Item 1. Business.
History
Raphael Pharmaceutical Inc.
was incorporated in the State of Nevada in May 2007 and was formerly known as Easy Energy, Inc. On May 14, 2021, Raphael Pharmaceutical
Ltd., or Raphael Israel, an Israeli company, and Easy Energy, Inc., a Nevada corporation, completed a share exchange agreement, or the
Share Exchange, pursuant to which the shareholders of Raphael Israel became the holders of 90% of the issued and outstanding share capital
of Easy Energy, Inc., while Easy Energy, Inc.’s shareholders hold, following the share exchange, 10% of Easy Energy, Inc. On May
19, 2021, as agreed by the parties to the share exchange, Easy Energy, Inc. changed its name to Raphael Pharmaceutical Inc. Raphael Israel
was incorporated in 2019 in the State of Israel and has focused to date on developing its lead product candidate for the treatment of
rheumatoid arthritis, or RA. Easy Energy did not have any ongoing business or operations before the Share Exchange and following the Share
Exchange we adopted Raphael Israel’s business plan.
Overview
We are a pharmaceutical drug
research and development company focused on the discovery and clinical development of life-improving drug therapies based on cannabinoids,
including cannabidiol, or CBD, oil. Unless indicated otherwise, we plan on using oil derived from CBD strains with low levels of Tetrahydrocannabinol,
or THC. All references to the use of CBD in our product candidates refer to CBD strains with less than 0.3% of THC.
We are currently in the pre-clinical
development stage for our lead product candidate, our RA product candidate for the treatment of RA. In addition, we are aiming to develop
a pharmaceutical drug product for the treatment of hyperinflammatory syndrome inflammation related to COVID-19, or our COVID-19 product
candidate, which may be based on data or studies related to our RA product candidate. We successfully completed a preclinical study
for the RA product candidate at Rambam Hospital as well as a mice model trial.
On February 9, 2022,
we filed an application for a clinical trial with the Medical Cannabis Unit of the Ministry of Health of Israel, or MOH. On February 16,
2022 we submitted an application with the Helsinki Committee at Rambam Hospital for a clinical trial in COVID-19 patients. The Company
plans to submit such applications for our RA product during 2022.
Our goal is to become a leader
in development of CBD oil-based pharmaceutical drug products for the treatment of indications in which we believe there is a high
unmet medical need in a range of disorders, including those related to inflammation in the body, including RA and COVID-19.
In order to achieve our goal,
we have and will continue to build an experienced team of senior executives and scientists, with experience in all facets of pharmaceutical
research and development, drug formulation, clinical trial execution and regulatory submissions. We intend to leverage the knowledge of
our team in order to complete the clinical trials needed to receive approvals of our product candidates from applicable regulatory authorities.
Initially, we intend to obtain
approvals for our product candidates from the U.S. Food and Drug Administration, or FDA, and the Medical Cannabis Unit of the MOH. Upon
obtaining FDA approvals, or in the event that we are not successful in obtaining such approvals, we intend to apply for European Medicines
Agency, or EMA, and other countries’ governmental regulatory agencies approvals for our product candidates. If we are successful
in obtaining FDA approvals for our product candidates, we intend to enter into royalty agreements with good manufacturing practice, or
GMP, approved medical manufactures and distributors, having them using our medical formulas for the purpose of growing, cultivating, manufacturing,
and distributing Raphael Pharmaceutical medical indications in their designated territories.
Our discovery platform currently
focuses the use of CBD oil, one of the cannabinoids in cannabis plants, as the active pharmaceutical ingredient, or API, for our RA product
candidate and COVID-19 product candidate. Research results published in 2018 (“Translational Investigation of the Therapeutic Potential
of Cannabidiol (CBD): Toward a New Age”) has shown that there may be benefits to treading medical conditions, or their effects,
with cannabinoids, and more specifically, with CBD, which may help reduce chronic pain by impacting endocannabinoid receptor activity,
reducing inflammation and interacting with neurotransmitters. This research has also shown that CBD may have neuroprotective properties,
and could have the ability to (i) reduce anxiety and depression, (ii) alleviate cancer-related symptoms, (iii) reduce acne and (iv) benefit
heart health.
Over the last few years, pharmaceutical
drug products that include parts of the cannabis plant have begun to receive regulatory approvals for use in patients suffering from certain
disorders, as highlighted below.
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Nabiximols, better known under the tradename Sativex, is a botanical mouth spray consisting of natural THC and CBD extracts, that received approval in the United Kingdom in 2010 for the alleviation of multiple sclerosis, or MS, symptoms like spasticity, pain and overactive bladder. |
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Dronabinol, better known under the name Marinol, contains mainly THC and is a partial agonist of the cannabinoid receptor type 1, or CB1, in the nervous system and a partial agonist of the cannabinoid receptor type 2, or CB2, in the periphery that activates appetite, mood, cognition, memory and perception. Dronabinol received FDA-approval for use in United States in 1985 for treatment of anorexia in acquired immunodeficiency syndrome, or AIDS, patients and for the prevention of chemotherapy-induced nausea and vomiting, or CINV. A Lack of randomized controlled trials, or RCTs, makes a recommendation for usage of dronabinol as a third-line treatment for CINV difficult. Dronabinol in the form of an oral tablet is known under the trade name Namisol. It has high bioavailability and a long shelf life and is indicated for MS, chronic pain and behavioral disturbances in dementia patients. |
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Nabilone, better known under the tradename Cesamet, contains primarily THC, is approved for use as an anti-emetic and adjunctive analgesic for neuropathic pain, CINV and treatment for anorexia in AIDS patients in Canada, Mexico, the UK and the United States. Its main usage today is as adjunct medicine for chronic pain management. |
In light of the past regulatory
approvals for other pharmaceutical drug products and, more specifically, the potential beneficial effects of CBD and other parts of the
cannabis plant, we believe that a drug discovery platform based on CBD may offer new and differentiated treatment options for patients.
Prior regulatory approvals of other companies’ pharmaceutical drug products do not serve as an indication as to the ability or likelihood
that we receive regulatory approval to commercialize any of our product candidates.
After two successful years
of pre-clinical research and studies at the laboratories of Rambam Hospital, in January 2021, we commenced a pre-clinical trial in mice
for our RA product candidate that we expect will take four to five months. Following the completion of this pre-clinical trial, we intend
on submitting an Investigational New Drug, or IND, application to the FDA and MOH. See “Item 1. Business – Research and Clinical
Development Strategy – Clinical Development Plan” for additional information on the ongoing pre-clinical trial and our planned
clinical trial for our RA product candidate. In addition, with respect to our COVID-19 product candidate, our clinical research partners
have been focused on the effect of cannabinoids and cannabis extracts on immune cells which induce acute inflammation. This study will
begin in the pre-clinical level in immune cell models and, subject to positive results that exhibit downregulation of pro-inflammatory
cytokines by cannabis extract, the study was completed successfully. Following the completion of the pre-clinical study, a mice model
was conducted to analyze for acute inflammation, which resembles the immunopathology of COVID-19. The mice model was successfully completed
and we have registered for a clinical trial in patients with the MOH.
As a pharmaceutical research
and clinical development company we do not own or operate, and currently do not intend on creating an in-house team to manufacture and
commercialize our pharmaceutical drug products, if any, that receive regulatory approval allowing for commercialization. We currently
rely, and expect to continue to rely, on third parties for the manufacturing of our product candidates for preclinical and clinical testing,
as well as for commercial manufacturing of any pharmaceutical drug products for which we may receive regulatory approval. Subject to the
receipt of such regulatory approvals, we intend on cooperating with manufacturers and other third parties to manufacture and commercialize
approved pharmaceutical drug products.
Product Pipeline
Currently, we have begun development
for our RA and COVID-19 product candidates, which are in the pre-clinical stage.
Assuming that we successfully
complete the clinical development of our RA and COVID-19 product candidates, we intend to then turn our attention to the clinical development
of cannabinoid-based drug products for the treatment of certain oncology indications. Unlike our RA and COVID-19 product candidate, the
use of our cannabinoid based drug products for the treatment of certain oncology indications will require specific dosing and potentially,
a different regulatory pathway than our existing product candidates.
We intend to apply for MOH
approval, as well as the FDA and EMA approvals right afterwards, subject to the completion of the applicable clinical trials, for our
RA product candidate as well as our COVID-19 product candidate using the FDA’s regulatory pathway for drug products.
