 30-day LIBOR (7.22% and 6.08% at December 31, 2023 and December 31, 2022, respectively). The line is secured by the personal
assets of the Company’s Chief Executive Officer and the former Chair of the Board.
No drawdowns were made, and no costs incurred related to the line of credit during the year ended December 31, 2023 or 2022. The line of credit was
terminated on February 14, 2024.
9. Convertible Notes
In December 2020, EIP issued the 2020 Notes to predominantly related party investors for proceeds of $5.1 million. In December 2021, EIP issued the
2021 Notes to predominantly related party investors for proceeds of $6.0 million. Upon issuance, the Company elected the fair value option for the
Convertible Notes in accordance with ASC 825, “Financial Instruments,” pursuant to which the entire instrument, including interest expense, is measured
at fair value with the initial change in fair value deemed to be a capital contribution and any subsequent changes in fair value being recorded to other
income (expense) on the consolidated statement of operations. The fair value adjustments recognized in other income (expense) were $5.4million and
$(2.4)million for the years ended December 31, 2023 and 2022, respectively.
In April 2022, the Company entered into the 2022 Notes Amendment with the noteholders for the 2020 Notes (the “Amendment”). In accordance with the
Amendment, the maturity of the 2020 Notes was extended from June 2022 to December 2023, the interest rate was modified so interest accrued at 5%
through the original maturity of June 2022 and at 0% thereafter, the conversion discount was increased from 20% to 30%, and a conversion price limit of
$3.00 was established, as discussed further below. Expenses associated with the amendment were de minimis.
117
The Company concluded the 2022 Notes Amendment qualified as a troubled debt restructuring, in accordance with FASB ASC 470, Debt, as the
noteholders for the 2020 Notes, for economic reasons related to the Company’s financial difficulties, granted concessions to the Company. The Company
concluded no gain or loss, and no adjustment to, or reclassification of, the carrying value of the 2020 Notes were considered necessary as a result of the
2022 Notes Amendment. In addition, the Company concluded there was no other financial statement impact as a result of the 2022 Notes Amendment, as
any prospective change would be related to interest and, as a result of the amendment, the interest rate decreased to 0% following the original maturity of
June 2022.
In June 2023, EIP entered into the 2023 Notes Amendment which amended the conversion price of the Convertible Notes to $1.47 per share of EIP
Common Stock upon effectiveness of the Merger with the Diffusion or a 30% conversion discount upon the occurrence of any other reverse merger.
Further, the 2023 Notes Amendment provided that if the Merger with the Company resulted in a holder of these notes beneficially owning more than 9.99%
of the outstanding voting stock of the Company, then, the holder of these notes shall be granted pre-funded warrants in lieu of the Company’s common
stock for the conversion of any principal and accrued but unpaid interest in excess of such threshold. The exercise price of one share of the Company’s
common stock under this pre-funded warrant is equal to $0.001 (Note 11).
The 2023 Notes Amendment qualified as a modification in accordance with FASB ASC 470 Debt, since there were no concessions granted and no
substantive change to the fair value of the conversion option before and after the 2023 Notes Amendment. There was no financial statement impact as a
result of the 2023 Notes Amendment other than the change in fair value of the Convertible Notes during the year ended December 31, 2023 and debt
issuance costs of approximately $50,000 that was recorded to general and administrative expenses in the statements of operations.
As a result of the Merger (Note 4), pursuant to the terms thereof, the Convertible Notes converted into shares of EIP Common Stock which were
subsequently converted into the right to exchange such shares for 897,272 shares of the Company’s common stock and, in certain cases, pre-funded
warrants to purchase the Company’s common stock. Accordingly, the Convertible Notes were adjusted to fair value prior to conversion by multiplying the
trading price of the Company’s common stock at the date of the Effective Time and the 795,905 common shares and 101,367 pre-funded warrants issued
upon conversion. The Company recorded a gain on the fair value adjustment of the Convertible Notes of $5.4 million for year ended December 31, 2023
and recorded $7.0 million to additional paid in capital for the issuance of common stock upon settlement of the Convertible Notes.
10. Commitments and Contingencies
Operating Leases
The Company has a short-term agreement to utilize membership-based co-working space in Charlottesville, Virginia and a short-term lease for office space
in Boston, Massachusetts. Rent expense was approximately $34,000 and $45,000 for the years ended December 31, 2023 and 2022, respectively.
Research and Development Arrangements
In the course of normal business operations, the Company would enter into agreements with universities and CROs to assist in the performance of research
and development activities and contract manufacturers to assist with chemistry, manufacturing, and controls related expenses. Expenditures to CROs
represented a significant cost in clinical development for the Company. The Company could also enter into additional collaborative research, contract
research, manufacturing, and supplier agreements in the future, which may require upfront payments and long-term commitments of cash.
118
Defined Contribution Retirement Plan
The Company has established its 401(k) Plan, which covers all employees who qualify under the terms of the plan. Eligible employees may elect to
contribute to the 401(k) Plan up to 90% of their compensation, limited by the IRS-imposed maximum. The Company provides a safe harbor match with a
maximum amount of 4% of the participant’s compensation. The Company made matching contributions under the 401(k) Plan of de minimis amounts for
the years ended December 31, 2023 and 2022.
Legal Proceedings
On August 7, 2014, a complaint was filed in the Superior Court of Los Angeles County, California by Paul Feller, the former Chief Executive Officer of the
Company’s legal predecessor under the caption Paul Feller v. RestorGenex Corporation, Pro Sports & Entertainment, Inc., ProElite, Inc. and Stratus Media
Group, GmbH (Case No. BC553996). The complaint asserts various causes of action, including, among other things, promissory fraud, negligent
misrepresentation, breach of contract, breach of employment agreement, breach of the covenant of good faith and fair dealing, violations of the California
Labor Code and common counts. The plaintiff is seeking, among other things, compensatory damages in an undetermined amount, punitive damages,
accrued interest and an award of attorneys’ fees and costs. On December 30, 2014, the Company filed a petition to compel arbitration and a motion to stay
the action. On April 1, 2015, the plaintiff filed a petition in opposition to the Company’s petition to compel arbitration and a motion to stay the action. After
a related hearing on April 14, 2015, the court granted the Company’s petition to compel arbitration and a motion to stay the action. On January 8, 2016, the
plaintiff filed an arbitration demand with the American Arbitration Association. On November 19, 2018 at an Order to Show Cause Re Dismissal Hearing,
the court found sufficient grounds not to dismiss the case and an arbitration hearing was scheduled, originally for November 2020 but later postponed due
to the COVID-19 pandemic and related restrictions on gatherings in the State of California. In addition, following the November 2018 hearing, an
automatic stay was placed on the arbitration in connection with the plaintiff filing for personal bankruptcy protection. On October 22, 2021, following a
determination by the bankruptcy trustee not to pursue the claims and release them back to the plaintiff, the parties entered into a stipulation to abandon
arbitration and return the matter to state court. A case management conference was held on February 23, 2022 at which an initial trial date of May 24, 2023
was set, and the parties have agreed to stipulate to mediation in advance of the trial. On October 20, 2022, the parties filed a joint stipulation to continue the
trial and certain deadlines related to the mediation in order to allow plaintiff’s counsel to continue to seek treatment for an ongoing medical issue. On
November 1, 2022, based on the parties joint stipulation, the court entered an order continuing the trial date to October 25, 2023, on October 6, 2023, the
court entered an order further continuing the trial date to April 24, 2024 , and on March 3, 2024, based on an additional joint stipulation of the parties, the
court entered an order continuing the trial date to October 23, 2024.
The Company believes that is has meritorious defenses to the claims alleged in this matter and is defending itself vigorously. However, at this stage, the
Company is unable to predict the outcome and possible loss or range of loss, if any, associated with its resolution or any potential effect the matter may
have on the Company’s financial position. Depending on the outcome or resolution of this matter, it could have a material effect on the Company’s
financial position, results of operations and cash flows.
11. Stockholders’ Equity (Deficit) and Common Stock Warrants
On August 16, 2023 in connection with the closing of the Merger, the following is reflected on the consolidated financial statements of convertible
preferred stock and stockholders’ equity (deficit) for the year ended December 31, 2023: (i) the issuance of 795,905 shares of common stock and 101,367
pre-funded warrants upon the settlement of the Convertible Notes, (ii) the conversion of 3,331,201 shares of convertible preferred stock into 2,936,566
shares of common stock and 394,628 prefunded warrants, and (iii) the issuance of 1,360,244 shares of common stock to Diffusion stockholders as
consideration for the Merger.
In July 2023, EIP sold 63,422 shares of common stock at $12.78 per share (as adjusted for the Exchange Ratio) for net proceeds of approximately $0.8
million.
119
Warrants
As of December 31, 2023, the Company had the following warrants outstanding to acquire shares of its common stock:
Warrants
Outstanding
Exercise
Price
Expiration Date
Historical Diffusion common stock warrants
Historical EIP common stock warrants
Pre-funded warrants issued related to closing of reverse
recapitalization
58,844 $26.27 - $459.06 May 2024 through February 2026
43,618
April 2028
$19.81
495,995
598,457
$0.001
None
Upon completion of the Merger, the Convertible Notes and outstanding shares of EIP preferred stock converted into shares of EIP Common Stock which
were subsequently converted into the right to exchange such shares for shares of the Company’s common stock or, in certain cases, pre-funded warrants to
purchase the Company’s common stock. All of the warrants are equity-classified because they are indexed to the Company’s own shares and meet the
criteria to be classified as an equity instrument.
The Company is party to the 2022 Sales Agreement with BTIG. The 2022 Sales Agreement is an "at-the-market" sales agreement pursuant to which the
Company may, from time to time and through BTIG as the Company’s agent, sell up to an aggregate of $20.0 million in shares of common stock by any
permissible method deemed an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act. As of the date of this Annual Report,
however, the Company has not sold any shares pursuant to the 2022 Sales Agreement.
12. Stock-Based Compensation
2015 Equity Plan
The 2015 Equity Plan provides for increases to the number of shares reserved for issuance thereunder each January 1 equal to 4.0% of the total shares of
the Company’s common stock outstanding as of the immediately preceding December 31, unless a lesser amount is stipulated by the Compensation
Committee of the Company’s Board of Directors. As of December 31, 2023, there were 12,580 shares available for future issuance under the 2015 Equity
Plan. On January 1, 2024, the number of shares available for future issuance under the 2015 Equity Plan increased by 226,981.
