Anebulo Pharmaceuticals(ANEB) - 2024 Q3 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to risks, and actual results may differ materially from expectations - This Quarterly Report contains forward-looking statements subject to substantial risks and uncertainties, and actual results may differ materially from those anticipated. The company does not undertake to update or revise these statements unless required by law[6][8] Risk Factors Summary This section provides a concise overview of the primary risks facing the company, including financial, operational, and developmental challenges - The company has not generated revenue since inception and expects future losses, potentially never achieving profitability[9] - Business is highly dependent on its lead product candidate, selonabant, requiring completion of clinical testing for regulatory approval and commercialization[10] - Substantial additional funding is required; inability to raise capital could force delays or elimination of product development programs[10] - The Loan and Security Agreement (LSA) with 22NW and JFL for a debt facility may be secured by substantially all company assets, and a default would have material adverse consequences[10] - Clinical drug development is a lengthy, expensive process with uncertain outcomes, and failure to successfully conduct trials and obtain regulatory approval would substantially harm the business[12] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended March 31, 2024, and June 30, 2023 Condensed Balance Sheets This statement presents the company's financial position, including assets, liabilities, and equity, at specific points in time | Metric | March 31, 2024 | June 30, 2023 | | :------------------------- | :------------- | :------------ | | Cash and cash equivalents | $5,147,139 | $11,247,403 | | Prepaid expenses | $223,676 | $422,748 | | Total current assets | $5,370,815 | $11,670,151 | | Loan commitment fees | $624,820 | - | | Total assets | $5,995,635 | $11,670,151 | | Accounts payable | $384,920 | $534,545 | | Accrued expenses | $625,401 | $534,256 | | Total liabilities | $1,010,321 | $1,068,801 | | Common stock | $25,934 | $25,634 | | Additional paid-in capital | $69,013,155 | $67,777,757 | | Accumulated deficit | $(64,053,775) | $(57,202,041) | | Total stockholders' equity | $4,985,314 | $10,601,350 | | Total liabilities and stockholders' equity | $5,995,635 | $11,670,151 | Condensed Statements of Operations This statement details the company's revenues, expenses, and net loss over specific reporting periods | Metric | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $748,339 | $1,089,342 | $3,081,231 | $4,183,038 | | General and administrative | $915,912 | $1,774,699 | $3,887,157 | $5,106,172 | | Total operating expenses | $1,664,251 | $2,864,041 | $6,968,388 | $9,289,210 | | Loss from operations | $(1,664,251) | $(2,864,041) | $(6,968,388) | $(9,289,210) | | Interest expense | $59,696 | - | $91,534 | - | | Interest income | $(68,084) | $(79,152) | $(198,804) | $(92,401) | | Other income, net | $(10,709) | $(66,070) | $(116,654) | $(52,452) | | Net loss | $(1,653,542) | $(2,797,971) | $(6,851,734) | $(9,236,758) | | Weighted average common shares outstanding | 25,933,217 | 25,633,217 | 25,784,853 | 24,888,916 | | Net loss per share, basic and diluted | $(0.06) | $(0.11) | $(0.27) | $(0.37) | Condensed Statements of Stockholders' Equity This statement tracks changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated deficit | Metric | Balance at June 30, 2023 | Balance at March 31, 2024 | | :-------------------------- | :----------------------- | :------------------------ | | Common Shares | 25,633,217 | 25,933,217 | | Common Stock Amount | $25,634 | $25,934 | | Additional Paid-in Capital | $67,777,757 | $69,013,155 | | Accumulated Deficit | $(57,202,041) | $(64,053,775) | | Total Stockholders' Equity | $10,601,350 | $4,985,314 | - The company issued 300,000 shares of common stock in the nine months ended March 31, 2024, increasing common stock amount by $300 and additional paid-in capital by $653,700[19] - Net loss for the nine months ended March 31, 2024, was $(6,851,734), contributing to the accumulated deficit[19] Condensed Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(6,037,910) | $(6,833,887) | | Net cash (used in) provided by financing activities | $(62,354) | $6,450,221 | | Net decrease in cash | $(6,100,264) | $(383,666) | | Cash, beginning of period | $11,247,403 | $14,548,471 | | Cash, end of period | $5,147,139 | $14,164,805 | - A noncash financing commitment fee of $654,000 was funded through the issuance of common stock during the nine months ended March 31, 2024[20] Notes to Unaudited Condensed Financial Statements Note 1. Nature of business and basis of presentation Anebulo Pharmaceuticals, Inc. is a clinical-stage biotechnology company founded in April 2020, focusing on treatments for Acute Cannabinoid Intoxication (ACI) and unintentional cannabis poisoning. The company has incurred significant losses since inception, with