Indications and Market
Rheumatoid Arthritis
RA is an autoimmune disease
of unknown cause characterized by inflammation in multiple joints, including synovial inflammation with hyperplasia. Inflammation is also
associated with reduced hemoglobin (anemia) and reduced albumin and changes in levels of cholesterol and triglycerides. In addition to
the inflammation associated with RA, studies, including a 2018 publication entitled, “Cartilage and bone damage in rheumatoid arthritis,”
patients suffering from RA generally also suffer from chronic pain, fatigue, progressive joint damage, disability, hyperplasia, production
of autoantibodies such as rheumatoid factor and anti–citrullinated protein antibody, cartilage damage and bone erosions.
Research has shown that in
about 30% of RA patients, current conventional synthetic and biologic disease modifying anti-rheumatic drugs and targeting molecules may
fail or induce only partial responses, both of which we believe are insufficient for patients suffering from RA. Using disease modified
anti-rheumatic drugs, or DMARD, based treatments, as shown in a 2017 study from Sohita Dhillon, patients tend to report at follow-up meetings
that pain relief is unsatisfactory and although there is an initial improvements in the average pain score, a plateau may be reached beyond
which DMARDs are not able to resolve RA pain. As a result, we believe that RA patients need ongoing therapy as RA relapses are frequent.
During RA flareups, patients experience acute and chronic pain, fatigue, sleep disturbances, and morning stiffness which significantly
reduces their quality of life. Furthermore, damage is accumulated by long-term disease which also interferes with pain, fatigue and quality
of life.
All types of pain (acute or
chronic, widespread or local and nociceptive) have been reported in RA. Patients with RA may develop fibromyalgia, or FM, especially with
long-term disease. Concomitant FM is a key factor for discordance between PRO and clinical outcomes in assessment of RA patients including
in RCTs. Peripheral sensitization, induced by local inflammation or damage, and pain augmentation by the central nervous system, or CNS,
both drives the pain problems in RA patients. Anxiety or depression, impaired sleep and fatigue all contribute to pain sensitization in
RA patients. As noted in the study, “Tackling Pain Associated with Rheumatoid Arthritis: Proton-Sensing Receptors,” some RA
patients have allodynia and peripheral neuropathies that contribute to refractory chronic pain.
We believe that clinical studies
on the use of cannabinoids in rheumatic conditions, and particularly RA, are logically advocated as possible positive effectors of the
inflammatory pathway of RA, as well as symptomatic pain relievers that may have the potential to also improve fatigue, sleep disorder
and tolerability of DMARDs. Through our Sponsored Research Agreement (as further detailed below), we believe that we have arrived at an
understanding as to how cannabinoids influence inflammation. Applying immune cells models in our pre-clinical research, we identified
specific strains of cannabis which reduce the capacity of the immune cells to communicate during inflammation, thus decreasing their capacity
to participate in chronic inflammation. For a deeper understanding of the mechanism in which cannabinoids effect inflammation, we developed
a unique, real time-Polymerase chain reaction, or RT-PCR, method to identify 10 different receptors to cannabinoids, both in human and
mice models. We believe that this technology will allow us to identify which cannabinoids receptors are participating in the downregulation
of inflammation, which we believe will help us develop our RA product candidate.
In 2015 alone, research conducted
by the NIH National Library of Medicine showed that RA affected about 24.5 million people as of 2015, which reflected between 0.5% and
1% of adults in the developed world, with an additional 5 to 50 per 100,000 people developing the condition each year. It is
believed that onset is most frequent during middle age and women are affected 2.5 times as frequently as men. Further research indicates
that RA resulted in 38,000 deaths in 2013, up from 28,000 deaths in 1990.
Hyperinflammatory Syndrome Related to COVID-19
Since the first emergence
of COVID-19 in December 2019 in Wuhan, China, COVID-19 has spread across more than 200 countries across the world and over 112 million
cases of the virus have been reported. Most patients develop only mild symptoms of COVID-19; however, some develop severe symptoms including
dyspnea, hypoxia and lung involvement which requires hospitalization. Based on research, we believe that most of the severe COVID-19 symptoms
are related to hyperinflammation caused by failure of resolution of the immunological response to the infection similar as observed in
cytokine release syndrome. Treatments with anti-inflammatory or anti-viral drugs are still experimental or have not reduced mortality.
Moreover, they are administered only to inpatients in a severe disease state. As a result of the foregoing, the necessity of finding new
anti-inflammatory therapies that have the potential to prevent deterioration of the symptoms is heightened.
Research and Clinical Development Strategy
Research and clinical development
of our pharmaceutical drug product candidates is our core business. We are currently focused on developing innovative cannabinoid-based
medical indications that we aim to push through Phase 2A and Phase 2B approval from both the FDA and EMA.
The research efforts that
have been conducted to date by the team at Rambam Med-Tech Ltd., or Rambam MT, are aimed at revealing the mechanism which structures the
activity of cannabinoids in human cells and organs, while applying a variety of disease models. We are using our PCR method to identify
different receptors to cannabinoids and which we believe will allow us to identify which cannabinoids receptors are participating in the
downregulation of inflammation. We believe that this strategy will allow us to identify the cannabinoids components of a chosen strain
in order to accurately administer cannabinoids targeted to the treatment of patients.
Research Agreement with Rambam MT
On July 17, 2019, we entered
into a sponsored research agreement, or the Research Agreement, with Rambam MT, pursuant to which the Company agreed to fund a research
project, to be performed by Rambam MD, with a research plan aimed at identifying the effects of different cannabis strains on the function
of immune cells. On October 28, 2020, the Company and Rambam MT agreed to expand the research plan to study the anti-inflammatory activities
of cannabis extracts in an RA mouse model. On February 15, 2021, the Company and Rambam MT agreed to further expand the research plan
to study the effect of cannabis extracts on the immunopathology of the COVID-19 disease. The Sponsored Researched Agreement is for an
initial term of 48 months.
Pursuant to the Research Agreement,
we agreed to pay Rambam $1.4 million in four equal payments, due on the first day of August on each successive year from 2019 through
2022. Furthermore, in accordance with the terms of the Research Agreement, we and Rambam MT will have joint ownership of any IP created
as a result of research programs covered by such agreement. In connection with the Research Agreement, Rambam MT agreed not to work, study
or develop any technologies with other entities that compete with our work with Rambam MT for our COVID-19 product candidate or RA product
candidate for a term of three and seven years, respectively, from the end of the parties’ collaboration with respect to the COVID-19
product candidate and seven years from the end of the term of the Research Agreement with respect to the RA product candidate.
Subject to commercial sales
of any product candidate using the IP created as a part of the research covered by such agreement, we are required to pay Rambam MT a
royalty in an amount equal to 6% of all net sales, subject to certain deductions, such as taxes paid by any purchaser, transportation
and shipping costs, and other customary deductions.
As of December 31, 2022, the
Company paid $1.15 million pursuant to the Research Agreement and in the first quarter of 2023 the Company paid the remaining $0.25 million.
We and Rambam MT are currently
focused on characterizing the activity of cannabinoids in RA and in hyperinflammatory syndrome related to COVID-19. RA is a long-term
autoimmune disorder, and as such, the research conducted by Rambam MT has focused on identifying the effect of cannabinoids on inflammatory
processes related to RA, while, with respect to our COVID-19 product candidate, their research has been focused on the effect of cannabinoids
and cannabis extracts on immune cells which induce acute inflammation.
Pre-Clinical Studies for RA Product Candidate
In Vitro Study
Pursuant to the Research Agreement,
the team at Rambam MT established a study in order to determine which cannabis strains extracts may affect inflammation. The lab applied an
in vitro system, allowing them to screen a variety of cannabis derived oil extracts and their influence on cytokine secretion,
which is a type of response to injury and infection in the body.
The researchers employed human
THP1 cells, which can be induced to differentiate macrophages (specialized cells involved in the detection, phagocytosis and destruction
of bacteria and other harmful organisms) and to secrete cytokines (which is aimed as serving as a bridge for cross-communication with
other innate immune cells). Using this system, our partners from Rambam MT have established a variety of cannabinoids and studied their
influence on pro-inflammatory and anti-inflammatory cytokines. Most interestingly the study has identified a non-psychoactive cannabis
strain, which we refer to as “CAN1.” Our study showed that CAN1 reduced TNFα and IL-6 secretion but increased the secretion
of the anti-inflammatory cytokine IL-10, while also reducing the secretion of the pro-inflammatory chemokine IL-8, as highlighted in Figure
1 below. Based on the results from this pre-clinical study, we believe that CAN1 strain, may be a potential anti-inflammatory agent with
the ability to influence both activation and migration of cells during inflammation.