2018 Employee, Director and Consultant Equity Incentive Plan
On March 28, 2018, EIP adopted the 2018 Plan, which was assumed by the Company pursuant to and in accordance with the terms of the Merger
Agreement. Under the 2018 Plan, the Company may issue incentive stock options, non-qualified stock options, stock grants, and other stock-based awards
to employees, directors, and consultants, as specified in the 2018 Plan and subject to applicable SEC and Nasdaq rules and regulations. The Board of
Directors has the authority to determine to whom options or stock will be granted, the number of shares, the term, and the exercise price. Options granted
under the 2018 Plan have a term of up to ten years and generally vest over a four-year period with 25% of the options vesting after one-year of service and
the remainder vesting monthly thereafter. As of December 31, 2023, there were no shares available for issuance.
The Company recorded stock-based compensation expense in the following expense categories of its consolidated statements of operations:
Research and development
General and administrative
Total stock-based compensation expense
120
Year Ended December 31,
2022
2023
$
$
143,685 $
263,947
407,632 $
174,710
159,125
333,835
The following table summarizes the activity related to all stock option grants for the year ended December 31, 2023:
Balance at January 1, 2023
Options assumed in the merger
Granted
Cancelled
Exercised
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Weighted
average
exercise price
per share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Number of
Options
114,516 $
52,574 $
198,600 $
(15,957) $
(359) $
349,374 $
157,301 $
25.98
313.67
5.95
180.80
5.33
51.15
103.67
6.72
8.12 $
6.35 $
358,340
39,820
The Black-Scholes option-pricing model was used to estimate the grant date fair value of each stock option grant at the time of grant using the following
weighted-average assumptions:
Expected term (in years)
Risk-free interest rate
Expected volatility
Dividend yield
December 31,
2023
5.75
3.9% - 4.5%
81.7% - 83.3%
0.0%
2022
6.00
1.9%
80.3%
0.0%
During the year ended December 31, 2023, 359 shares underlying options were exercised, of which 193 were withheld as consideration for the exercise
price of such shares pursuant to the cashless exercise provision of the related option award agreement. No options were exercised during the year ended
December 31, 2022. At December 31, 2023, there was $1.1 million of unrecognized compensation expense that will be recognized over a weighted-average
period of 2.1 years.
Contributed Capital in lieu of Executive Compensation
In 2022, the former Chair of the Board and the Chief Executive Officer offered to forego, without repayment, certain compensation to ensure the Company
had enough resources to maintain operations until the financial funding was completed. The amount of $0.1 million for the year ended December 31, 2022,
which is recorded as contributed capital in lieu of executive compensation in additional paid-in capital, will not be paid in cash, debt or equity in the future.
No such event occurred during the year ended December 31, 2023.
121
13. Income Taxes
A reconciliation of income tax benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements as of
December 31, 2023 and 2022:
Rate reconciliation:
Federal tax benefit at statutory rate
State tax, net of federal benefit
Change in convertible debt
Research & Development credit
Change in valuation allowance
Share-based compensation
Other
Total provision
2023
2022
21.0%
6.3%
52.8%
17.1%
-95.9%
-1.0%
-0.3%
0.0%
21.0%
8.0%
-8.6%
1.2%
-15.8%
0.0%
-5.8%
0.0%
Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect for years in which differences are expected to reverse.
Significant components of the Company's deferred tax assets for federal income taxes as of December 31, 2023 and December 31, 2022 consisted of the
following:
Deferred tax assets:
Net operating loss
Research and development credits
Capitalized research expenditures
Stock-based compensation
Reserves and accruals
Intangibles
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Prepaids
Gross deferred tax liabilities
Deferred tax assets, net
2023
2022
$
$
$
10,495,881 $
708,443
2,271,853
567,473
-
223,548
14,267,198
(14,100,543)
166,655
(166,655) $
(166,655)
- $
10,977,455
354,283
259,749
514,654
105,399
262,872
12,474,412
(12,474,412)
-
-
-
-
The Company does not have unrecognized tax benefits as of December 31, 2023 or December 31, 2022. The Company recognizes interest and penalties
accrued on any unrecognized tax benefits as a component of income tax expense.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred assets
will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Evaluating the need for a valuation allowance for deferred tax assets often requires judgment and analysis
of all the positive and negative evidence available, including cumulative losses in recent years and projected future taxable income, to determine whether
all or some portion of the deferred tax assets will not be realized. As of December 31, 2023, the Company has utilized a full valuation allowance to offset
the net deferred tax assets as the Company believes it is not more likely than not that the net deferred tax assets will be fully realizable. The valuation
allowance increased by $1.6 million during the year ended December 31, 2023.
122
As of December 31, 2023, the Company had NOL carryforwards of approximately $38.9 million and $37.0 million for federal and state tax purposes,
respectively. Federal NOL carryforwards will not expire and state NOL carryforwards will begin to expire in 2038, if not utilized. The TCJA enacted on
December 22, 2017 limits a taxpayer’s ability to utilize NOL deduction in a year to 80% taxable income for federal net operating losses arising in tax years
beginning after 2017, however, federal NOLs post 2017, are now indefinite lived.
As of December 31, 2023, the Company also had federal and state research credit carryforwards of $0.6 million and $0.1 million, respectively. The federal
and state research credits will begin to expire in 2038 and 2034, respectively.
Generally, utilization of the NOL carryforwards and credits may be subject to an annual limitation due to the ownership change limitations provided by
Section 382 of the Code, which provides for limitations on NOL carryforwards and certain built-in losses following ownership changes, and Section 383 of
the Code, which provides for special limitations on certain excess credits, as well as similar state provisions. Accordingly, the Company’s ability to utilize
NOL carryforwards may be limited as the result of such an “ownership change.” A formal Section 382 study was performed through December 31, 2023
which resulted concluded there have been no historical section 382 ownership changes, thus the NOL carryforwards are not be subject to an annual
limitation. With respect to Diffusion, the Company deems the historical Diffusion tax attributes (NOLs/Credits) are unusable due to the IRC Section 382
limitation. ASC 740-10-25 states that a “write off might be appropriate if there is only a remote likelihood that the entity will utilize the carryforward (i.e.
NOL), it is acceptable for the entity to write off the deferred tax assets against the valuation allowance, thereby eliminating the need to disclose the gross
amounts. As such, the Company has written off these attributes.
The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations. Due to its NOL carryforwards, the Company’s
income tax returns generally remain subject to examination by federal and state tax authorities. The Company is currently not subject to any income tax
audits by federal or state taxing authorities. The statute of limitations for tax liabilities for all years remains open.
The Company uses the “more likely than not” criterion for recognizing the income tax benefit of uncertain income tax positions and establishing
measurement criteria for income tax benefits. The Company has evaluated the impact of these positions and believes that its income tax filing positions and
deductions will be sustained upon examination. Accordingly, no reserves for uncertain income tax positions or related accruals for interest and penalties
have been recorded as of December 31, 2023 and 2022.
14. Subsequent Events
2024 Private Placement
On March 28, 2024, the Company entered into a securities purchase agreement with certain purchasers named therein related to the private
placement of an aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A
Warrant. The 2024 Private Placement is expected to close on or about April 1, 2024, subject to customary closing conditions. The aggregate upfront gross
proceeds from the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and expenses, and additional gross
proceeds of up to approximately $99.4 million may be received if the Series A Warrants are exercised in full for cash.
Pre-Funded Warrant Amendment and Exercise
On February 26, 2024, following the effectiveness of an amendment eliminating certain beneficial ownership limitations set forth therein, the
Company’s previously outstanding pre-funded warrant was exercised in full by the holder thereof pursuant to the cashless exercise provision in Section 2(c)
of the pre-funded warrant. Upon exercise, 36 shares were withheld in lieu of a cash payment of the exercise price and the holder was issued 495,959 shares
of common stock.
123
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15I and 15d-15(e) promulgated under the Exchange Act) that are
designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives,
and we are required to apply our judgment in evaluating the cost-benefit relationship of possible internal controls. Our management evaluated, with the
participation of our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered in this report. Based on that evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are ineffective due to the material weaknesses noted below in the subsequent paragraph.
Material Weaknesses in Internal Control over Financial Reporting
In connection with the audit of the Company’s consolidated financial statements for the years ended December 31, 2023 and 2022, material
weaknesses in the Company’s internal control over financial reporting were identified in relation to: (i) the recording of significant complex transactions
and (ii) the absence of effective controls regarding the accurate identification, evaluation and proper recording of various expense accounts.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of our condensed consolidated interim financial statements would not be prevented or detected on a timely basis.
The identified material weaknesses, if not remediated, could result in a material misstatement to the Company’s consolidated financial statements that may
not be prevented or detected. A material weaknesses will not be considered remediated until a remediation plan has been fully implemented, the applicable
controls operate for a sufficient period of time, and it has been concluded, through testing, that the newly implemented and enhanced controls are operating
effectively.
On August 16, 2023, we completed the Merger. For financial reporting purposes, EIP was determined to be the accounting acquirer and,
accordingly, for all periods prior to the Merger, EIP’s historical financial statements and results of operations replace and are deemed to be the Company’s
financial statement and results of operations for such periods. While Diffusion was previously subject to the provisions of SOX, EIP, as a private, non-
reporting operating company prior to the Merger, was not. Accordingly, upon consummation of the Merger, we began the process of integrating the pre-
Merger business of EIP into Diffusion’s pre-established public company, internal control framework, including internal controls and information systems
and we continue to implement measures designed to improve our internal control over financial reporting to remediate the material weaknesses. As of the
date of this Annual Report, we continue to be actively engaged in these efforts through, among other things, adding additional review procedures by
qualified personnel over complex accounting matters, and we currently expect to complete the remediation plan during the year ending December 31, 2024.
However, the Company cannot predict the success of such efforts or the outcome of its assessment of the remediation efforts and the Company’s efforts
may not remediate this material weakness in its internal control over financial reporting, or additional material weaknesses may be identified in the future.
124
Notwithstanding the material weaknesses in internal control over financial reporting described above, our management has concluded that our
consolidated financial statements included in this Annual Report are fairly stated in all material respects in accordance with U.S. GAAP.
Attestation Report of the Independent Registered Public Accounting Firm
This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. As a "smaller reporting company" (as such term is defined in Rule 12b-2 of the Exchange Act), pursuant to Section 989G of the Dodd-Frank Act,
we are exempt from the requirement subjecting management’s report to attestation by our independent registered public accounting firm.