an accumulated deficit of $64.1 million as of March 31, 2024, but expects current cash and a debt facility to fund operations for at least the next 12 months - Anebulo Pharmaceuticals, Inc. was founded on April 23, 2020, as a clinical-stage biotechnology company developing treatments for Acute Cannabinoid Intoxication (ACI) and unintentional cannabis poisoning[23] - The company incurred a net loss of approximately $6.9 million for the nine-month period ended March 31, 2024, and had an accumulated deficit of $64.1 million as of that date[24] - Current cash, along with access to the Loan and Security Agreement (LSA) facility, is expected to fund operating expenses and capital expenditure requirements for at least 12 months from the financial statements' issuance date[24] Note 2. Summary of Significant Accounting Policies This note confirms that there have been no material changes to the company's significant accounting policies since the audited financial statements for the year ended June 30, 2023 Note 3. Prepaid Expenses Prepaid expenses decreased from $422,748 at June 30, 2023, to $223,676 at March 31, 2024, primarily due to a significant reduction in prepaid insurance | Prepaid Expense Category | March 31, 2024 | June 30, 2023 | | :----------------------- | :------------- | :------------ | | Prepaid insurance | $39,175 | $391,750 | | Prepaid research and development | $122,711 | - | | Prepaid other | $61,790 | $30,998 | | Total prepaid expenses | $223,676 | $422,748 | Note 4. Accrued Expenses Accrued expenses increased from $534,256 at June 30, 2023, to $625,401 at March 31, 2024, mainly driven by an increase in accrued research and development costs | Accrued Expense Category | March 31, 2024 | June 30, 2023 | | :----------------------- | :------------- | :------------ | | Accrued payroll related expenses | $170,040 | $190,121 | | Accrued research and development | $441,748 | $344,135 | | Accrued professional fees | $13,613 | - | | Total accrued expenses | $625,401 | $534,256 | Note 5. Other Assets Other assets primarily consist of loan commitment fees, which totaled $0.6 million as of March 31, 2024, and are being amortized over the three-year term of the loan, resulting in $0.1 million in interest expense for the three and nine months ended March 31, 2024 - Loan commitment fees, included in other assets, totaled approximately $0.6 million as of March 31, 2024 (zero as of June 30, 2023)[34] - Interest expense of $0.1 million was recorded for both the three and nine months ended March 31, 2024, related to the amortization of these loan commitment fees[34] Note 6. License Agreement The company holds an exclusive license from Vernalis Development Limited for selonabant, involving potential development and sales milestone payments up to $29.9 million and $35.0 million respectively, plus single-digit royalties. In 2021, 192,857 common shares were issued to Vernalis in lieu of $1.4 million in future milestone payments - In May 2020, the company licensed intellectual property, know-how, and clinical trial data from Vernalis Development Limited[35] - The license includes potential development milestone payments ranging from $0.4 million to $3.0 million, up to a total of $29.9 million, and sales milestone payments of $10.0 million and $25.0 million, plus single-digit royalties on product sales[35] - As part of its IPO in May 2021, the company issued 192,857 shares of common stock to Vernalis, valued at approximately $1.4 million, in lieu of future milestone payments[36] Note 7. Stockholders' Equity The company increased its authorized common stock from 40,000,000 to 50,000,000 shares in November 2023. Additionally, 300,000 shares of common stock were issued in November 2023 in connection with a Loan and Security Agreement - On November 20, 2023, the authorized number of common stock shares increased from 40,000,000 to 50,000,000[37] - On November 13, 2023, 300,000 shares of common stock were issued in conjunction with a Loan and Security Agreement[38] Note 8. Stock-Based Compensation The 2020 Stock Incentive Plan allows for various awards, with 635,315 shares available for future issuance as of March 31, 2024. Stock options are valued using the Black-Scholes model, and unrecognized stock-based compensation expense totaled approximately $2.1 million as of March 31, 2024, to be recognized over 3.1 years - As of March 31, 2024, 635,315 shares were available for future issuance under the 2020 Stock Incentive Plan[39] - The fair value of stock options is estimated using the Black-Scholes option pricing model[40] - Unrecognized stock-based compensation expense related to unvested stock options totaled approximately $2.1 million as of March 31, 2024, expected to be recognized over a weighted average period of 3.1 years[43] | Metric | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation expense | $0.2 million | $0.2 million | $0.6 million | $0.7 million | Note 9. Net Loss Per Share Attributable to Common Stockholders This note identifies the common stock