Figure 1. CAN1 downregulates pro-inflammatory
cytokines (TNFα, IL-8, IL-6) and upregulates the anti-inflammatory counterpart IL-10.
The results in Figure 1 above
reflect the results from our in vitro study of THP1 cells (0.25*10^6/ml) incubated with phorbol 12-myristate 13-acetate (PMA) (50 ng/ml)
to induce THP1 cells to differentiate to macrophages. for 48 hours. Then, cells were washed twice with phosphate buffer saline (PBS) and
treated with Can1 (1 µg/ml) in medium free serum for 24 hours. Then, cells were washed twice with PBS and incubated with LPS (Lipopolysaccharides)
to induce cytokines secretion (1 µg/ml) overnight. Supernatants were collected and frozen. Levels of TNFα, IL-8, IL-6 and
IL-10 were determined by the enzyme-linked immunosorbent assay (ELISA).
Pre-Clinical Study in Mice
In January 2021, we commenced
a pre-clinical study in mice. Mice in our pre-clinical study are being treated with cannabis strains that we previously identified in
our in vitro study and other prior research as potential candidates in the cell models. Following the treatment, we expect to examine
the ability of the treatment to modulate the immune function, specifically in the case of chronic inflammation, in order to optimize treatment
for RA.
This pre-clinical study is
expected to be focused on the following results.
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Aim 1: Evaluating the immune modulatory properties of different cannabis strains related to the immunopathology (i.e., the immune responses) in RA; |
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Aim 2: Demonstrating the immunomodulatory properties of specific cannabis extracts on a mouse model for RA; |
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Aim 3: Elucidating the mechanisms of action, or MOA, of cannabinoids that are involved in the regulation of inflammation in RA; and |
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Aim 4: Establishing a phase 1 and 2 clinical trial experiment in compliance with FDA and EMA rules and regulations to study the effect of cannabis-based medical indication on RA. |
In addition, this pre-clinical
study is expected to enable us to examine how we manufacture the API, the dosage design, analytical and bioanalytical method development
and validation, metabolism and pharmacokinetics, toxicology, both safety and genetic toxicology and possibly safety pharmacology; and
good manufacturing practice, or GMP, manufacture and documentation of drug product for use in clinical trials.
Aim 1. Evaluating the immune modulation
properties of different cannabis strains
RA is an autoimmune disease
that causes chronic inflammation and damage to the joints, leading to pain, stiffness, and loss of mobility. It occurs when the body's
immune system mistakenly attacks the synovium, which is the lining of the joints. This can cause swelling and thickening of the synovium,
which can eventually lead to erosion of the cartilage and bone within the joint. RA can also affect other parts of the body, such as the
skin, eyes, lungs, and blood vessels. RA is a chronic condition that requires ongoing management to control symptoms and prevent joint
damage.
Current treatments for RA
have potential difficulties and side effects that need to be carefully weighed against their benefits. Some medications may lose effectiveness
over time, requiring patients to switch treatments. Additionally, some medications have side effects such as gastrointestinal problems,
liver damage, and increased risk of infections and cancer. There are also individual differences in patient response to treatments, highlighting
the need for more personalized approaches.
It is our belief, based on
the research conducted by our partners, and that or our industry peers, that cannabinoids have immunomodulatory properties, although the
exact effects are not fully comprehended.
Together with the team at
the Medical Cannabis Research and Innovation Center at Rambam Health Care Campus, our experiments in cells derived from human healthy
donors (Helsinki Num. 044220-RNB) have revealed a specific high-CBD strain that effectively reduces the capacity of immune cells: T cells
and neuthrophils to be activated in response to inflammatory stimulation. The strain was found to reduce the expression levels of IL6,
TNF alpha. This suggests that the strain has the potential to slow the progression of RA.
Thus, we have successfully
completed the proof of concept phase in human derived immune cells.
Aim 2. Demonstrating the immune modulatory
properties of specific cannabis extract on mouse models for RA.
Cannabis is not an isolated
substance; it contains a plethora of biologically active substances. The most common substances are THC and CBD. Today more than 140 cannabinoids
are known to be expressed in the plant. In addition to cannabinoids, the plants contain flavonoids and terpenes. This greatly complicates
our ability to understand the effects of cannabis on the physiology because the different substances may have different (and even contradictory)
effects. Therefore, the use of different cannabis varieties with diverse ingredients may produce distinct and unexpected results.
Our preclinical experiments
have revealed a specific high-CBD strain that effectively reduces inflammation in a mouse model of RA. The strain was found to reduce
the expression levels of IL6, TNF alpha, and IL1b in the joints and peripheral blood of the mice. This suggests that the strain has the
potential to slow the progression of RA.
We have successfully completed
the proof of concept phase in mice and are now preparing to move towards clinical trials.
Aim 3. Elucidating the MOA of cannabinoids
that are involved in the regulation of inflammation in RA.
Upon activation, it is the
cannabinoid receptors, or CBrs, in the endocannabinoid system, or ECS, which initiate numerous regulatory functions in a mammal. CBrs
have been found in a variety of species including human, monkey, pig, dog, rat and mouse. The discovery of membrane receptors found in
the brain, central nervous system as well as peripheral tissues and organs that bind cannabimimetic compounds was a critical turning point
that paved the way towards the pharmacological understanding of cannabis-derived compounds.
The most studied CBrs are
CB1 and CB2; both belong to the G protein-coupled receptors (these cell surface receptors act like an inbox for messages in the form of
light energy, peptides, lipids, sugars, and proteins), or GPCR, family. GPCRs constitute a large protein family of receptors that detect
molecules outside the cell and activate internal signal transduction pathways and cellular responses. GPCRs, are called seven-transmembrane
receptors because they pass through the cell membrane seven times. Heterotrimeric G proteins are activated by GPCRs and are made up of
three subunits, α, β and γ. G proteins are divided into four main classes: Gαs, Gαi, Gαq and Gα12.
These proteins are activated depending on the ability of the G protein α-subunit, or Gα, to cycle between an inactive guanosine
diphosphate, or GDP, bound conformation and an active guanosine triphosphate, or GTP, bound conformation that can modulate the activity
of downstream effector-proteins. Additional receptors have been shown to bind cannabinoids: G protein-coupled receptor 55, or GPR55, several
transient receptor potential, or TRP, channels (TRPV1, TRPV2, TRPA1, TRPM8), and glycine receptors.
Figure 2. CB1 downstream signaling network.
Adapted from Chakravarti et al., 2014
Since most of the biological
properties related to phytocannabinoids, a type of natural cannabinoid, rely on their interactions with receptors of the endocannabinoid
system, it is crucial to define which receptors are expressed and activated in the target cells. As a result, we have developed a system
with the capacity to identify ten cannabinoid receptors simultaneously and measure their expression levels using quantitative real-time
PCR. We have applied this method in examining cells of the immune system, and more specifically, in monocytes, before and after differentiation
to macrophages, or after stimulation to secrete cytokines. Using this methodology, we were able to identify a differential expression
pattern of the receptors under different conditions.
To obtain a deep understanding
on the mechanism of action of the cannabis strains, we applied our research system and established a unique study to research the response
of 10 different receptors to Cannabis in RA patients, which aims to identify the specific cannabinoids receptors on the immune cells.
The data from this study is expected to subsequently be used to set up a system for analyzing and matching the specific cannabis treatment
to the specific cannabinoids receptors that are expressed in the patient’s cells. We believe that if cannabinoid treatments correspond
to the receptors in the patient’s cells, the treatment may be more accurate for treating that specific patient’s RA symptoms.
We have identified cannabinoid receptors that are expressed on activated T cells from human donors (Helsinki # 033120-RNB). Our next objective
is to determine the cannabinoid receptors expressed on neutrophils.
Aim 4. Establish a Phase 1 & 2B clinical
trial according to FDA rules and regulations to study the effect of cannabis-based medical indications on RA.