Change in Internal Control Over Financial Reporting
Except as set forth above, there was no change in our internal control over financial reporting that occurred during our fourth quarter ended
December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Acting Principal Financial Officer
On March 28, 2024, J. William Tanner, Ph.D., our Chief Financial Officer, commenced a temporary leave of absence from the Company in
order to undergo treatment for a medical condition. In connection with Dr. Tanner’s temporary leave of absence, the Board appointed William Elder to
temporarily serve as Acting Principal Financial Officer of the Company, effective as of March 28, 2024. Mr. Elder, age 41, has served as our General
Counsel and Corporate Secretary since September 2020 and will continue to serve in those roles. Mr. Elder also previously served as our Principal
Financial Officer from June 2023 to August 2023.
In connection with such appointment, Mr. Elder did not receive any consideration nor were any modifications made to Mr. Elder’s existing
employment agreement or outstanding equity awards, which are described under the heading, “Diffusion Executive and Director Compensation,” in the
Registration Statement and the Company’s other filings with the SEC. Except as previously disclosed in the Registration Statement and the Company’s
other filings with the SEC, (i) there are no arrangements or understandings between Mr. Elder and any other person pursuant to which Mr. Elder was
selected as the Acting Principal Financial Officer, (ii) Mr. Elder does not have any direct or indirect material interest in any transaction requiring the
disclosure of the information required by Item 404(a) of Regulation S-K, (iii) there is no material plan, contract or arrangement to which Mr. Elder is a
party or in which he participates that was entered into, or any grant or award to Mr. Elder or modification thereto, under any such plan, contract or
arrangement in connection with his appointment as Acting Principal Financial Officer, and (iv) there are also no family relationships between Mr. Elder and
any director or executive officer of the Company.
Adoption, Termination or Modification of Trading Arrangements
During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange
Act), adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408
of Regulation S-K).
ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
125
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The additional information required by Item 10 of Form 10-K is incorporated herein by reference from our Proxy Statement, to be filed with the
SEC within 120 days after December 31, 2023, the end of the fiscal year to which this Annual Report relates, including the information set forth under the
captions, “Corporate Governance,” “Election of Directors,” “Executive Officers,” and “Certain Relationships and Related Party Transactions.”
ITEM 11. EXECUTIVE COMPENSATION
The additional information required by Item 11 of Form 10-K is incorporated herein by reference from our Proxy Statement, to be filed with the
SEC within 120 days after December 31, 2023, the end of the fiscal year to which this Annual Report relates, including the information set forth under the
captions, “Executive Compensation,” “Director Compensation,” “Compensation Committee Report,” and “Corporate Governance – Compensation
Committee Interlocks and Insider Participation.”
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The additional information required by Item 12 of Form 10-K is incorporated herein by reference from our Proxy Statement, to be filed with the
SEC within 120 days after December 31, 2023, the end of the fiscal year to which this Annual Report relates, including the information set forth under the
caption, “Security Ownership of Certain Beneficial Owners and Management.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The additional information required by Item 13 of Form 10-K is incorporated herein by reference from our Proxy Statement, to be filed with the
SEC within 120 days after December 31, 2023, the end of the fiscal year to which this Annual Report relates, including the information set forth under the
captions, “Corporate Governance” and “Certain Relationships and Related Party Transactions.”
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The additional information required by Item 14 of Form 10-K is incorporated herein by reference from our Proxy Statement, to be filed with the
SEC within 120 days after December 31, 2023, the end of the fiscal year to which this Annual Report relates, including the information set forth under the
caption, “Ratification of Selection of Independent Registered Public Accounting Firm.”.
126
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Our financial statements are included in Part II, Item 8 of this Annual Report.
PART IV
(b) All financial statement schedules have been omitted from this Item 15 as the required information is not applicable, is not present in
amounts sufficient to require submission of such schedules, or because the information required is included in our financial statements or the related notes
included in Part II, Item 8 of this Annual Report.
(c) The exhibits set forth in the following "Index to Exhibits" are filed with, furnished with, and/or incorporated by reference into this
Annual Report, as set forth therein. A copy of any of such exhibit will be furnished at a reasonable cost, upon receipt from any person of a written request
for any such exhibit. Such request should be sent to CervoMed Inc., 20 Park Plaza, Suite 424, Boston, Massachusetts 02116, Attention: General Counsel.
127
No.
2.1Δ
Description
Agreement and Plan of Merger, dated as of March 30, 2023, by and among Diffusion
Pharmaceuticals Inc., EIP Pharma, Inc. and Dawn Merger Sub Inc.
INDEX TO EXHIBITS
Certificate of Incorporation of CervoMed Inc., as amended
Certificate of Amendment, dated August 16, 2023, to the Certificate of Incorporation,
as amended, of CervoMed Inc. (Reverse Stock Split)
Certificate of Amendment, dated August 16, 2023, to the Certificate of Incorporation,
as amended, of CervoMed Inc. (Name Change)
Bylaws of CervoMed Inc., as amended
Form of May 2019 Investor Warrant
Form of May 2019 Placement Agent Warrant
Form of November 2019 Series I Investor Warrant
Form of November 2019 Series II Investor Warrant
Form of December 2019 Investor Warrant
Form of December 2019 Placement Agent Warrant
Method of Filing
Incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed on
March 30, 2023.
Incorporated by reference to Exhibit 3.1 to the
Company’s Annual Report on Form 10-K filed on
March 24, 2023.
Incorporated by reference to Exhibit 3.3 to the
Company’s Current Report on Form 8-K filed on
August 17, 2023.
Incorporated by reference to Exhibit 3.4 to the
Company’s Current Report on Form 8-K filed on
August 17, 2023.
Incorporated by reference to Exhibit 3.5 to the
Company’s Current Report on Form 8-K filed on
August 17, 2023.
Incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on
May 28, 2019.
Incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on
May 28, 2019.
Incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on
November 13, 2019.
Incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on
November 13, 2019.
Incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on
December 13, 2019.
Incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on
December 13, 2019.
Form of May 2020 Placement Agent Warrant (In Respect of Exercise Transaction)
Incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on
May 8, 2020.
Form of May 2020 Placement Agent Warrant (In Respect of Offering Transaction)
Incorporated by reference to Exhibit 4.1 to the
Form of February 2021 Underwriter Warrant
128
Company’s Current Report on Form 8-K filed on
May 20, 2020.
Incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on
February 18, 2021.
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Form of 2023 Pre-Funded Investor Warrant
4.11
Form of EIP 2018 Investor Warrant
4.12
Form of EIP 2018 Investor Warrant (AI EIPP Holdings LLC)
Incorporated by reference to Exhibit 4.3 to the
Company’s Current Report on Form 8-K filed on
August 17, 2023.
Incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on
August 17, 2023.
Incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on
August 17, 2023.
Incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on
March 28, 2024
Incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on
March 28, 2024
Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on
February 2, 2024.
Incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on
February 2, 2024.
Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on
November 17, 2023.
Incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on
February 2, 2024.
Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed
September 25, 2020.
Incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K filed on
March 30, 2023.
Incorporated by reference to Appendix C to the
Company’s definitive proxy statement on Schedule
14A filed on June 10, 2016.
4.13
4.14
4.15
4.16
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
Form of Series A Warrant expected to be issued in connection with the 2024 Private
Placement
Form of Pre-Funded Warrant expected to be issued in connection with the 2024
Private Placement
Specimen Stock Certificate
Description of Securities of CervoMed Inc.
Filed herewith.
Filed herewith.
Amended & Restated Employment Agreement, dated as of February 1, 2024, by and
between John Alam, M.D. and CervoMed Inc.
Amended & Restated Employment Agreement, dated as of February 1, 2024, by and
between Robert J. Cobuzzi, Jr., Ph.D. and CervoMed Inc.
Employment Agreement, dated as of November 15, 2023, by and between J. William
Tanner, Ph.D. and CervoMed Inc.
Employment Agreement, dated as of February 1, 2024, by and between Kelly
Blackburn and CervoMed Inc.
Employment Agreement, dated as of September 23, 2020, by and between William
Elder and CervoMed Inc.
Amendment to Employment Agreement, dated March 29, 2023, by and between
CervoMed Inc. and William Elder
10.7#
CervoMed Inc. 2015 Equity Incentive Plan
129
10.8#
Amendment No. 1 to CervoMed Inc. 2015 Equity Incentive Plan
Incorporated by reference to Appendix B to the
Company’s definitive proxy statement on Schedule
14A filed on June 10, 2016.
10.9#
EIP Pharma, Inc. 2018 Employee, Director and Consultant Equity Incentive Plan
Incorporated by reference to Exhibit 10.31 to the
Company’s Registration Statement on Form S-4/A
filed on July 12, 2023.
10.10#
Form of Stock Option Award Agreement under 2015 Equity Incentive Plan
Incorporated by reference to Exhibit 10.7 to the
Company’s Annual Report on Form 10-K for the
year ended December 31, 2021.
Form of Stock Option Award Agreement under 2018 Employee, Director and
Consultant Equity Incentive Plan
Filed herewith.
Form of Indemnification Agreement between CervoMed Inc. and each of its directors
and officers
Filed herewith.
Option and License Agreement, dated as of August 27, 2012, by and between EIP
Pharma LLC and Vertex Pharmaceuticals Incorporated
Incorporated by reference to Exhibit 10.23 to the
Company’s Registration Statement on Form S-4/A
filed on July 12, 2023.
Amendment No.1, dated as of April 8, 2014, to Option and License Agreement, dated
August 27, 2012, by and between EIP Pharma LLC and Vertex Pharmaceuticals
Incorporated
Incorporated by reference to Exhibit 10.24 to the
Company’s Registration Statement on Form S-4/A
filed on July 12, 2023.
Amendment No.2, dated as of November 17, 2015, to Option and License Agreement,
dated August 27, 2012, as amended April 18, 2014, by and between EIP Pharma LLC
and Vertex Pharmaceuticals Incorporated
Incorporated by reference to Exhibit 10.25 to the
Company’s Registration Statement on Form S-4/A
filed on July 12, 2023.
10.11#
10.12#
10.13*
10.14*
10.15*
10.16
At-The-Market Sales Agreement, dated as of July 22, 2022, by and between
CervoMed Inc. and BTIG, LLC
10.17
Form of EIP Subscription Agreement, dated as of July 10, 2023
10.18
10.19
Form of Lock-up Agreement, dated as of March 30, 2023, related to Merger
Agreement
Securities Purchase Agreement, dated March 28, 2024, by and between CervoMed
Inc. and each of the purchasers party thereto, related to the 2024 Private Placement
130
Incorporated by reference to Exhibit 1.1 to the
Company’s Current Report on Form 8-K filed on
July 22, 2022.
Incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on
November 13, 2023.
Incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on
March 30, 2023.
Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on
March 28, 2024.
21.1
23.1
31.1
31.2
32.1
32.2
97.1
101
104
#
Δ
*
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Subsidiaries of CervoMed Inc.
Consent of RSM US LLP, independent registered public accounting firm
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-
14(a) under the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Acting Principal Financial Officer Pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Acting Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CervoMed Inc. Clawback Policy
The following materials from the Company’s annual report on Form 10-K for the year
ended December 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting
Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of
Operations and Comprehensive Loss, (iii) Consolidated Statements of Cash Flows,
and (iv) Notes to Consolidated Financial Statements
Cover Page Interactive Data File (embedded within the Inline XBRL document and
contained in Exhibit 101).
Indicates a management contract or compensatory plan or arrangement.
Schedules and exhibits have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish on
a supplemental basis a copy of any omitted schedule or exhibit to the SEC upon its request; provided, however, that the Company may
request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule or exhibit so furnished.
Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the SEC.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
ITEM 16.
FORM 10-K SUMMARY
None.
131
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 29, 2024
CERVOMED INC.
By:
/s/ John Alam, M.D.
John Alam, M.D.
President, Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Name and Signature
/s/ John Alam, M.D.
John Alam, M.D.
/s/ William Elder
William Elder
/s/ Joshua S. Boger, Ph.D.
Joshua S. Boger, Ph.D.
/s/ Robert J. Cobuzzi, Ph.D.
Robert J. Cobuzzi, Ph.D.
/s/ Sylvie Grégoire, PharmD.
Sylvie Grégoire, PharmD.
/s/ Jane H. Hollingsworth, J.D.
Jane H. Hollingsworth, J.D.
/s/ Jeff Poulton
Jeff Poulton
/s/ Marwan Sabbagh, M.D.
Marwan Sabbagh, M.D.
/s/ Frank Zavrl
Frank Zavrl
Title
President, Chief Executive Officer and
Director
(Principal Executive Officer)
Date
March 29, 2024
General Counsel and Corporate Secretary
March 29, 2024
(Acting Principal Financial Officer)
Chair of the Board
March 29, 2024
Chief Operating Officer and Director
March 29, 2024
Director
Director
Director
Director
Director
132
March 29, 2024
March 29, 2024
March 29, 2024
March 29, 2024
March 29, 2024
Exhibit 4.15
DESCRIPTION OF CAPITAL STOCK
Exhibit 4.16
The following description of the capital stock of CervoMed Inc. (“us,” “our,” “we,” “CervoMed,” or the “Company”) is a summary of certain
rights of holders of our capital stock and certain provisions of our certificate of incorporation, as amended (the “Charter”), and our bylaws, as amended (the
“Bylaws”), in each case, as currently in effect. This summary does not purport to be complete and is qualified in its entirety by the provisions of our
Charter and our Bylaws, each previously filed with the U.S. Securities and Exchange Commission (the “SEC”) and incorporated by reference as an exhibit
to the Annual Report on Form 10-K of which this Exhibit 4.13 is a part, as well as to the applicable provisions of the Delaware General Corporation Law
(as amended, the “DGCL”). We encourage you to read our Charter, our Bylaws and the applicable portions of the DGCL carefully.
Capitalization
The Company’s authorized capital stock consists of 1,000,000,000 shares of common stock, par value $0.001 per share (“Common Stock”), and
30,000,000 shares of preferred stock, par value $0.001 per share, all of which remains undesignated.
Common Stock
The following description is based on relevant portions of the DGCL and our Charter. This summary is a description of the material terms of, and is
qualified in its entirety by, reference to the Charter.
Authorized. The Company is authorized to issue 1,000,000,000 shares of Common Stock. We may, from time-to-time, amend our Charter to increase
the number of authorized shares of Common Stock. Any such amendment would require the approval of the holders of a majority of the voting power of
the shares entitled to vote thereon.
Voting Rights. For all matters submitted to a vote of stockholders, each holder of Common Stock is entitled to one vote for each share registered in the
holder’s name on the Company’s books. Our Common Stock does not have cumulative voting rights. Pursuant to our Bylaws, at all meetings of
stockholders, except where otherwise provided by law, our Charter, or our Bylaws, the presence, virtually or by proxy duly authorized, of the holders of
33.4% of the outstanding shares of Common Stock entitled to vote constitutes a quorum for the transaction of business. Except as otherwise provided by
law, our Charter or our Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares of Common Stock present
virtually or by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by
law, our Charter or our Bylaws, directors are elected by a plurality of the votes of the shares of Common Stock present virtually or by proxy at the meeting
and entitled to vote generally on the election of directors.
Dividends. Subject to limitations under Delaware law and any preferences that may be applicable to any then outstanding preferred stock, holders of
Common Stock are entitled to receive ratably those dividends, if any, as may be declared by our board of directors out of legally available funds.
Liquidation. Upon the Company’s liquidation, dissolution or winding up, the holders of Common Stock will be entitled to share ratably in the net
assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities of the company, subject to any prior rights
of any preferred stock then outstanding.
Fully Paid and Non-assessable. All shares of outstanding Common Stock are fully paid and non-assessable and any additional shares of Common
Stock that the Company issues will be fully paid and non-assessable.
Other Rights and Restrictions. Holders of our Common Stock do not have preemptive or subscription rights, and they have no right to convert their
Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to our Common Stock. The rights, preferences and
privileges of common stockholders are subject to the rights of the stockholders of any series of preferred stock which the Company may designate in the
future. Neither our Charter nor our Bylaws restrict the ability of a holder of our Common Stock to transfer the holder’s shares of Common Stock.
Listing. Our Common Stock is quoted on the Nasdaq Capital Market under the symbol “CRVO.”
Exhibit 4.16
Transfer Agent and Registrar. The transfer agent and registrar for our Common Stock is Computershare Trust Company, N.A.
Preferred Stock
Our Charter authorizes our board of directors to provide for the issuance of up to 30,000,000 shares of preferred stock in one or more series. Our board
of directors is authorized to classify or reclassify any unissued portion of our authorized shares of preferred stock to provide for the issuance of shares of
other classes or series, including preferred stock in one or more series. The Company may issue preferred stock from time to time in one or more classes or
series, with the exact terms of each class or series established by our board. Without seeking stockholder approval, our board of directors may issue
preferred stock with voting and other rights that could adversely affect the voting power of the holders of our Common Stock. Additionally, the issuance of
preferred stock may have the effect of decreasing the market price of our Common Stock.
The rights, preferences, privileges and restrictions of the preferred stock of each series will be fixed by the certificate of designation relating to each
series, which will specify the terms of the preferred stock, including, but not limited to:
● the distinctive designation and the maximum number of shares in the series;
● the terms on which dividends, if any, will be paid;
● the voting rights, if any, on the shares of the series;
● the terms and conditions, if any, on which the shares of the series shall be convertible into, or exchangeable for, shares of any other class or classes
of capital stock;
● the terms on which the shares may be redeemed, if at all;
● the liquidation preference, if any; and
● any or all other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of the series.
The issuance of preferred stock may delay, deter or prevent a change in control. No shares of preferred stock are issued or outstanding, and the
Company has no present plan to issue any shares of preferred stock.
Anti-Takeover Provisions of our Charter, our Bylaws and Delaware Law
Our Charter and our Bylaws impose certain anti-takeover provisions and make the Delaware Chancery Court the exclusive forum for certain
stockholder actions, which may make the acquisition of the Company, a proxy contest, or the nomination of a director candidate by a stockholder more
difficult than such actions would be in the absence of such provisions. These provisions include the items described below.
Filling Vacancies
Our Bylaws provide that only our board of directors has the right to fill a vacancy on the board of directors created by an expansion or by the
resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on the board of directors.
Meetings of Stockholders
Our Bylaws provide that only the Chair of our board of directors, our Chief Executive Officer, or a majority of our directors are authorized to call a
special meeting of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of
stockholders. Our Bylaws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the
meeting.
Exhibit 4.16
Preferred Stock
Our charter provides for 30,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may
enable our board of directors to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of
the Company’s stockholders, our board of directors may issue undesignated preferred stock without stockholder approval in one or more private offerings
or other transactions, the terms of which may be established and shares of which may be issued without stockholder approval (notwithstanding any
requirements imposed by the SEC or any exchange on which our Common Stock may now or in the future trade), which may include rights superior to the
rights of the holders of our Common Stock and which may dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder
group. In this regard, our Charter grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of
preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of
our Common Stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of
delaying, deterring or preventing a change in control of the Company.
Amendment to Our Bylaws
Our Bylaws may be amended, restated, or repealed by the affirmative vote of a majority of the directors then in office, subject to any limitations set
forth in the Bylaws, and may also be amended by the affirmative vote of 66 2/3% of the outstanding shares entitled to vote on the amendment.
Advance Notice Requirements
Our Bylaws establish advance notice procedures with respect to any nominations for election to our board of directors or for proposing matters that can
be acted upon by stockholders at any meeting of stockholders. These procedures provide that notice of stockholder proposals must be timely given in
writing to the Company’s Secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at the
Company’s principal executive offices not less than 90 days (or, if the Company calls a special meeting of stockholders for the purpose of electing one or
more directors to its board of directors, not later than the 10th day following the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by our board of directors to be elected at such meeting) nor more than 120 days prior to the first anniversary date of
the annual meeting for the preceding year. Our Bylaws specify the requirements as to form and content of all stockholders’ notices. These requirements
may preclude stockholders from bringing matters before the stockholders at an annual or special meeting.
Choice of Forum
Our Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of
Delaware is the sole and exclusive forum for certain actions, including derivative actions brought on the Company’s behalf, stockholder actions claiming
breaches of a fiduciary duty owed by any of our directors or officers, and claims arising under our organizational documents, in each case, subject to said
Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Although this provision would not apply to any
stockholder claims under the Securities Exchange Act of 1934, as amended, there is uncertainty regarding whether a court would enforce such a forum
selection provision as written to stockholder claims under the Securities Act of 1933, as amended. Nevertheless, this forum selection provision may limit
our stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, employees, or agents, which may
discourage lawsuits against the Company and such persons. The limitations on certain stockholder rights imposed by these provisions could also depress
the trading price of our Common Stock.