equivalents, including stock options and warrants, that were excluded from the calculation of net loss per share due to their anti-dilutive effect for the periods presented | Common Stock Equivalents | March 31, 2024 | March 31, 2023 | | :----------------------- | :------------- | :------------- | | Stock options outstanding | 2,008,185 | 2,049,313 | | Warrants outstanding | 2,264,650 | 2,264,650 | | Total | 4,272,835 | 4,313,963 | Note 10. Loan and Security Agreement The company entered into a Loan and Security Agreement (LSA) on November 13, 2023, with 22NW and JFL, providing access to up to $10 million. The facility accrues interest at 0.25% per annum and will be collateralized by substantially all company assets upon drawing at least $3 million. As consideration, 300,000 common shares were issued to 22NW upon signing, with potential for additional shares based on advances. No balance was outstanding as of March 31, 2024 - Entered into a Loan and Security Agreement (LSA) on November 13, 2023, with 22NW and JFL, providing access to up to $10 million (Facility Amount) until November 13, 2026[48] - The outstanding balance accrues interest at 0.25% per annum, and the LSA will be collateralized by substantially all company assets upon drawing at least $3 million[48] - 300,000 shares of common stock were issued to 22NW upon signing the LSA, with potential for up to an additional 300,000 'Advance Shares' based on amounts loaned[49] - As of March 31, 2024, there was no balance outstanding under the LSA[49] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Anebulo Pharmaceuticals, Inc.'s business, a detailed discussion of its financial condition, and an analysis of its results of operations for the three and nine months ended March 31, 2024, compared to the same periods in 2023. It highlights the company's strategic shift to prioritize an intravenous formulation of selonabant for pediatric unintentional cannabis poisoning, its liquidity, and critical accounting estimates Overview This section provides a high-level summary of the company's business, strategic focus, and recent operational highlights - Anebulo Pharmaceuticals is a clinical-stage biotechnology company developing selonabant (formerly ANEB-001) for Acute Cannabinoid Intoxication (ACI) and unintentional cannabis poisoning[52] - The company completed its Phase 2 Netherlands Trial (Parts A, B, and C) with a total of 154 subjects, and the data supports its development pathway[52] - Anebulo is now prioritizing the advancement of a selonabant IV formulation for pediatric unintentional cannabis poisoning, believing it offers a faster timeline to approval compared to the adult oral product[53][54] - Cannabis-related emergency department visits in the U.S. increased from an estimated 450,000 annually before legalization to approximately 1.7 million in 2019, growing at about a 15% compounded annual rate[56] - The company's proprietary position is protected by two issued U.S. patents (through 2040 and 2042) covering methods of use and crystalline forms of selonabant[58][61] Components of Results of Operations Revenue The company has not generated any revenue since its inception and anticipates continued operating losses, with future revenue contingent on successful product development, marketing approval, or collaboration agreements - The company has not generated any revenue since inception and expects to incur significant operating losses and negative cash flows in the future[65] Research and Development Expenses Research and development expenses are a significant portion of operating costs, covering consulting, nonclinical and clinical study costs, and manufacturing. These costs are expensed as incurred and are expected to increase with the advancement of selonabant and pipeline expansion - Research and development expenses include consulting, nonclinical and clinical study costs, and manufacturing for selonabant[67] - The company expects to significantly increase R&D efforts as it continues to develop selonabant and expand its product-candidate pipeline[67] General and Administrative Expenses General and administrative expenses primarily consist of professional fees, stock-based compensation, insurance, personnel costs, and rent - General and administrative expenses primarily consist of professional fees, stock-based compensation, insurance, personnel costs, and rent[69] Results of Operations Comparison of the Three and Nine Months Ended March 31, 2024 and 2023 Total operating expenses decreased by $1.2 million for the three months and $2.3 million for the nine months ended March 31, 2024, compared to the prior year, leading to a reduced net loss of $(1.7) million and $(6.9) million, respectively | Metric | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | Period Change | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | Period Change | | :-------------------------- | :-------------------------- | :-------------------------- | :------------ | :-------------------------- | :-------------------------- | :------------ | | Research and development | $748,339 | $1,089,342 | $(341,003) | $3,081,231 | $4,183,038 | $(1,101,807) | | General and administrative | $915,912 | $1,774,699 | $(858,787) | $3,887,157 | $5,106,172 | $(1,219,015) | | Total operating expenses | $1,664,251 | $2,864,041 | $(1,199,790) | $6,968,388 | $9,289,210 | $(2,320,822) | | Net loss | $(1,653,542) | $(2,797,971) | $1,144,429 | $(6,851,734) | $(9,236,758) | $2,385,024 | Research and Development Expenses Research and development expenses decreased by $341,003 for the three months and $1,101,807 for the nine months ended March 31, 2024, primarily due to the completion of the Phase 2 proof-of-concept trial | R&D Category | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | Period Change | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | Period Change | | :-------------------------- | :-------------------------- | :-------------------------- | :------------ | :-------------------------- | :-------------------------- | :------------ | | Pre-clinical and clinical studies | $199,560 | $442,852 | $(243,292) | $1,341,352 | $1,934,116 | $(592,764) | | Contract manufacturing | $257,411 | $118,197 | $139,214 | $898,943 | $957,430 | $(58,487) | | Other research and development | $291,368 | $528,293 | $(236,925) | $840,936 | $1,246,811 | $(405,875) | | Total R&D expenses | $748,339 | $1,089,342 | $(341,003) | $3,081,231 | $4,183,038 | $(1,101,807) | - The overall decrease in research and development expenses was primarily attributable to the completion of the Phase 2 proof-of-concept trial for ACI[73] General and Administrative Expenses General and administrative expenses decreased by $858,787 for the three months and $1,219,015 for the nine months ended March 31, 2024, mainly due to strategic cost reductions in professional and consultant fees and a decrease in directors' and officers' insurance premiums | G&A Category | 3 Months Ended Mar 31, 2024 | 3 Months Ended Mar 31, 2023 | Period Change | 9 Months Ended Mar 31, 2024 | 9 Months Ended Mar 31, 2023 | Period Change | | :-------------------------- | :-------------------------- | :-------------------------- | :------------ | :-------------------------- | :-------------------------- | :------------ | | Compensation and related benefits | $324,439 | $615,690 | $(291,251) | $1,437,319 | $1,573,662 | $(136,343) | | Professional and consultant fees | $265,134 | $633,804 | $(368,670) | $1,293,137 | $1,838,999 | $(545,862) | | Stock-based compensation expense | $151,639 | $223,637 | $(71,998) | $581,698 | $661,158 | $(79,460) | | Directors' and officers' insurance | $117,525 | $235,000 | $(117,475) | $352,575 | $711,877 | $(359,302) | | Facilities, fees and other costs | $57,175 | $66,568 | $(9,393) | $222,428 | $320,476 | $(98,048) | | Total G&A expenses | $915,912 | $1,774,699 | $(858,787) | $3,887,157 | $5,106,172 | $(1,219,015) | - The decrease in general and administrative expenses was primarily due to strategic cost reductions in professional and consultant fees and a lower yearly premium for directors' and officers' insurance[75] Liquidity and Capital Resources Overview The company has incurred significant operating losses since inception and expects this trend to continue. As of March 31, 2024, cash and cash equivalents stood at $5.1 million. The company plans to seek additional funding through equity, debt, or collaboration agreements to support future operations - The company has incurred significant operating losses since inception and expects to continue incurring significant expenses and operating losses[76] - As of March 31, 2024, cash and cash equivalents were approximately $5.1 million[76] - Additional funds will be sought through equity and debt financings or collaboration, license, and development agreements[76] Loan and Security Agreement The company entered into an LSA on November 13, 2023, providing access to up to $10 million for future operations until November 13, 2026, with an interest rate of 0.25% per annum. The LSA will be collateralized by substantially all company assets upon drawing at least $3 million. As of March 31, 2024, no balance was outstanding, but 300,000 common shares were issued to 22NW upon signing - The LSA provides access to up to $10 million for future operations until November 13, 2026, with an interest rate of 0.25% per annum[77] - Upon drawing at least $3 million, the LSA will be collateralized by substantially all of the company's assets[77] - 300,000 shares of common stock were issued to 22NW upon signing the LSA, with potential for additional shares based on advances[78] - No balance was outstanding under the LSA as of March 31, 2024[79] Cash Flows For the nine months ended March 31, 2024, net cash used in operating activities was $6.0 million, primarily due to a $6.9 million net loss, resulting in a net decrease in cash of $6.1 million, bringing the cash balance to $5.1 million | Cash Flow Activity | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(6,037,910) | $(6,833,887) | | Net cash (used in) provided