Our goal for the treatment
of RA is to achieve disease remission or low disease activity, or LDA. LDA is measured with several assessment metrics that are intended
to measure the effect of the treatment on a number of physical phenomena that are connected to RA. These metrics include, but are not
limited to: (i) Disease Activity Score based on assessment of 28 joints, or DAS28, patient’s assessment, (ii) erythrocyte sedimentation
rate (a common hematology test, and is a non-specific measure of inflammation) or C-reactive protein, or CRP, test, which is a blood test
that measures the CRP in a person’s blood, (iii) SDAI and CDAI (Simple and Complex Disease Activity Indices) as compared to DAS28,
(iv) patient’s and physician’s assessment, including global assessment scores, or PtGA and PhGA, respectively (v) pain visual
analogue scale and (vi) health assessment questionnaire disability index, or HAQ-DI.
Clinical Development Plan for RA Product Candidate
We intend to utilize the knowledge
and results that we obtain from our pre-clinical study to establish, initially a Phase 1 clinical trial, which we expect will take approximately
3 months, followed by a Phase 2 clinical trial to study the effect of cannabis-based medical intervention on RA, which we expect will
take approximately 24 months, following which, we hope to receive FDA approval to allow for the commercialization of our RA product candidate.
Specifically, we intend to study the changes in RA patients’ status after cannabis compounds were added to their stable conventional
treatment. We currently plan that our partners at Rambam MT will carry out these trials at the Rambam Health Care Campus in Haifa, Israel.
Our hypothesis is that in
patients with RA, the regular addition of cannabinoids in a defined dosage to basic treatment of RA might add to the patients’ quality
of life. We intend to measure quality of life by scores for fatigue using the fatigue severity scale, pain using the visual analogue scale,
the Pittsburgh Sleep Quality Index, PtGA, PhGA, HAQ-DI and the 6-Item Short Form Health Survey. We also propose that cannabinoids may
influence the disease status. This may be measured by DAS28, SDAI, CDAI, CRP, ESR, albumin and Hb levels and also by levels of key cytokines
and chemokines. As part of these clinical studies, we currently plan to assess changes in RA patients’ status after cannabis compounds
were added to their stable conventional treatment.
Pre-Clinical Studies for Treatment of Hyperinflammatory
Syndrome Related to COVID-19
We are studying the potential of
cannabis extracts to downregulate the hyperinflammation and the immunopathology in COVID-19 patients. Our partners at Rambam MT have been
conducting research on the use of cannabis to treat disorders with widespread inflammatory responses, such as RA and COVID-19. We hope
that by decoding the cannabinoid mechanism of action during inflammatory storms, we can treat inflammation associated with COVID-19 where
conventional drugs and other therapies have failed.
At the outbreak of the COVID-19
pandemic, members of the Rambam MT team directed their efforts and experience to join the world-wide battle against the COVID-19 pandemic.
Their research found that cannabinoids contribute to the sophisticated fabric network of intercellular communications. Based on this research,
we believe, that if we understand how cannabinoid components are used in intercellular communication, we can help influence this communication
in the event of a disease, to disrupt it or empower the communication to convey desired messages.
In order to properly understand
cannabis’ effects on COVID-19, the Rambam MT team compiled its Biobank database. In generating the Biobank database, the Rambam
MT team found what they believed to be a safe way to separate the white blood cells, including the immune cells, from verified patients.
We believe that this is crucial as blood samples are the most accessible resource for continuous sampling (allowing for the understanding
of biological processes during the disease) and to develop vaccines and drugs for treatment of the condition.
In February 2021, we entered
into an agreement with Rambam MT for investigation of CBD oil extracts as a potential treatment for COVID-19 related inflammation. In
accordance therewith, the Rambam MT team is investigating the effect of cannabis extracts oil on the inflammation response of immune cells
derived from COVID-19 patients as well as a deep study on the capacity of cannabis extract oil to reduce acute inflammation and lung inflammation
in mouse models which resembles the immunopathology of COVID-19.
This study will begin in the
pre-clinical level in immune cell models and, subject to positive results that exhibit downregulation of pro-inflammatory cytokines by
cannabis extract, the study is expected to continue to a mouse model to analyze for acute inflammation, which resembles the immunopathology
of COVID-19. We believe that our strategy to investigate the response of ex-vivo immune cells to cannabis extract together with the analysis
of the in-vivo model for acute and lung inflammations, will allow us to identify the medical cannabis extracts, if any, that have
the potential to treat patients with COVID-19 related hyperinflammatory syndrome.
Our experiments have revealed
a specific high-CBD strain that presents enhanced anti-inflammatory effects. Using cells derived from human donors (Helsinki Num. 044220-RNB)
and a mouse model for systemic inflammation and severe lung inflammation, we have found that this strain is effective in preventing cytokine
storms. It reduces the secretion of IL6 and TNF alpha, as well as the inflammation in the mice's lungs, while also inhibiting the migration
of immune cells to the lungs.
These findings were published
by Rambam’s research team in the prestigious scientific journal "Frontiers in Immunology" : “High-CBD Extract (CBD-X)
Downregulates Cytokine Storm Systemically and Locally in Inflamed Lungs” (Frontiers in Immunology, May 16, 2022).
In November 2022, we submitted
a proposal to the MOH for a clinical trial of a cannabis-based drug aimed at mitigating the deterioration of COVID-19 patients.
We are pleased to report that
the proposal has progressed and has been passed on to the Helsinki Committee for the final decision.
Aim 5. Development of a new, patentable
formulation that combines purified cannabinoids to treat rheumatoid diseases.
In October 2022, we entered
into an agreement with Rambam MedTech for the development of a new, patentable formulation that combines purified cannabinoids to treat
rheumatoid diseases.
The overall objective of this
study is to identify a novel cannabinoid based patentable formulation to treat Rheumatoid diseases. Specifically, to investigate combination
of purified cannabinoids to downregulate inflammation related to Rheumatoid diseases. We propose to base our study on data derived from
Dr. Igal Louria-Hayon’s studies (Helsinki # 0442-20-RMB) on the evaluation of the immune regulation properties of cannabinoids on
the immune system and the data derived from the cannabinoids receptors study (Helsinki # 0331-20-RMB). We will analyze the activation
of cannabinoid receptors on mouse models and will study the role of purified cannabinoid as a potential to develop a novel patentable
formulation to treat RA.
Competition and Competitive Position
The pharmaceutical industry
is characterized by rapidly advancing technologies and intense competition. While we believe that our knowledge, experience and scientific
resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical,
specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research
institutions. Any product candidates for which we complete clinical development successfully and for which we receive marketing approval
may compete with existing therapies and new therapies that may become available in the future.
Many of our competitors have
far greater marketing and research capabilities than us. We also face potential competition from academic institutions, government agencies
and private and public research institutions, among others, which may in the future develop products to treat those diseases that we currently
or, in the future, seek to treat. All of these companies and institutions may have product candidates in development that are or may become
superior to our RA product candidate or any other product candidate that we may seek to develop. Our commercial opportunity would be reduced
significantly if our competitors develop and commercialize products that are safer, more effective, more convenient, have fewer side effects
or are less expensive than our product candidates.
In addition, although our
product candidates may, if approved, be considered advantageous to existing therapies, such as the use of corticosteroids and DMARDs for
the treatment of RA, our target market may continue to use existing therapies.
However, we do believe, specifically
with respect to our competitors not using cannabis in their pharmaceutical drug products that our use of, and experience with, cannabinoids
provides us with a potential competitive advance. Our research has shown that the use of cannabinoids for the treatment of RA is justified
based on its positive effect on pain, fatigue, sleep problems and its potential safety profile. Growing evidence on the anti-inflammatory
effect of cannabinoids provide more strong ground for their use in the treatment of RA.
Although the use of any part
of the cannabis plant in pharmaceutical drug products was once non-existent or minimal, in addition to approved pharmaceutical drug products
that use parts of the cannabis plant (see “Item 1. Business – Overview” for additional information), we are aware that
there is at least one plan for a multicenter randomized control trial on the use of medical cannabidiol in Danish patients with RA and
Ankylosing Spondylitis (inflammatory joint and spine disease), as previously published in an issue of BMJ Open in 2019. As the medical
benefits of cannabis become more well-known, we believe that we may face more competition from both new startup pharmaceutical and biotechnology
companies and from well-funded and experienced organizations and it is therefore imperative that we face as few delays as possible in
our pre and clinical development plan or we may otherwise face more competition.