Exhibit 4.16
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the DGCL. Section 203 generally prohibits a public Delaware corporation from engaging in a “business
combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested
stockholder, unless:
● prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
● the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers of the corporation
and (b) shares issued under employee stock plans under which employee participants do not have the right to determine whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
● on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of at least 66 2⁄3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines a business combination to include:
● any merger or consolidation involving the corporation and the interested stockholder;
● any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
● subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested
stockholder;
● any transaction involving the corporation that has the effect of increasing the proportionate share of its stock owned by the interested stockholder;
or
● the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of
the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
Exhibit 10.11
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this “Agreement”) is entered into and effective as of [___________], 202[__] (the “Grant Date”) by and
between CervoMed Inc., a Delaware corporation (the “Company”), and [___________] (“Optionee”).
A. The Company has adopted (i) EIP Pharma Inc. 2018 Employee, Director and Consultant Equity Incentive Plan (as such plan may be amended from
time to time, the “Plan”) and (ii) the CervoMed Inc. 2015 Equity Incentive Plan (as such plan may be amended from time to time, the “2015 Plan”), in
each case, authorizing the Board of Directors (the “Board”) of the Company, or a committee as provided for in the Plan (the Board or such a committee to
be referred to as the “Committee”), to grant stock options, among other incentive awards, to certain individuals.
B. The Company desires to grant a non-qualified stock option to purchase shares of common stock, par value $0.001 per share, of the Company (the
“Common Stock”) to Optionee pursuant to the Plan.
C. All of the capitalized terms used in this Agreement not otherwise defined in this Agreement have the same respective meanings as defined in the 2015
Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the Company and Optionee agree as follows:
1. Grant of Option; Exercise Price. The Company hereby grants to Optionee, upon the terms and subject to the conditions set forth in this Agreement and
the Plan, and effective as of the Grant Date, an option (the “Option”) to purchase all or any portion of [___________] shares (the “Option Shares”) of the
Company’s Common Stock, at an exercise price of $[___________] per share, which represents 100% of the Fair Market Value of a share of Common
Stock on the Grant Date, as determined in accordance with the Plan (such exercise price, as adjusted from time to time pursuant to Section 5 of this
Agreement and the Plan, the “Exercise Price”). The Option is not intended to be an “incentive stock option,” as that term is used in Section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”).
2. Vesting. The option will vest and become exercisable in [__] equal (or as nearly equal as possible) installments on the last calendar day of each month
over a [__]-month period beginning on [___________].
3. Exercise of Option.
3.1. Notice; Payment. Subject to the terms and conditions set forth in this Agreement, including vesting of the Option in Section 2 of this Agreement and
termination of the Option in Section 4 of this Agreement, and the Plan, the Option may be exercised, in whole or in part, at any time and from time to time,
by delivery to the Company of written notice of the exercise of the Option, in substantially the form as provided by the Company, stating the number of
Option Shares being purchased (the “Purchased Shares”), and accompanied by payment in full of the total aggregate Exercise Price of the Purchased
Shares. The Exercise Price shall be payable in full in any one of the following alternative forms:
a) Full payment in cash, personal check or certified bank or cashier’s check;
b) Any broker assisted cashless exercise procedure which is acceptable to the Company;
c) Cashless net exercise.
X = Y – [(A)(YB )]
Where:X = the number of shares of Common Stock to be issued to Optionee.
Y = the number of Purchased Shares.
A = the Exercise Price.
B = the Fair Market Value of one share of Common Stock on the date of exercise.
3.2. Issuance of Purchased Shares; No Fractional Shares. Following receipt of the exercise notice and the payment referred to above (or upon a cashless
net exercise), Optionee shall receive the number of shares of Common Stock equal to a number (as determined below) of shares of Common Stock
computed using the following formula: and the payment referred to above, the Company shall, as soon as reasonably practicable thereafter, cause
certificates (or book-entry notations) representing the Purchased Shares (or such fewer number of Purchased Shares if a cashless net exercise is used) to be
delivered to Optionee either at Optionee’s address set forth in the records of the Company or at such other address as Optionee may designate in writing to
the Company or issue and deposit the Purchased Shares for Optionee’s benefit with any broker with which Optionee has an account relationship or the
Company has engaged to provide such services under the Plan; provided, however, that the Company shall not be obligated to issue a fraction or fractions
of a share otherwise issuable upon exercise of the Option, and may pay to Optionee, in cash or cash equivalent, the Fair Market Value of any such fraction
or fractions of a share as of the date of exercise. If requested by the Company in connection with any exercise of the Option, Optionee shall also deliver this
Agreement to the Company, which shall endorse hereon a notation of the exercise and, and if the Option is exercised in part, shall return this Agreement to
Optionee. The date of exercise of an Option that is validly exercised shall be deemed to be the date on which there shall have been delivered to the
Company the notice referred to in Section 3.1 of this Agreement and full payment of the Exercise Price of the Purchased Shares. Optionee shall not be
deemed to be a holder of any Purchased Shares pursuant to exercise of the Option until the date of issuance of a stock certificate or book-entry notation to
Optionee for such shares following payment in full for the Purchased Shares.
3.3. Tax Withholding. The Company is entitled to (a) withhold and deduct from future wages of Optionee (or from other amounts that may be due and
owing to Optionee from the Company or a Subsidiary), or make other arrangements for the collection of, all amounts the Company reasonably determines
are necessary to satisfy any and all federal, foreign, state and local withholding and employment related tax requirements attributable to the Option,
including, without limitation, the grant, exercise or vesting of, the Option; (b) withhold cash paid or payable or shares of Common Stock from the shares
issued or otherwise issuable to Optionee in connection with the Option; or (c) require Optionee promptly to remit the amount of such withholding to the
Company before taking any action, including issuing any shares of Common Stock, with respect to the Option. Shares of Common Stock issued or
otherwise issuable to Optionee in connection with the Option that gives rise to the tax withholding obligation that are withheld for purposes of satisfying
Optionee’s withholding or employment-related tax obligation will be valued at their Fair Market Value on the Tax Date.
3.4. Remaining Option Shares. Option Shares will no longer be outstanding under the Option (and will therefore not thereafter be exercisable) following
the exercise of the Option to the extent of (a) shares used to pay the Exercise Price of an Option under the “cashless net exercise” method (b) shares
actually delivered to Optionee as a result of such exercise and (c) any shares withheld for purposes of tax withholding.
4. Termination of Option.
4.1. Time of Termination. Except as provided in this Section 4 and Section 5 of this Agreement, the Option shall terminate, no longer be exercisable and
expire at 5:00 p.m., Eastern Time, on [___________] (the “Time of Termination”).
4.2. Termination for Cause. In the event Optionee’s employment (in the event that Optionee is an Employee) or other service (in the event that Optionee
is a Consultant) with the Company and all Subsidiaries is terminated by the Company for Cause, the Option will immediately terminate without notice of
any kind, and the Option will no longer be exercisable.
4.3. Termination Due to Death, Disability or Retirement . In the event Optionee’s employment (in the event that Optionee is an Employee) or other
service (in the event that Optionee is a Consultant) with the Company and all Subsidiaries is terminated by reason of Optionee’s death, Disability or
Retirement, the Option will remain exercisable, to the extent exercisable as of the date of such termination, for a period of one (1) year after such
termination (but in no event after the Time of Termination).
4.4. Termination for Other Reasons. In the event Optionee’s employment (in the event that Optionee is an Employee) or other service (in the event that
Optionee is a Consultant) with the Company and all Subsidiaries is terminated for any other reason, the Option will, to the extent exercisable as of such
termination, remain exercisable for a period of three (3) months after such termination (but in no event after the Time of Termination).
4.5. Effect of Actions Constituting Cause or Adverse Action. Notwithstanding anything in this Agreement to the contrary and in addition to the rights of
the Committee under the Plan, if Optionee is determined by the Committee, acting in its sole discretion, to have taken any action that would constitute
Cause or an Adverse Action during or after the termination of employment or other service with the Company or a Subsidiary, irrespective of whether such
action or the Committee’s determination occurs before or after termination of Optionee’s employment or other service with the Company or any Subsidiary
and irrespective of whether or not Optionee was terminated as a result of such Cause or Adverse Action, (a) all rights of Optionee under the Option and this
Agreement will terminate and be forfeited without notice of any kind, and (b) the Committee in its sole discretion will have the authority to rescind the
exercise, vesting, settlement or issuance of, or payment in respect of, the Option that was exercised, vested, settled or issued, or as to which such payment
was made, and to require Optionee to pay to the Company, within ten (10) days of receipt from the Company of notice of such rescission, any amount
received or the amount of any gain realized as a result of such rescinded exercise, vesting, settlement, issuance or payment (including any dividends paid or
other distributions made with respect to any shares of Common Stock subject to the Option). The Company may defer the exercise of the Option for a
period of up to six (6) months after receipt of Optionee’s written notice of exercise or the issuance of Purchased Shares upon the vesting of the Option for a
period of up to six (6) months after the date of such vesting in order for the Committee to make any determination as to the existence of Cause or an
Adverse Action. The Company will be entitled to withhold and deduct from future wages of Optionee (or from other amounts that may be due and owing to
Optionee from the Company or a Subsidiary) or make other arrangements for the collection of all amounts necessary to satisfy such payment obligations.
This Section 4.5 will not apply to the Option following a Change in Control.
4.6. Clawback/Forfeiture. The Option and Option Shares issued or issuable pursuant to the Option are subject to forfeiture or clawback by the Company
to the extent required and allowed by law, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the Sarbanes Oxley Act
of 2002 and any implementing rules and regulations promulgated thereunder, and pursuant to any forfeiture, clawback or similar policy of the Company, as
such laws, rules, regulations and policy may be in effect from time to time.
5. Adjustments. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture, or extraordinary dividend (including a spin-off), or any other similar change in the corporate structure or
shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving
corporation), will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities or other property
(including cash) subject to, and the Exercise Price of, the Option in order to prevent dilution or enlargement of the rights of Optionee.
6. Change in Control. The Option shall become immediately vested and exercisable upon completion of a Change in Control and remain exercisable
through the Time of Termination regardless of whether Optionee remains in the employment or service of the Company. Notwithstanding any of the
foregoing, in connection with a Change in Control, the Committee, in its sole discretion, at any time after the grant of the Option, may take whatever action
it deems appropriate pursuant to the Plan.
7. Rights as a Stockholder. Optionee will have no rights as a stockholder of the Company unless and until all conditions to the effective exercise of the
Option (including, without limitation, the conditions set forth in Section 3 of this Agreement) have been satisfied and Optionee has become the holder of
record of such shares. No adjustment will be made for dividends or distributions with respect to the Option as to which there is a record date preceding the
date Optionee becomes the holder of record of such shares, except as may otherwise be provided in the Plan or determined by the Committee in its sole
discretion.