by financing activities | $(62,354) | $6,450,221 | | Net (decrease) increase in cash | $(6,100,264) | $(383,666) | - Net cash used in operating activities for the nine months ended March 31, 2024, was approximately $6.0 million, primarily driven by a net loss of $6.9 million[81] Funding and Material Cash Requirements The company anticipates its current cash and the LSA facility will fund operations for at least the next 12 months. However, due to uncertainties in program development, additional equity or debt financing, or collaboration agreements, will be necessary to meet future capital requirements, which may lead to dilution or restrictive covenants - Current cash and the LSA Facility Amount are expected to fund operating expenses and capital expenditures for at least the next 12 months from the report filing date[83] - Additional funding will be required through equity offerings, debt financings, or collaboration agreements due to the numerous risks and uncertainties in program development[84] - Raising additional capital through equity may dilute existing stockholders, while debt financing could involve liens on assets and restrictive covenants[85] Contractual Obligations and Commitments License Agreement with Vernalis Development Limited The company has an exclusive worldwide royalty-bearing license for selonabant from Vernalis, involving potential development milestone payments up to $29.9 million and sales milestone payments up to $35.0 million, plus low to mid-single digit royalties. In 2021, 192,857 common shares were issued to Vernalis in lieu of $1.4 million in future milestone payments - The company holds an exclusive worldwide royalty-bearing license from Vernalis Development Limited for selonabant[87] - The agreement includes potential development milestone payments up to $29.9 million, sales milestone payments up to $35.0 million, and low to mid-single digit royalties on net sales[87] - In May 2021, 192,857 shares of common stock were issued to Vernalis in lieu of approximately $1.4 million in future milestone payments[87] Office Lease, Manufacturing Contract and CRO Contract The company has an office sublease for approximately $400 per month, a manufacturing agreement with a third-party CMO for approximately $3.0 million (manufacturing aspect expected to be incurred by Q2 2024, stability study by 2026), and a CRO agreement for the Phase 2 clinical trial totaling approximately €2.8 million, which was substantially completed by December 31, 2023 - Office lease costs approximately $400 per month[90] - A manufacturing agreement with a third-party CMO has a total cost of approximately $3.0 million, with the manufacturing aspect expected to be fully incurred by Q2 2024 and the stability study aspect by calendar 2026[90] - A CRO agreement for the Phase 2 clinical trial, totaling approximately €2.8 million, was substantially completed as of December 31, 2023[90] Critical Accounting Estimates Accrued Research and Development Expenses The company estimates accrued R&D expenses by reviewing contracts, communicating with personnel, and estimating services performed when invoices are not yet received. These estimates cover fees for CROs, investigative sites, vendors for NDA filing/marketing, and product manufacturing/distribution, acknowledging potential for differences from actual costs - The company estimates accrued research and development expenses by reviewing open contracts, communicating with personnel, and estimating services performed when invoices are not yet received[94] - Estimated expenses include fees paid to CROs, investigative sites, vendors for NDA filing/marketing, and product manufacturing/distribution[94] Stock-Based Compensation Expense The 2020 Stock Incentive Plan allows for various stock-based awards, with the fair value of stock options estimated using the Black-Scholes option pricing model. Compensation expense is recognized over the vesting period, typically four years - The 2020 Stock Incentive Plan provides for the grant of qualified incentive stock options and nonqualified stock options or other awards[96] - The fair value of stock options is estimated using the Black-Scholes option pricing model, considering factors like volatility, expected term, risk-free rate, and dividend yield[97] - Stock-based compensation is measured at grant date fair value and recognized as expense over the requisite service period, generally the four-year vesting period[96] JOBS Act Accounting Election As an 'emerging growth company' under the JOBS Act, the company has elected to utilize extended transition periods for new or revised financial accounting standards, which may affect the comparability of its financial statements to other public companies - As an 'emerging growth company' under the JOBS Act, the company has elected to take advantage of extended transition periods for complying with new or revised financial accounting standards[98] - This election may make the company's financial statements less comparable