The following table highlights
the estimated cost that RA patients incur on an annual basis based on a 2017 report from the Canadian Agency for Drugs and Technologies
in Health.
Drug Product |
|
Strength |
|
Dose Form |
|
Price ($) |
|
Recommended Dose |
|
Annual Drug Cost ($) |
Sarilumab (Kevzara) |
|
150 mg/1.14 mL
200 mg/1.14 mL |
|
Pre-filled syringe |
|
700.0000 |
|
200 mg SC every two weeks |
|
18,200 |
|
|
|
|
|
|
|
|
|
|
|
Abatacept SC (Orencia) |
|
125 mg/mL |
|
Pre-filled syringe |
|
366.1000 |
|
125 mg weekly |
|
19,037 |
|
|
|
|
|
|
|
|
|
|
|
Abatacept IV (Orencia) |
|
250 mg/15 mL |
|
Vial |
|
490.0500 |
|
Patients < 60 kg: 500 mg
Patients 60 to 100 kg: 750 mg
Patients > 100 kg: 1,000 mg
500 to 1,000 mg at weeks 0, 2, and 4 then every 4 weeks |
|
Year 1: 20,582
Thereafter: 19,112 |
|
|
|
|
|
|
|
|
|
|
|
Adalimumab SC (Humira) |
|
40 mg/0.8 mL |
|
Pre-filled syringe or pen |
|
769.9700 |
|
40 mg every other week |
|
20,019 |
|
|
|
|
|
|
|
|
|
|
|
Anakinra (Kineret) |
|
100 mg |
|
Pre-filled syringe |
|
48.0571 |
|
100 mg daily |
|
17,493 |
|
|
|
|
|
|
|
|
|
|
|
Certolizumab pegol (Cimzia) |
|
200 mg/mL |
|
Pre-filled syringe |
|
664.5100 |
|
400 mg at weeks 0, 2 and 4 then 200 mg every 2 weeks |
|
Year 1: 19,271
Thereafter: 17,277 |
|
|
|
|
|
|
|
|
|
|
|
Etanercept (Enbrel) |
|
25 mg
50mg/mL |
|
Vial
Pre-filled syringe or auto-injector |
|
202.9300
405.9850 |
|
50 mg weekly or two
25 mg doses on same day every week or every 3 or 4 days |
|
21,105
21,111 |
|
|
|
|
|
|
|
|
|
|
|
Entanercept (Brenzys) |
|
50 mg/mL |
|
Pre-filled syringe |
|
305.0000d |
|
50 mg weekly |
|
15,860 |
|
|
|
|
|
|
|
|
|
|
|
Golimumab SC (Simponi) |
|
50 mg/0.5 mL |
|
Pre-filled syringe or auto-injector |
|
1,555.17 |
|
50 mg monthly |
|
18,662 |
|
|
|
|
|
|
|
|
|
|
|
Golimumab IV (Simponi) |
|
50 mg/4 mL |
|
Vial |
|
849.5000b |
|
2 mg/kg at weeks 0 and 4, then every 8 weeks thereafter |
|
Year 1:17,829
Thereafter: 16,565 |
|
|
|
|
|
|
|
|
|
|
|
Infliximab (Remicade) |
|
100 mg |
|
Vial |
|
987.5600 |
|
3 mg/kg at weeks 0, 2, and 6, then every 8 weeks thereafter |
|
Year 1: 23,701
Thereafter: 19,257
10 mg/kg every 4 weeks: $102,706 annually |
|
|
|
|
|
|
|
|
|
|
|
Infliximab (Inflectra) |
|
100 mg |
|
Vial |
|
525.0000 |
|
Depending on clinical response, dose can be increased to 10 mg/kg and/or up to every four weeks |
|
Year 1: 12,600b
Thereafter: 10,238b
10 mg/kg every 4 weeks: $54,600 annually15 |
|
|
|
|
|
|
|
|
|
|
|
Rituximab (Rituxan) |
|
100 mg/10 mL
500 mg/50 mL |
|
Vial |
|
466.3200
2,331.61 |
|
A course consists of 1,000 mg infusions at weeks 0 and 2.
Reassess for retreatment at week 26, no sooner than 16 weeks after
previous |
|
18,653
assumes 2 courses
Per course: 9,326 |
|
|
|
|
|
|
|
|
|
|
|
Tocilizumab SC (Actemra) |
|
162 mg/0.9 mL |
|
Pre-filled syringe |
|
355.0000 |
|
Patients < 100 kg: 162 mg SC every two weeks, increasing to weekly based on clinical response.
Patients ≥ 100 kg: 162 mg SC weekly |
|
Every two weeks: 9,230
Weekly: 18,460 |
|
|
|
|
|
|
|
|
|
|
|
Tocilizumab IV (Actemra) |
|
80 mg/4 mL
200 mg/10mL
400 mg/20 mL |
|
Vial |
|
180.8100
452.0300
904.0600 |
|
4 mg/kg every 4 weeks followed by an increase to 8 mg/kg based on clinical response |
|
4 mg/kg: 10,577
8 mg/kg: 17,629 |
|
|
|
|
|
|
|
|
|
|
|
Tofacitinib (Xeljanz) |
|
5 mg |
|
Tablet |
|
23.5585 |
|
5 mg p.o. twice daily |
|
17,151 |
IV = intravenous; p.o. =
orally; SC = subcutaneous.
Although there can be no guarantee,
we believe that our RA product candidate, if approved for commercialization by regulators, will be available to patients at a lower price
than that of other available treatments.
With respect to our development
of a product candidate to treat inflammation associated with COVID-19, we will face competition from major pharmaceutical companies that
have developed or that will develop vaccines, along with other companies and organizations that have or will develop therapies or pharmaceutical
drug products aimed at treating the underlying symptoms of COVID-19.
Cultivation of our API
In October 2020, we entered
into an engagement agreement with Way of Life Cannabis Ltd., or Wolc, pursuant to which, subject to its completing the Share Exchange,
Raphael Israel is scheduled to be provided with up to 15 liters of CBD oil, from a strain of cannabis of our selection, during a term
of 18 months, to be provided in two to three deliveries of between one to seven liters of CBD oil. In accordance with the agreement with
Wolc, we have agreed to issue to certain persons affiliated with Wolc 3% of our issued and outstanding share capital as of the date of
the Share Exchange, to be provided in three equal issuances; provided, however, that such persons may elect to receive a cash payment
of $100,000 instead of any one issuance of our shares. In addition to the issuance of shares, we have also agreed to pay Wolc a royalty
fee equal to 15% of net income royalties generated from sales of our pharmaceutical drug products that are developed at Rambam hospital
in Israel.
At this time, we only require
a limited amount of our API for our studies and trials and, to date, we have received oil extracted from high CBD strains, from Wolc in
the amounts that we require in order to conduct our pre-clinical trials. Pursuant to our agreement with Wolc, pending FDA approval of
any of our product candidates, Wolc is expected to transfer seeds used for the FDA-approved product candidate to growers in California,
Colorado and Oklahoma. Wolc is a fully licensed Israeli cannabis company focused on growing, cultivating and manufacturing cannabis medical
oil, located in Aviel, Israel. As an owner and operator of green houses for growing organic cannabis plants and a GMP manufacturing facility
located in Netanya, Israel, we intend to utilize, pursuant to an agreement between the parties, Wolc for the growing and cultivation of
the CBD oil needed for our product candidates.
We believe that our current
agreement with Wolc will provide us with sufficient amounts of CBD oil in order to complete our clinical development and for initial sales
of our pharmaceutical drug products. In the future, as our demand for pharmaceutical products grows, if ever, we may need to find additional
partners that may provide us with sufficient amounts of CBD oil and/or amend or terminate our engagement with Wolc.
Pursuant to the agreement
with Wolc, on July 27, 2022, the Company issued 100,500 shares of common stock to Wolc. The value of such issued shares was based on the
value of the service provided by Wolc, which amounted to $100,000.
Manufacturing
We do not own or operate,
and currently have no plans to establish, any manufacturing facilities for final manufacture. We currently rely, and expect to continue
to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial
manufacturing of any pharmaceutical drug products for which we receive regulatory approval.