8. Restrictions on Transfer. Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by the Plan,
no right or interest of Optionee in the Option prior to exercise may be assigned or transferred, or subjected to any lien, during the lifetime of Optionee,
either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise. Optionee, however, will be entitled to designate a beneficiary to
receive the Option upon Optionee’s death, and, in the event of Optionee’s death, exercise of the Option (to the extent permitted pursuant to Sections 2 and 4
of this Agreement) may be made by Optionee’s legal representatives, heirs and legatees.
9. Market Stand-off. Optionee, if so requested by the Company or any representative of the underwriters in connection with a firmly underwritten public
offering of securities by the Company pursuant to a registration statement under the Securities Act following the date of this Agreement, shall not sell or
otherwise transfer any Option Shares during the 180-day period following the effective date of such registration statement. The Company may impose stop-
transfer instructions with respect to securities subject to the foregoing restriction until the end of such 180-day period. This Section 9 will not apply to the
sale of any Option Shares to an underwriter pursuant to an underwriting agreement and shall only be applicable to Optionee if all then current executive
officers and directors of the Company enter into similar agreements.
10. Employment or Service. Nothing in this Agreement or the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of Optionee at any time, nor confer upon Optionee any right to continue in the employment or other service with the
Company or any Subsidiary.
11. Option Subject to Plan. The Option and the Option Shares granted and issued pursuant to this Agreement have been granted and issued under, and are
subject to the terms of, the Plan. The terms of the Plan are incorporated by reference in this Agreement in their entirety, and Optionee, by execution of this
Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and
any ambiguities in this Agreement will be interpreted by reference to the Plan. In the event that any provision of this Agreement is inconsistent with the
terms of the Plan, the terms of the Plan will prevail. All of the capitalized terms used in this Agreement not otherwise defined in this Agreement have the
same respective meanings as defined in the Plan.
12. General Provisions.
12.1. Governing Law; Venue. This Agreement and all rights and obligations under this Agreement will be governed by and construed exclusively in
accordance with the laws of the State of Delaware, notwithstanding the conflicts of laws principles of any jurisdictions. By acceptance of the Option,
Optionee is deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of the State of Illinois to resolve any and all issues that
may arise out of or relate to the Option or this Agreement.
12.2. Entire Agreement. This Agreement and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the
grant and exercise of the Option and the administration of the Plan and supersede all prior agreements, arrangements, plans, and understandings relating to
the grant and exercise of the Option and the administration of the Plan.
12.3. Failure to Enforce Not a Waiver. The failure of the Company or Optionee to enforce at any time any provision of this Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
12.4. Notices. All notices, requests, demands and other communications (collectively, “Notices”) given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission, email transmission of a pdf format data file or by United States first class,
registered or certified mail, postage prepaid, addressed to the party at the address set forth on the signature page of this Agreement. Any Notice, other than
a Notice sent by registered or certified mail, shall be effective when received; a Notice sent by registered or certified mail, postage prepaid return receipt
requested, shall be effective on the earlier of when received or the third day following deposit in the United States mails. Any party may from time to time
change its address for further Notices hereunder by giving notice to the other party in the manner prescribed in this Section 12.4.
12.5. Successors and Assigns. Except to the extent specifically limited by the terms and provision of this Agreement, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, and personal representatives.
12.6. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by email delivery of a “pdf” format data
file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile or “pdf” signature page were an original thereof.
12.7. Titles, Captions and Sections. Titles and captions contained in this Agreement are inserted for convenience of reference only and do not constitute a
part of this Agreement for any other purpose. References to Sections in this Agreement refer to Sections of this Agreement unless otherwise stated.
12.8. Nature of the Grant. In accepting the Option and by execution of this Agreement, Optionee acknowledges that:
a) The Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended, or terminated by the
Company in its sole discretion at any time, unless otherwise provided in the Plan.
b) The grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future Option grants, or benefits in
lieu of Option grants, even if Option grants have been granted repeatedly in the past.
c) All decisions with respect to future Option grants, if any, will be at the sole discretion of the Company.
d) Optionee is voluntarily participating in the Plan.
e) The Option grant is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any
severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar
payments and in no event shall be considered as compensation for, or relating in any way to, past services for the Company.
In the event that Optionee is not an employee of the Company, the Option will not be interpreted to form an employment contract or relationship
with the Company.
f)
g) The future value of the Common Stock is unknown and cannot be predicted with certainty and if the Option vests and Optionee exercises the
Option in accordance with the terms of this Agreement and is issued Purchased Shares, the value of those shares may increase or decrease.
h)
In consideration of the grant of the Option, no claim or entitlement to compensation or damages shall arise from termination of the Option or
diminution in value of the Option or Purchased Shares acquired upon exercise of the Option resulting from termination of Optionee’s employment
or service by the Company (for any reason whatsoever and whether or not in breach of local labor laws) and Optionee irrevocably releases the
Company and its Subsidiaries, and their respective directors, officers, employees and agents, from any such claim that may arise; if,
notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by acceptance of the Option and
execution of this Agreement, Optionee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.
i) The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Optionee’s
participation in the Plan, or Optionee’s purchase or sale of the underlying Option Shares.
j) Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan
before taking any action related to the Plan or the Option.
[Remainder of page intentionally left blank; Signature page follows]
IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement effective as of the Grant Date.
OPTIONEE:
CERVOMED INC.
Name: [__________]
By: [__________]
Title: [__________]
Address: 20 Park Plaza, Suite 424
Boston, MA 02116
By execution of this Agreement, Optionee acknowledges having received a copy of each of the Plan and the 2015 Plan.
INDEMNIFICATION AGREEMENT
Exhibit 10.12
This Indemnification Agreement (the “Agreement”) is made and entered into this [___]th day of [___________], 202[___], by and between
CervoMed Inc., a Delaware corporation (the “Company,” which term shall include, where appropriate, any Entity (as hereinafter defined) controlled
directly or indirectly by the Company), and [___________] (the “Indemnitee”).
WHEREAS, it is essential to the Company that it be able to retain and attract as directors and officers the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors and officers to litigation risks and expenses, and the limitations on the
availability of directors and officers liability insurance have made it increasingly difficult for the Company to attract and retain such persons;
WHEREAS, the Company’s Certificate of Incorporation, as amended, and Bylaws (the “Certificate” and the “Bylaws,” respectively), provide that
the Company is authorized to indemnify its directors and officers to the fullest extent permissible by applicable law and permit it to make other
indemnification arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific contractual assurance of Indemnitee’s rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment to or revocation of the Certificate or Bylaws or any change in the
ownership of the Company or the composition of its board of directors (the “Board of Directors”));
WHEREAS, the Company intends that this Agreement provide Indemnitee with greater protection than that which is provided by the Certificate
and Bylaws; and
WHEREAS, Indemnitee is relying upon the rights afforded under this Agreement in becoming or continuing as a director and/or officer of the
Company.
NOW, THEREFORE, in consideration of the promises and the covenants contained herein, the Company and Indemnitee do hereby covenant and
agree as follows:
1. Definitions.
(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a director and/or officer of the Company, (ii)
in any capacity with respect to any employee benefit plan of the Company or (at the request of the Company) any employee benefit plan of any other
Entity, or (iii) as a director and/or officer of any other Entity at the request of the Company. For purposes of subsections (ii) and (iii) of this Section 1(a), if
Indemnitee is serving or has served as a director and/or officer of a Subsidiary (as defined below), or in any capacity with respect to any employee benefit
plan of a Subsidiary, Indemnitee shall be deemed to be serving at the request of the Company. If Indemnitee is an employee of the Company, Corporate
Status shall not include actions taken by Indemnitee in any capacity other than as a director and/or officer or as a representative of any employee benefit
plan.
(b) “Entity” shall mean any corporation, partnership, limited liability company, joint venture, trust, foundation, association,
organization or other legal entity.
(c) “Expenses” shall mean all fees, costs and expenses incurred by Indemnitee in connection with any Proceeding (as defined below),
including, without limitation, reasonable attorneys’ fees, disbursements and retainers (including, without limitation, any such fees, disbursements and
retainers incurred by Indemnitee pursuant to Sections 11 and 12(c) of this Agreement), fees and disbursements of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and investment bankers), court costs, transcript costs, fees of experts, travel expenses,
duplicating, printing and binding costs, telephone and fax transmission charges, postage, delivery services, secretarial services and other disbursements and
expenses.
terms in Section 3(a) below.
(d) “Indemnifiable Expenses,” “Indemnifiable Liabilities” and “Indemnifiable Amounts” shall have the meanings ascribed to those
(e) “Liabilities” shall mean judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement.
(f) “Proceeding” shall mean any threatened, pending or completed claim, action, suit, arbitration, alternate dispute resolution process,
investigation, administrative hearing, appeal or any other proceeding, whether civil, criminal, administrative, arbitrative or investigative, whether formal or
informal, including a proceeding initiated by Indemnitee pursuant to Section 11 of this Agreement to enforce Indemnitee’s rights hereunder.
(g) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other Entity of which the
Company owns (either directly or through or together with another Subsidiary of the Company) either (i) a general partner, managing member or other
similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company,
joint venture or other Entity or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership,
limited liability company, joint venture or other Entity.
(h) “to the fullest extent permissible by applicable law” shall include, but not be limited to: (i) the fullest extent permitted by the
provisions of the General Corporation Law of the State of Delaware (the “DGCL”) that authorize or contemplate additional or supplementary
indemnification by agreement, or the corresponding provisions of any amendment to or replacement of the DGCL or such provisions thereof; and (ii) the
fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent
to which a corporation may indemnify its directors and/or officers.
2. Services of Indemnitee. In consideration of the Company’s covenants and commitments hereunder, Indemnitee agrees to serve or continue to
serve as a director and/or officer of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue
Indemnitee’s service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any.
3. Agreement to Indemnify. The Company agrees to hold harmless and indemnify Indemnitee to the fullest extent permissible by applicable law
as follows:
(a) Proceedings. Subject to the exceptions contained in Section 4(a) below, if Indemnitee was or is a party or is threatened to be made a
party to any Proceeding by reason of Indemnitee’s Corporate Status, Indemnitee shall be indemnified by the Company against all Expenses and Liabilities
actually and reasonably incurred or paid by Indemnitee in connection with such Proceeding (referred to herein as “Indemnifiable Expenses” and
“Indemnifiable Liabilities,” respectively, and collectively as “Indemnifiable Amounts”).
(b) Conclusive Presumption Regarding Standard of Care. In making any determination required to be made under Delaware law with
respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee submitted a request therefor in accordance with Section 5 of this Agreement, and the Company shall
have the burden of proof to overcome that presumption in connection with the making by any person, persons or Entity of any determination contrary to
that presumption.