to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods[98] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Anebulo Pharmaceuticals, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this report Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of the company's controls designed to ensure timely and accurate disclosure of financial and non-financial information - Management, with the CEO and CFO, concluded that the design and operation of disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024[101] Changes in Internal Control over Financial Reporting This section reports on any modifications to the company's internal control system that occurred during the reporting period - There were no material changes in internal control over financial reporting during the three months ended March 31, 2024[102] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings and believes that any ordinary course claims will not have a material adverse effect on its business or financial condition - The company is not currently a party to any material legal proceedings[104] - Management believes that the final outcome of ordinary course matters will not have a material adverse effect on the business[104] Item 1A. Risk Factors This section outlines various risks that could significantly impact the company's business, financial condition, and operational results. These risks span across business and capital requirements, intellectual property, product development and regulatory approval, reliance on third parties, government regulation, and ownership of common stock, as well as general operational risks Risks Related to our Business, Financial Condition and Capital Requirements This section highlights challenges related to profitability, funding needs, debt agreements, and dependence on key personnel - The company has not generated any revenue since inception and had an accumulated deficit of approximately $64.1 million as of March 31, 2024, expecting to incur future losses[106] - Future success is uncertain due to challenges in product development, manufacturing, sales, and regulatory approval, with inadequate financial resources being a key concern[108] - The company will need to raise additional capital, as current cash and the LSA facility are expected to fund operations only through the end of Q2 2025; failure to secure funding could lead to delays or elimination of programs[118] - The Loan and Security Agreement (LSA) with 22NW and JFL for a debt facility may be secured by substantially all company assets, and a default would have material adverse consequences, potentially leading to insolvency[121] - The company's operations are substantially dependent on its Founder and CEO, and the ability to hire other key personnel; loss of these individuals could disrupt business[123] Risks Related to Our Intellectual Property This section addresses potential issues with obtaining, maintaining, and enforcing patent protection for the company's product candidates - Inability to obtain and maintain broad patent protection for selonabant could allow competitors to develop and commercialize similar products, adversely affecting the company's ability to commercialize its product candidates[130][131] - Existing and future patents may be challenged, narrowed, circumvented, or invalidated by third parties, leading to loss of exclusivity or inability to prevent competition[132][137] - Failure to obtain patent term extension and data exclusivity for selonabant could materially harm the business by allowing competitors to enter the market sooner[143] - Protecting intellectual property rights globally is challenging due to varying laws and enforcement, potentially limiting the company's ability to prevent infringement in foreign jurisdictions[146][147] Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization This section covers uncertainties in clinical trials, regulatory hurdles, market acceptance, and potential side effects of product candidates - Clinical drug development is a lengthy, expensive, and uncertain process, with results of earlier studies not necessarily predictive of future trial outcomes[156][193] - Failure to obtain required regulatory approvals for selonabant would prevent commercialization and limit revenue generation, as the approval process is complex and uncertain[158][159] - Even if approved, commercial success depends on market acceptance by physicians, patients, and healthcare payors, influenced by factors like clinical safety, efficacy, pricing, and reimbursement[166][167] - Selonabant may have undesirable side effects during clinical development or after marketing, which could delay or prevent approval, lead to restrictive labeling, or require market withdrawal[197][198] - The company currently lacks a marketing and sales organization; inability to establish one or partner with third parties could prevent product revenue generation[200][201] - New drugs developed by competitors, such as Aelis Farma and Opiant Pharmaceuticals, could obtain regulatory approval before selonabant, impairing