Commercialization Plan
Subject to the receipt of
regulatory approval to commercialize our pharmaceutical product candidates, our goal is to distribute our approved formulas to good manufacturing
practice, or GMP, approved medical cannabis manufacturers and global medical cannabis distributors. Depending on the expertise of the
distributors, we expect the licensing agreements to provide us with royalty-based payments for the sale of each of our approved pharmaceutical
drug products. In Israel, pursuant to our agreement with Wolc, the parties are expected to negotiate an exclusive distribution agreement
in Israel, pursuant to which Wolc will be the exclusive supplier of any approved pharmaceutical drug products of the Company in Israel.
Although we expect government
regulation of pharmaceutical products derived from cannabis to develop over the next few years, we may be limited in the manner in which
we commercialize our product candidates. We fully intend on being fully complaint with local and state-wide government regulations and
therefore we expect to enter into licensing agreements with vendors only if such vendor may legally distribute our product candidate within
the region for which they have obtained a license from us to sell our pharmaceutical product.
Intellectual Property
We do not currently have any
patents, and currently rely on our know-how and trade secrets. However, subject to the completion of our pre-clinical trial for our RA
product candidate, and prior to the completion of our clinical development plan, we intend on seeking patent protection in the United
States and/or internationally for such product candidate and, potentially for other product candidates that we may seek to develop. Our
policy is to pursue, maintain and defend patent rights developed internally and to protect the technology, inventions and improvements
that are commercially important to the development of our business.
Governmental Regulation
Government authorities in
the United States, at the federal, state and local levels, and in other countries and jurisdictions, including the EU, extensively regulate,
among other things, the research, development, testing, manufacture, sales, pricing, reimbursement, quality control, approval, packaging,
storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import
and export of biopharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries
and jurisdictions, along with compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure
of substantial time and financial resources.
We are a research and development
company collaborating with our partners at Rambam MT to research and develop our COVID-19 and RA product candidates. We do not grow or
cultivate cannabis and we have no physical connection to the raw cannabis materials, which is shipped directly to Rambam MT. Pre-clinical
research, animal models and clinical trials are sponsored by us through our agreement with Rambam MT. Such research and trials are being
done by Rambam MT’s medical team, researchers, doctors and professors.
We do not own or operate,
and currently have no plans to establish, any manufacturing facilities for final manufacturing of our products. We do not distribute,
and we have no plans to distribute, our products. Once we receive regulatory approval for our products, we intend to license to our future
candidate partners the rights to commercialize our medical formulas. Our future candidate partners will be responsible for the manufacturing,
distributing, promoting, and marketing of medical indications. We intend to engage with candidate partners that are GMP approved professionals,
well established and experienced medical manufacturers and distributors in the U.S. and other countries.
Our future candidate partners
will be entirely responsible and liable for regulatory compliance, including but not limited to cannabis growing and cultivation, GMP
manufacturing, distribution, advertising and promotional regulations, marketing, labeling, post-market approval reporting and record keeping.
We intend to hire and train
quality assurance professional that will inspect periodically the facilities of our future candidate partners as well as the methods of
production, marketing and distribution under applicable governmental regulatory guidelines.
U.S. Cannabis Market
The emergence of the legal
cannabis sector in the United States, both for medical and adult use, has been rapid as more states adopt regulations for its production
and sale. A majority of Americans now live in a state where cannabis is legal in some form and almost a quarter of the population lives
in states in which both medical and recreational use is permitted as a matter of, and in accordance with, applicable state and local laws. According
to Fortune Business Insights, the global legal marijuana market is anticipated to reach a value of US$97.35 billion by the end of 2026
from US$10.60 billion in 2018. The market is predicted to rise at a compounded annual growth rate of 32.6% during the period 2019 to 2026.
The use of cannabis and cannabis
derivatives to treat or alleviate the symptoms of a wide variety of chronic conditions, while not recognized by the FDA, has been accepted
by a majority of citizens with a growing acceptance by the medical community. A review of the research, published in 2015 in the Journal
of the American Medical Association, found solid evidence that cannabis can treat pain and muscle spasms. The pain component is particularly
important, because other studies have suggested that cannabis can replace pain patients’ use of highly addictive, potentially deadly
opiates. Although hemp, defined as cannabis and derivatives of cannabis with not more than 0.3% THC, has been descheduled from the
Controlled Substances Act, the FDA has regulatory oversight over foods, drugs, cosmetics containing cannabis under the Food, Drug and
Cosmetics Act of 1938. All references to the use of CBD in our product candidates refer to CBD strains with less than 0.3% of THC. It
is possible that as the federal and state agencies legalize certain products, the FDA may issue rules and regulations, including good
manufacturing practices related to the growth, cultivation, harvesting and processing of such products, even if they are not marketed
as drugs. It is possible that the FDA would require that facilities where medical-use cannabis is grown to register with the FDA and comply
with certain federally prescribed regulations, certifications, testing, or other requirements. The potential impact on the cannabis industry
is uncertain and could include the imposition of new costs, requirements, and prohibitions.
Although we are not currently
engaged and do not expect to be engaged in the production or distribution of medical marijuana products, the FDA has jurisdiction over
our flower, oil, vape and edible products, among others. The FDA is currently taking action in the form of Warning Letters, but may also
take more extreme enforcement such as recalls, disgorgement or penalties.
Polls conducted throughout
the United States consistently show overwhelming support for the legalization of medical cannabis, together with strong majority support
for the full legalization of recreational adult-use cannabis. According to a Pew Research Center survey, as of November 11, 2019, “Around
nine-in-ten Americans favor legalization for recreational or medical purposes” and “Only 8% say it should not be legal.” These
are large increases in public support over the past 40 years in favor of legal cannabis use.
As of the date of this Annual
Report, cannabis is legal in some form in a total of 36 states, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.
On the recreational side, there are currently 15 states, plus the District of Columbia and four U.S. territories, in which the recreational
sale of cannabis has been approved. These states include Oregon, Washington, Nevada, California, Colorado, Massachusetts, Michigan, Vermont,
Alaska, Illinois, Maine, New Jersey, Arizona, South Dakota and Montana. With respect to medical marijuana, as more research centers study
the effects of cannabis-based products in treating or addressing therapeutic needs, and assuming that research findings demonstrate that
such products are effective in doing so, management believes that the size of the U.S. medical cannabis market will also continue to grow
as more States expand their medical marijuana programs and new states legalize medical marijuana.
Notwithstanding that 36 states
and the District of Columbia have now legalized adult-use and/or medical cannabis, cannabis remains illegal under U.S. federal law with
cannabis listed as a Schedule I drug under the Controlled Substance Act, or CSA.
Government Regulation and Product Approval
We are a preclinical to early
clinical stage pharmaceutical company that intends to engage third parties to test, register and license the rights to commercialize our
products in the United States and other jurisdictions. Such third parties may be subject to extensive regulation by various regulatory
authorities. The primary regulatory agency in the United States is the FDA and in Europe it is the EMA. Along with these two, there are
other federal, state, and local regulatory agencies. In the United States, the Federal Food, Drug, and Cosmetic Act, or the FDCA, and
its implementing regulations set forth, among other things, requirements for the research, testing, development, manufacture, quality
control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and
promotion of our products. Although the discussion below focuses on regulation in the United States, we anticipate seeking approval for,
and marketing of, our products in other countries.
Generally, our activities
outside the United States will be subject to regulation that is similar in nature and scope as that imposed in the United States, although
there can be important differences. Approval in the United States, Canada, or Europe does not assure approval by other regulatory agencies,
although often test results from one country may be used in applications for regulatory approval in another country. Additionally, some
significant aspects of regulation in Europe are addressed in a centralized way through the EMA but country specific regulation remains
essential in many respects. A major difference in Europe, when compared to Canada and the United States, is with the approval process.
In Europe, there are different procedures that can be used to gain marketing authorization in the European Union. The first procedure
is referred to as the centralized procedure and requires that a single application be submitted to the EMA and, if approved, allows marketing
in all countries of the European Union. The centralized procedure is mandatory for certain types of medicines and optional for others.
The second procedure is referred to as national authorization and has two options; the first is referred to as the mutual recognition
procedure and requires that approval is gained from one member state, after which a request is made to the other member states to mutually
recognize the approval, whilst the second is referred to as the decentralized procedure which requires a member state to act as the reference
member state through a simultaneous application made to other member states.