4. Exceptions to Indemnification. Subject to Section 20 below, Indemnitee shall be entitled to indemnification under Section 3(a) above in all
circumstances and with respect to each and every specific claim, issue or matter involved in the Proceeding out of which Indemnitee’s claim for
indemnification has arisen to the fullest extent permissible by applicable law, except as follows:
(a) Proceedings. If indemnification is requested under Section 3(a) and it has been finally adjudicated by a court of competent
jurisdiction that, in connection with such specific claim, issue or matter, Indemnitee failed to act (i) in good faith and (ii) in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, Indemnitee had reasonable
cause to believe that Indemnitee’s conduct was unlawful, Indemnitee shall not be entitled to payment of Indemnifiable Amounts hereunder to the extent
that they arise out of such claim, issue or matter.
(b) Insurance Proceeds. To the extent payment is actually made to the Indemnitee under a valid and collectible insurance policy
maintained at the expense of the Company in respect of Indemnifiable Amounts in connection with such specific claim, issue or matter, Indemnitee shall
not be entitled to payment of Indemnifiable Amounts hereunder except in respect of any excess of such Indemnifiable Amounts beyond the amount of
payment under such insurance.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall submit to the Company a written request specifying the Indemnifiable
Amounts for which Indemnitee seeks payment under Section 3 of this Agreement and the basis for the claim. The Company shall pay such Indemnifiable
Amounts to Indemnitee promptly, but in no event later than thirty (30) calendar days after receipt of such request. At the request of the Company,
Indemnitee shall furnish such documentation and information as are reasonably available to Indemnitee and necessary to establish that Indemnitee is
entitled to indemnification hereunder.
6. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and
without limiting any such provision, to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a party to and is successful, on the merits
or otherwise, in any Proceeding, Indemnitee shall be indemnified to the fullest extent permissible by applicable law against all Expenses actually and
reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify to the
fullest extent permissible by applicable law Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in
connection with each successfully resolved claim, issue or matter. For purposes of this Agreement, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, by reason of settlement, judgment, order or otherwise, shall be deemed to be a successful result as to
such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement nor termination of any Proceeding nor the failure of the Company to award
indemnification or to determine that indemnification is payable shall create a presumption that Indemnitee is not entitled to indemnification hereunder. In
addition, the termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not create a
presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company or, with respect to any criminal Proceeding, had reasonable cause to believe that Indemnitee’s action was unlawful.
8. Agreement to Advance Expenses; Undertaking. The Company shall advance to the fullest extent permissible by applicable law all Expenses
actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding in which Indemnitee is involved by reason of such
Indemnitee’s Corporate Status within thirty (30) calendar days after the receipt by the Company of a written statement from Indemnitee requesting such
advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Advances shall be unsecured and interest free.
Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to
indemnification under the other provisions of this Agreement. To the extent required by Delaware law, Indemnitee hereby undertakes to repay any and all
of the amount of Indemnifiable Expenses paid to Indemnitee if it is finally determined by a court of competent jurisdiction that Indemnitee is not entitled
under this Agreement to indemnification with respect to such Expenses. This undertaking is an unlimited general obligation of Indemnitee.
9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to the Company a written request specifying the Indemnifiable
Expenses for which Indemnitee seeks an advancement under Section 8 of this Agreement, together with documentation evidencing that Indemnitee has
incurred such Indemnifiable Expenses.
10. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his or her Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he or she shall be indemnified to the fullest extent
permissible by applicable law against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
11. Remedies of Indemnitee.
(a) Right to Petition Court. In the event that Indemnitee makes a request for payment of Indemnifiable Amounts under Sections 3 and 5
above or a request for an advancement of Indemnifiable Expenses under Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this Agreement, Indemnitee may petition the Court of Chancery of the State of Delaware to
enforce the Company’s obligations under this Agreement.
Indemnitee is not entitled to payment of Indemnifiable Amounts hereunder.
(b) Burden of Proof. In any judicial proceeding brought under Section 11(a) above, the Company shall have the burden of proving that
(c) Expenses. The Company agrees to reimburse Indemnitee in full for any Expenses in connection with any Proceeding incurred by
Indemnitee in connection with investigating, preparing for, litigating, defending or settling any action brought by Indemnitee under Section 11(a) above, or
in connection with any claim or counterclaim brought by the Company in connection therewith, whether or not Indemnitee is successful in whole or in part
in connection with any such action, except to the extent that it has been finally adjudicated by a court of competent jurisdiction that such reimbursement
would be unlawful.
(d) Failure to Act Not a Defense. The failure of the Company (including its Board of Directors or any committee thereof, independent
legal counsel or stockholders) to make a determination concerning the permissibility of the payment of Indemnifiable Amounts or the advancement of
Indemnifiable Expenses under this Agreement shall not be a defense in any action brought under Section 11(a) above, and shall not create a presumption
that such payment or advancement is not permissible.
12. Defense of the Underlying Proceeding.
(a) Notice by Indemnitee. Indemnitee agrees to notify the Company promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding which may result in the payment of Indemnifiable Amounts or the
advancement of Indemnifiable Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the
right, or otherwise affect in any manner any right of Indemnitee, to receive payments of Indemnifiable Amounts or advancements of Indemnifiable
Expenses unless the Company’s ability to defend in such Proceeding is materially and adversely prejudiced thereby.
(b) Defense by Company. Subject to the provisions of the last sentence of this Section 12(b) and of Section 12(c) below, the Company
shall have the right to defend Indemnitee in any Proceeding which may give rise to the payment of Indemnifiable Amounts hereunder; provided, however,
that the Company shall notify Indemnitee of any such decision to defend within ten (10) calendar days of the Company’s receipt of notice of any such
Proceeding under Section 12(a) above. The Company shall not, without the prior written consent of Indemnitee, consent to the entry of any judgment
against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an
unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance
reasonably satisfactory to Indemnitee. This Section 12(b) shall not apply to a Proceeding brought by Indemnitee under Section 11(a) above or pursuant to
Section 20 below.
(c) Indemnitee’s Right to Counsel. Notwithstanding the provisions of Section 12(b) above, in any Proceeding to which Indemnitee is a
party by reason of Indemnitee’s Corporate Status, at the Indemnittee’s option Indemnitee shall have the right to retain counsel of Indemnitee’s choice, at the
expense of the Company, to represent Indemnitee in connection with any such matter and the Expenses incurred by Indemnitee in any such matter shall
constitute Indemnifiable Expenses.
13. Representations and Warranties of the Company. The Company hereby represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to enter into, and be bound by the terms of, this Agreement, and the
execution, delivery and performance of the undertakings contemplated by this Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by the Company in accordance with the provisions hereof, shall be a
legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the enforcement of creditors’ rights generally.
14. Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or policies of insurance with a reputable insurance company providing the Indemnitee with coverage for losses from wrongful
acts. For so long as Indemnitee shall have Corporate Status, Indemnitee shall be named as an insured in all policies of director and officer liability
insurance in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s officers
and directors. If, at the time of the receipt of a notice of a claim pursuant to the terms of this Agreement, the Company has director and officer liability
insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set
forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. Notwithstanding the foregoing, the Company
shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage provided, or if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit.
15. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any claim
made against Indemnitee to the extent Indemnitee has otherwise actually received payment under any insurance policy, provision of the Certificate or the
Bylaws or otherwise of the amounts otherwise indemnifiable hereunder. The Company’s obligation to indemnify or advance Expenses hereunder to
Indemnitee as a result of the Indemnitee’s Corporate Status with an Entity other than the Company shall be reduced by any amount Indemnitee has actually
received as indemnification or advancement of Expenses from such other Entity.
16. Contract Rights Not Exclusive. The rights to payment of Indemnifiable Amounts and advancement of Indemnifiable Expenses provided by
this Agreement shall be in addition to, but not exclusive of, any other rights which Indemnitee may have at any time under applicable law, the Certificate or
Bylaws, or any other agreement, vote of stockholders or directors (or a committee of directors) or otherwise, both as to action in Indemnitee’s official
capacity and as to action in any other capacity as a result of Indemnitee’s serving as a director of the Company.
17. Successors. This Agreement shall be (a) binding upon all successors and assigns of the Company (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any direct or indirect successor by merger or consolidation or otherwise by
operation of law) and (b) binding on and shall inure to the benefit of the heirs, personal representatives, executors and administrators of Indemnitee. This
Agreement shall continue for the benefit of Indemnitee and such heirs, personal representatives, executors and administrators after Indemnitee has ceased
to have Corporate Status.
18. Change in Law. To the extent that a change in Delaware law (whether by statute or judicial decision) or the Certificate shall permit broader
indemnification or advancement of expenses than is provided under the terms of the Bylaws and this Agreement, Indemnitee shall be entitled to such
broader indemnification and advancements, and this Agreement shall be deemed to be amended to such extent.
19. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof, shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions and clauses of this Agreement shall remain fully enforceable and binding on
the parties.
20. Indemnitee as Plaintiff. Except as provided in Section 11(c) of this Agreement and in the next sentence, Indemnitee shall not be entitled to
payment of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect to any Proceeding brought by Indemnitee against the
Company, any Subsidiary, any Entity which it controls, any director or officer thereof or any third party, unless the Board of Directors has consented to the
initiation of such Proceeding or the Company provides indemnification, in its sole discretion, pursuant to the powers vested in the Company under
applicable law. This Section shall not apply to counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee.
21. Modifications and Waivers; Counterparts. Except as provided in Section 18 above with respect to changes in Delaware law which broaden
the right of Indemnitee to be indemnified by the Company or to receive advancements, no supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions of this Agreement (whether or not similar), nor shall such waiver constitute a continuing waiver. This
Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same Agreement.
22. General Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and receipt is acknowledged during normal business hours, and if not, the next
business day after transmission or (c) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so
mailed:
(i)
If to Indemnitee, to:
[●]
(ii) If to the Company, to:
CervoMed Inc.
20 Park Plaza, Suite 424
Boston, Massachusetts 02116
Attn: General Counsel
E-mail: [___________]
or to such other address as may have been furnished in the same manner by any party to the others.
23. Governing Law; Consent to Jurisdiction; Service of Process. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to its rules of conflict of laws. Each of the Company and Indemnitee hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the Court of Chancery of the State of Delaware and the courts of the United States of America located in
the State of Delaware (the “Delaware Courts”) for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that such litigation brought therein has been brought in an inconvenient forum.