the company's competitive position[202] Risks Related to Our Reliance on Third Parties This section discusses the risks associated with outsourcing preclinical testing, clinical trials, and manufacturing to external partners - The company depends on third parties for preclinical testing and clinical trials, which reduces control over these activities and may result in costs and delays, hindering regulatory approval or commercialization[205] - Complete reliance on third parties to manufacture selonabant means commercialization could be halted or delayed if manufacturers fail to obtain regulatory approval, provide sufficient quantities, or meet quality/price standards[209][211] - Reliance on collaborations with third parties is subject to inherent risks, including termination rights, reduced payments, and loss of control over product development, which could restrict commercialization and profitability[218][220] Risks Related to Government Regulation of our Industry This section examines the impact of healthcare reforms and regulatory requirements on product development and commercialization - Legislative or regulatory reforms in healthcare, such as the ACA and IRA, may increase commercialization costs, affect product pricing, and impact relationships with healthcare professionals[223][226] - Clinical trials for selonabant conducted outside the United States and not under an IND may not be accepted by the FDA, potentially requiring additional costly and time-consuming trials[230] Risks Related to Ownership of Our Common Stock This section details factors affecting stock price volatility, potential dilution, control by principal stockholders, and anti-takeover provisions - The trading price and volume of the company's common stock have experienced and may continue to experience volatility due to various factors beyond its control, potentially leading to investment losses[231] - Future sales, or the perception of future sales, of a substantial number of common stock shares by the company or its stockholders could depress the trading price[235] - Principal stockholders and management own a substantial majority of the stock and can exert significant control over matters requiring stockholder approval, potentially preventing unsolicited acquisition proposals[235] - Anti-takeover provisions in charter documents and Delaware corporate law could discourage, delay, or prevent a change in control of the company[236][238] - The company does not expect to pay any dividends on its common stock, as future earnings are expected to be retained for operations, expansion, and debt repayment[242] General Risk Factors This section encompasses broader operational risks, including internal control deficiencies, public company compliance costs, and data privacy and security concerns - Failure to establish and maintain proper and effective internal control over financial reporting could harm operating results and business, potentially leading to inaccurate financial statements and a decline in stock price[245][246] - Operating as a public company incurs significantly increased costs and requires substantial management time for compliance efforts[247] - As an 'emerging growth company,' the election to delay adoption of new accounting standards may make financial statements less comparable and securities less attractive to investors[250] - The company is subject to stringent and evolving U.S. and foreign laws, regulations, and obligations related to data privacy and security; actual or perceived failure to comply could lead to regulatory actions, litigation, fines, and business disruptions[266][274] - Compromised information technology systems or sensitive information, including those of third-party contractors, could lead to material disruption of product development, regulatory investigations, litigation, and reputational harm[277][281] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities during the quarter ended March 31, 2024. The proceeds from the initial public offering (IPO) have been exhausted, with no material changes to their planned use - No unregistered equity securities were sold during the quarter ended March 31, 2024[287] - Proceeds from the IPO have been exhausted, and there were no material changes in the planned use of proceeds[287] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information During the three months ended March 31, 2024, no director or officer of the company adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'nonRule10b5-1 trading arrangement' - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'nonRule10b5-1 trading arrangement' during the three months ended March 31, 2024[288] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, securities agreements, and certifications Signatures This section confirms the official certification and submission of the report by authorized executive officers - The report is duly signed by Richard Anthony Cunningham, Chief Executive Officer, and Daniel George, Chief Financial Officer, on May 15, 2024[293]