The process of obtaining regulatory
marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require
the expenditure of substantial time and financial resources and may not be successful. See “Item 1A. Risk Factors” for additional
information.
U.S. Government Regulation
The FDA is the main regulatory
body that controls pharmaceuticals in the United States, and its regulatory authority is based in the FDCA. Pharmaceutical products are
also subject to other federal, state and local statutes. A failure to comply explicitly with any requirements during the product development,
approval, or post approval periods, may lead to administrative or judicial sanctions. These sanctions could include the imposition by
the FDA or an Institutional Review Board of a hold on clinical trials, refusal to approve pending marketing applications or supplements,
withdrawal of approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution,
injunctions, fines, civil penalties or criminal prosecution.
The steps required before
a new drug may be marketed in the United States generally include:
|
● |
completion of preclinical studies, animal studies and formulation studies in compliance with the FDA’s GLP regulations; |
|
|
|
|
● |
submission to the FDA of an IND application to support human clinical testing in the United States; |
|
|
|
|
● |
approval by an IRB at each clinical site before each trial may be initiated; |
|
|
|
|
● |
performance of adequate and well-controlled clinical trials in accordance with federal regulations and with GCP regulations to establish the safety and efficacy of the investigational product candidate for each target indication; |
|
|
|
|
● |
submission of a new drug application, or NDA, to the FDA; |
|
|
|
|
● |
satisfactory completion of an FDA Advisory Committee review, if applicable; |
|
|
|
|
● |
satisfactory completion of an FDA inspection of the manufacturing facilities at which the investigational product candidate is produced to assess compliance with cGMP, and to assure that the facilities, methods and controls are adequate; and |
|
|
|
|
● |
FDA review and approval of the NDA. |
Clinical Trials and the FDA Approval Process
An IND is a request for authorization
from the FDA to administer an investigational product candidate to humans. This authorization is required before interstate shipping and
administration of any new drug product to humans in the United States that is not the subject of an approved NDA. A 30-day waiting period
after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented
on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration
of the investigational product candidate to healthy volunteers or patients with the disease under study, under the supervision of qualified
investigators following GCPs, an international standard intended to protect the rights and health of patients with the disease under study
and define the roles of clinical trial sponsors, administrators and monitors. Clinical trials are conducted under protocols that detail
the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. Each protocol involving testing on patients
in the United States and subsequent protocol amendments must be submitted to the FDA as part of the IND. Rambam MT has not yet submitted
an IND in the United States for any clinical programs.
The clinical investigation
of an investigational product candidate is generally divided into three phases. Although the phases are usually conducted sequentially,
they may overlap or some may be combined. The three phases of clinical investigation are as follows:
|
● |
Phase I. Phase I includes the initial introduction of an investigation product candidate into humans. Phase I clinical trials may be conducted in patients with the target disease or condition, or in healthy volunteers. These studies are designed to evaluate the safety, metabolism, pharmacokinetics, or “PK”, and pharmacologic actions of the investigational product candidate in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness. During Phase I clinical trials, sufficient information about the investigational product candidate’s PK and pharmacological effects may be obtained to inform the design of Phase II clinical trials. The total number of participants included in Phase I clinical trials varies but is generally in the range of 20 to 80. We expect that it will take approximately 3 months for Rambam MT to complete Phase I. |
|
● |
Phase II. Phase II includes the controlled clinical trials conducted to evaluate the effectiveness of the investigational product candidate for a particular indication(s) in patients with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the product candidate. Phase II clinical trials are typically well controlled, closely monitored, conducted in a limited subject population and usually involving no more than several hundred participants. Rambam MT is planning to divide Phase II into two parts: |
|
● |
Phase IIa. Phase IIa will include a randomized, double-blind, placebo-controlled, multiple ascending dose study in Israel to determine the maximum CBD extract administered sublingually to assess the safety, tolerability, pharmacokinetics, pharmacodynamics and efficacy for at least 4 weeks in RA patients in the presence of concurrent active therapies, such as non-steroidal anti-inflammatory drugs, or NSAIDs, and steroids. We expect that Phase IIa will take approximately 6 months. |
|
|
|
|
● |
Phase IIb. Phase IIb will include IND submission for randomized, multi center double blinded, placebo-controlled dose response finding, or DRF, study for at least 12 weeks with either CBD extract or placebo administered sublingually in the presence of concurrent active therapies such as NSAIDs and steroids. This study will include 300-400 patients (80-100 patients per cohort) to study safety and efficacy of the product in active RA patients. We expect that Phase IIb will take approximately 18 months. |
|
● |
Phase III. Phase III clinical trials are controlled clinical trials conducted in an expanded subject population at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the investigational product candidate has been obtained, are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the product candidate, and to provide an adequate basis for drug approval. Phase III clinical trials usually involve several hundred to several thousand participants. In most cases, the FDA requires two adequate and well controlled Phase III clinical trials to demonstrate the efficacy of the drug. |
The decision to terminate
development of an investigational product candidate may be made by either a health authority body, such as the FDA or IRB/ethics committees,
or by a company for various reasons. The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or
impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents
an unacceptable risk to the clinical trial patients. In some cases, clinical trials are overseen by an independent group of qualified
experts organized by the trial sponsor or the clinical monitoring board. This group provides authorization for whether or not a trial
may move forward at designated check points. These decisions are based on the limited access to data from the ongoing trial. The suspension
or termination of development can occur during any phase of clinical trials if it is determined that the participants or patients are
being exposed to an unacceptable health risk. In addition, there are requirements for the registration of ongoing clinical trials of Product
Candidates on public registries and the disclosure of certain information pertaining to the trials as well as clinical trial results after
completion.
New Drug Applications
In order to obtain approval
to market a drug in the United States, a marketing application must be submitted to the FDA that provides data establishing the safety
and effectiveness of the product candidate for the proposed indication. The application includes all relevant data available from pertinent
preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed
information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come
from company sponsored clinical trials intended to test the safety and effectiveness of a product, or from a number of alternative sources,
including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity
to establish the safety and effectiveness of the investigational product candidate to the satisfaction of the FDA. In most cases, the
NDA must be accompanied by a substantial user fee; there may be some instances in which the user fee is waived. The FDA will initially
review the NDA for completeness before it accepts the NDA for filing. The FDA has 60 days from its receipt of an NDA to determine whether
the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit
substantive review. After the NDA submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain
performance goals in the review of NDAs. Most such applications for standard review Product Candidates are reviewed within ten to twelve
months. The FDA can extend this review by three months to consider certain late submitted information or information intended to clarify
information already provided in the submission. The FDA reviews the NDA to determine, among other things, whether the proposed product
is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP. The FDA may refer applications
for novel Product Candidates that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes
clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what
conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when
making decisions.
Before approving an NDA, the
FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the
manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product
within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure
compliance with GCP. After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete
response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional
testing or information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the
FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. Notwithstanding the submission of any requested
additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
An approval letter authorizes
commercial marketing of the drug with specific prescribing information for specific indications. Product approval may require substantial
post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn
if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Disclosure of Clinical Trial Information
Sponsors of clinical trials
of certain FDA regulated products, including prescription drugs, are required to register and disclose certain clinical trial information
(though not specifically required for Phase I trials) on a public website maintained by the U.S. National Institutes of Health, or “NIH”.
Information related to the product, patient population, phase of investigation, study sites and investigator, and other aspects of the
clinical trial is made public as part of the registration. Sponsors are also obligated to disclose the results of these trials after completion.
Disclosure of the results of these trials can be delayed until the product or new indication being studied has been approved. Competitors
may use this publicly available information to gain knowledge regarding the design and progress of our development programs.
Advertising and Promotion
The FDA and other federal
regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standards and regulations for direct-to-consumer
advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities
involving the Internet. A product cannot be commercially promoted before it is approved. After approval, product promotion can include
only those claims relating to safety and effectiveness that are consistent with the labeling (package insert) approved by the FDA. Healthcare
providers are permitted to prescribe drugs for “off-label” uses — that is, uses not approved by the FDA and, therefore,
not described in the drug’s labeling — because the FDA does not regulate the practice of medicine. However, FDA regulations
impose stringent restrictions on manufacturers’ communications regarding off-label uses.