Each of the parties hereto agrees, (a) to the extent such party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain
an agent in the State of Delaware as such party's agent for acceptance of legal process, and (b) that service of process may also be made on such party by
prepaid certified mail with a proof of mailing receipt validated by the United States Postal Service constituting evidence of valid service. Service made
pursuant to (a) or (b) above shall have the same legal force and effect as if served upon such party personally within the State of Delaware. For purposes of
implementing the parties’ agreement to appoint and maintain an agent for service of process in the State of Delaware, each such party does hereby appoint
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, as such agent and each
such party hereby agrees to complete all actions necessary for such appointment.
24. Joinders. Subsidiaries of the Company may from time to time join this Agreement by signing a joinder in substantially the form attached
hereto as Exhibit A. The Company and all Subsidiaries that have joined this Agreement shall be jointly and severally liable for all obligations of the
Company under this Agreement.
25. Assignment. Except as otherwise set forth herein, neither this Agreement nor any of the rights, interests or obligations hereunder may be
assigned by any party hereto, without the prior written consent of all of the other parties hereto.
26. Entire Agreement. Without limitation to the Certificate and the Bylaws, this Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties
hereto with respect to the subject matter hereof.
[The remainder of this page is intentionally blank]
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the day and year first above written.
CERVOMED INC.
By:/
Name: [___________]
Title: [___________]
INDEMNITEE
Name: [___________]
[Signature Page to Fund Indemnification Agreement]
EXHIBIT A
JOINDERS
The undersigned hereby join in the obligations of CervoMed Inc. under this Indemnification Agreement as provided in Section 24 above on this day
of , 20[ ].
[
By:
[
By:
/s/
Name:
Title:
/s/
Name:
Title:
]
]
[Signature Page to Joinder to Indemnification Agreement]
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary
EIP Pharma, Inc.
Diffusion Pharmaceuticals LLC
State or Other
Jurisdiction of
Incorporation or
Organization
DE
VA
Direct or Indirect
Ownership Interest by
Company
100%
100%
Exhibit 21.1
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements (Nos. 333-206408, 333-206409, 333-218060, 333-2267182, 333-233381, 333-
238233, 333-258760, 333-266827 and 333-274785) on Form S-8, Registration Statements (Nos. 333-218062, 333-222879, 333-231541, and 333-249057)
on Form S-3, and Registration Statements (Nos. 333-222203, 333-233686, 333-234234, 333-235670, and 333-238818) on Form S-1 of CervoMed Inc.
(formerly known as Diffusion Pharmaceuticals Inc.) of our report dated March X, 2024, relating to the consolidated financial statements of CervoMed Inc.
and subsidiaries, appearing in this Annual Report on Form 10-K of CervoMed Inc. for the year ended December 31, 2023.
/s/ RSM US LLP
Boston, Massachusetts
March 29, 2024
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
Exhibit 31.1
I, John J. Alam, M.D., certify that:
1. I have reviewed this annual report on Form 10-K of CervoMed Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 29, 2024
/s/ John J. Alam, M.D
John J. Alam, M.D
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF ACTING PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT
OF 2002
Exhibit 31.2
I, William Elder, certify that:
1. I have reviewed this annual report on Form 10-K of CervoMed Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 29, 2024
/s/ William Elder
William Elder
General Cousel and Corporate
Secretary
(Acting Principal Financial Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of CervoMed Inc. (the “Company”) for the period ended December 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge:
Exhibit 32.1
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 29, 2024
/s/ John J. Alam, M.D.
John J. Alam, M.D.
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF ACTING PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT
TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of CervoMed Inc. (the “Company”) for the period ended December 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge:
Exhibit 32.2
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 29, 2024
/s/ William Elder
William Elder
General Counsel and Corporate
Secretary
(Acting Principal Financial Officer)
Exhibit 97.1
I.
Introduction
CERVOMED INC.
CLAWBACK POLICY
The Board of Directors (the “Board”) of CervoMed Inc. (the “Company”) believes that it is in the best interests of the Company and its
shareholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance
compensation philosophy. The Board has therefore adopted this policy which provides for the recoupment of certain executive compensation in the event of
an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws (the “Policy”).
This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and final rules and
amendments adopted by the Securities and Exchange Commission (the “SEC”) to implement the aforementioned legislation.
II.
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee of the Board, in which case
references herein to the Board shall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final and
binding on all affected individuals.
III.
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with the requirements of
Section 10D of the Exchange Act and any applicable rules or standards adopted by the SEC and any national securities exchange on which the Company’s
securities are listed, and such other employees who may from time to time be deemed subject to the Policy by the Board (“Covered Executives”).
IV.
Incentive-Based Compensation
For purposes of this Policy, incentive-based compensation (“Incentive-Based Compensation”) includes any compensation that is granted, earned,
or vested based wholly or in part upon the attainment of any financial reporting measures that are determined and presented in accordance with the
accounting principles (“GAAP Measures”) used in preparing the Company’s financial statements and any measures derived wholly or in part from such
measures, as well as non-GAAP Measures, stock price, and total shareholder return (collectively, “Financial Reporting Measures”); however, it does not
include: (i) base salaries; (ii) discretionary cash bonuses; (iii) awards (either cash or equity) that are solely based upon subjective, strategic or operational
standards or standards unrelated to Financial Reporting Measures, and (iv) equity awards that vest solely on completion of a specified employment period
or without any performance condition. Incentive-Based Compensation is considered received in the fiscal period during which the applicable reporting
measure is attained, even if the payment or grant of such award occurs after the end of that period. If an award is subject to both time-based and
performance-based vesting conditions, the award is considered received upon satisfaction of the performance-based conditions, even if such an award
continues to be subject to the time-based vesting conditions.
For the purposes of this Policy, Incentive-Based Compensation may include, among other things, any of the following:
● Annual bonuses and other short- and long-term cash incentives.
● Stock options.
● Stock appreciation rights.
● Restricted stock or restricted stock units.
● Performance shares or performance units.
For purposes of this Policy, Financial Reporting Measures may include, among other things, any of the following:
● Company stock price.
● Total shareholder return.
● Revenues.
● Net income.
● Earnings before interest, taxes, depreciation, and amortization (EBITDA).
● Funds from operations.
● Liquidity measures such as working capital or operating cash flow.
● Return measures such as return on invested capital or return on assets.
● Earnings measures such as earnings per share.
V.
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material
noncompliance with any financial reporting requirement under U.S. securities laws, including any required accounting restatement to correct an error in
previously issued financial statements that (i) is material to the previously issued financial statements or (ii) is not material to previously issued financial
statements, but that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the
Board will require reimbursement or forfeiture of any excess Incentive-Based Compensation received by any Covered Executive during the three
completed fiscal years immediately preceding the date on which the Company is required to prepare the accounting restatement (the “Look-Back Period”).
For the purposes of this Policy, the date on which the Company is required to prepare an accounting restatement is the earlier of (i) the date the Board
concludes or reasonably should have concluded that the Company is required to prepare a restatement to correct a material error, and (ii) the date a court,
regulator, or other legally authorized body directs the Company to restate its previously issued financial statements to correct a material error. The
Company’s obligation to recover erroneously awarded compensation is not dependent on if or when the restated financial statements are filed.
Recovery of the Incentive-Based Compensation is only required when the excess award is received by a Covered Executive (i) after the beginning
of their service as a Covered Executive, (ii) who served as an executive officer at any time during the performance period for that Incentive-Based
Compensation, (iii) while the Company has a class of securities listed on a national securities exchange or a national securities association, and (iv) during
the Look-Back Period immediately preceding the date on which the Company is required to prepare an accounting restatement.
VI.
Excess Incentive Compensation: Amount Subject to Recovery
The amount of Incentive-Based Compensation subject to recovery is the amount the Covered Executive received in excess of the amount of
Incentive-Based Compensation that would have been paid to the Covered Executive had it been based on the restated financial statements, as determined
by the Board. The amount subject to recovery will be calculated on a pre-tax basis.
For Incentive-Based Compensation received as cash awards, the erroneously awarded compensation is the difference between the amount of the
cash award that was received (whether payable in a lump sum or over time) and the amount that should have been received applying the restated Financial
Reporting Measure. For cash awards paid from bonus pools, the erroneously awarded Incentive-Based Compensation is the pro rata portion of any
deficiency that results from the aggregate bonus pool that is reduced based on applying the restated Financial Reporting Measure.
For Incentive-Based Compensation received as equity awards that are still held at the time of recovery, the amount subject to recovery is the
number of shares or other equity awards received or vested in excess of the number that should have been received or vested applying the restated Financial
Reporting Measure. If the equity award has been exercised, but the underlying shares have not been sold, the erroneously awarded compensation is the
number of shares underlying the award.
In instances where the Company is not able to determine the amount of erroneously awarded Incentive-Based Compensation directly from the
information in the accounting restatement, the amount will be based on the Company’s reasonable estimate of the effect of the accounting restatement on
the applicable measure. In such instances, the Company will maintain documentation of the determination of that reasonable estimate.
VII. Method of Recoupment
The Board will determine, in its sole discretion, subject to applicable law, the method for recouping Incentive-Based Compensation hereunder,
which may include, without limitation:
● requiring reimbursement of cash Incentive-Based Compensation previously paid;
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● seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards;
● offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive;
● cancelling outstanding vested or unvested equity awards; and/or
● taking any other remedial and recovery action permitted by law, as determined by the Board.
VIII.
No Indemnification; Successors
The Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive-Based Compensation. This
Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal
representatives.
IX.
Exception to Enforcement
The Board shall recover any excess Incentive-Based Compensation in accordance with this Policy unless such recovery would be impracticable, as
determined by the Board in accordance with Rule 10D-1 of the Exchange Act and any applicable rules or standards adopted by the SEC and the listing
standards of any national securities exchange on which the Company’s securities are listed.
X.
Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the
administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the
Exchange Act and any applicable rules or standards adopted by the SEC and any national securities exchange on which the Company’s securities are listed.
XI.
Effective Date
This Policy shall be effective as of the date it is adopted by the Board (the “Effective Date”) and shall apply to Incentive-Based Compensation
that is received by a Covered Executive on or after that date, as determined by the Board in accordance with applicable rules or standards adopted by the
SEC and the listing standards of any national securities exchange on which the Company’s securities are listed.
XII.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to comply with any rules or
standards adopted by the SEC and the listing standards of any national securities exchange on which the Company’s securities are listed. The Board may
terminate this Policy at any time.
XIII. Other Recoupment Rights
Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to
the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal
remedies available to the Company.
Effective: August 16, 2023
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