Post-Approval Regulations
After regulatory approval
of a drug is obtained, a company is required to comply with a number of post-approval requirements. For example, as a condition of approval
of an NDA, the FDA may require post-marketing testing, including Phase IV clinical trials, and surveillance to further assess and monitor
the product’s safety and effectiveness after commercialization. In addition, as a holder of an approved NDA, a company would be
required to report adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply
with requirements concerning advertising and promotional labeling for any of its products. Also, quality control and manufacturing procedures
must continue to conform to cGMP after approval to assure and preserve the long-term stability of the drug or biological product. The
FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural and substantive
record keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance
of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any
deviations from cGMP and impose reporting and documentation requirements upon a company and any third-party manufacturers that a company
may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control
to maintain compliance with cGMP and other aspects of regulatory compliance.
Controlled Substances
The CSA and its implementing
regulations establish a “closed system” of regulations for controlled substances. The CSA imposes registration, security,
recordkeeping and reporting, storage, manufacturing, distribution, importation and other requirements under the oversight of the DEA,
which is the federal agency responsible for regulating controlled substances, and requires those individuals or entities that manufacture,
import, export, distribute, research, or dispense controlled substances to comply with the regulatory requirements in order to prevent
the diversion of controlled substances to illicit channels of commerce.
Facilities that research,
manufacture, distribute, import or export any controlled substance must register annually with the DEA. The DEA registration is specific
to the particular location, activity(ies) and controlled substance schedule(s). For example, separate registrations are required for importation
and manufacturing activities, and each registration authorizes which schedules of controlled substances the registrant may handle. However,
certain coincident activities are permitted without obtaining a separate DEA registration, such as distribution of controlled substances
by the manufacturer that produces them.
The DEA categorizes controlled
substances into one of five schedules — Schedule I, II, III, IV, or V— with varying qualifications for listing in each schedule.
Schedule I substances by definition have a high potential for abuse, have no currently “accepted medical use” in treatment
in the United States and lack accepted safety for use under medical supervision. They may be used only in federally approved research
programs and may not be marketed or sold for dispensing to patients in the United States. Pharmaceutical products having a currently accepted
medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV or V substances, with Schedule II substances
presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative
potential for abuse and dependence. The regulatory requirements are more restrictive for Schedule II substances than Schedule III substances.
For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist in most situations,
and cannot be refilled. Once FDA has approved a medical use for Schedule I drugs, the DEA must reschedule the drug. For example, after
FDA approval for Epidiolex®, a purified CBD oil, for the treatment of two rare forms of epilepsy, DEA placed it in Schedule V. Further,
on April 6, 2020, GW Pharma announced that Epidiolex® was descheduled by the DEA and is no longer considered a controlled substance.
The DEA inspects all manufacturing
facilities to review security, record keeping, reporting and handling prior to issuing a controlled substance registration. The specific
security requirements vary by the type of business activity and the schedule and quantity of controlled substances handled. The most stringent
requirements apply to manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background checks
on employees and physical control of controlled substances through storage in approved vaults, safes and cages, and through use of alarm
systems and surveillance cameras. Manufacturing facilities must maintain records documenting the manufacture, receipt and distribution
of all controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedule I and II controlled
substances, Schedule III narcotic substances, and other designated substances. In addition to an importer or exporter registration, importers
and exporters must obtain a permit for every import or export of a Schedule I and II substance or Schedule III, IV and V narcotic, and
submit import or export declarations for Schedule III, IV and V non-narcotics.
For drugs manufactured in
the United States, the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II that may be
manufactured or produced in the United States based on the DEA’s estimate of the quantity needed to meet legitimate medical, scientific,
research and industrial needs. The quotas apply equally to the manufacturing of the API and production of dosage forms.
The states also maintain separate
controlled substance laws and regulations, including licensing, recordkeeping, security, distribution, and dispensing requirements. State
Authorities, including Boards of Pharmacy, regulate use of controlled substances in each state. Failure to maintain compliance with applicable
requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could
have a material adverse effect on our business, operations and financial condition. The DEA may seek civil penalties, refuse to renew
necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal
prosecution.
Cannabinoids as a Controlled Substance
Cannabinoids are subject to
the United Nations Single Convention on Narcotic Drugs (1961) adopted by numerous countries globally, which prohibits the production and
supply of specific drugs, except for scientific and research purposes. Under the current UN definition, Cannabis extracts and tinctures
are controlled substances. Individual countries (and sometimes jurisdictions within countries) are rapidly changing how they interpret
and apply the international rules. Currently there is a broad spectrum of legal statuses based on strength, source and intended use. We
are closely monitoring these changes. We expect that there may be different requirements in each region where we have clinical sites.
Several Cannabis-related drugs
were placed in lower schedules once they were approved as drugs. For example, the US DEA reduced Epidiolex® (CBD) to Schedule V after
it was approved for treatment of two rare forms of childhood epilepsy. In April 2020, the DEA descheduled Epidiolex® entirely.
The passage of the Farm Bill
in December 2018 legalized the cultivation of hemp in the United States and the production of hemp-derived non-THC cannabinoids, removing
these products from the CSA. Our products use oil extracted from CBD strains, containing <0.3% THC.
We plan to engage third parties
to conduct clinical trials for our product candidates outside the United States, subject to regulatory approval. As a result, such third
parties will also be subject to controlled substance laws and regulations from the various other regulatory agencies in other countries
where we develop, manufacture or commercialize our product candidates in the future.
Marketing Exclusivity
Upon NDA approval of a new
chemical entity, which for this purpose is defined as a drug that contains no active moiety that has been approved by the FDA in any other
NDA, that drug receives five years of marketing exclusivity during which the FDA cannot approve any abbreviated new drug application,
or ANDA, seeking approval of a generic version of that drug. Certain changes to the scope of an approval for a drug, such as the addition
of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve
an ANDA for a generic drug that includes the change. A Section 505(b)(2) NDA may be eligible for three-year marketing exclusivity,
assuming the NDA includes reports of new clinical studies (other than bioequivalence studies) essential to the approval of the NDA.
An ANDA may be submitted one
year before marketing exclusivity expires if a Paragraph IV certification is filed. In this case, the 30 months stay, if applicable, runs
from the end of the five-year marketing exclusivity period. If there is no listed patent in the FDA’s Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly known as the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA
may be filed before the expiration of the exclusivity period.
Additionally, six months of
marketing exclusivity in the United States is available under Section 505A of the FDCA if, in response to a written request from
the FDA, a sponsor submits and the agency accepts requested information relating to the use of the approved drug in the pediatric population.
This six-month pediatric exclusivity period is added to any existing patent or non-patent exclusivity period for which the drug product
is eligible.
Patent Term Extension
The term of a patent that
covers an FDA approved drug may be eligible for patent-term extension, which provides patent-term restoration as compensation for the
patent term lost during the FDA regulatory review process. The United States Federal Drug Price Competition and Patent Term Restoration
Act of 1984 permits a patent-term extension of up to five years beyond the expiration of the patent. The length of the patent-term extension
is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond
a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions
are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug.
European and Other International Government
Regulation
In addition to regulations
in the United States and Canada, our third-party licensees will be subject to a variety of regulations in other jurisdictions governing,
among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for
a product, such third-party licensees must obtain the requisite approvals from regulatory authorities in foreign countries prior to the
commencement of clinical trials or marketing of the product in those countries. Some countries outside of the United States have a similar
process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials.
In Europe, for example, a clinical trial application must be submitted to each country’s national health authority and an independent
ethics committee, much like the FDA and IRB, respectively. Once the clinical trial application is approved in accordance with a country’s
requirements, clinical trial development may proceed.
The UK was previously in a
transition period until December 31, 2020, during which time it continued to abide by the EU regulatory processes; however, they may adopt
different or additional procedures.
To obtain regulatory approval
to commercialize a new drug under EU regulatory systems, it is required to submit a MAA. The MAA is similar to the NDA, with the exception
of, among other things, country-specific document requirements.
For other countries outside
of the EU, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary from country to country. Internationally, clinical trials are generally required to be conducted
in accordance with GCP, applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origin
in the Declaration of Helsinki.
Compliance
During all phases of development
(pre- and post-marketing), failure to comply with applicable regulatory requirements may result in administrative or judicial sanctions.
These sanctions could include the FDA’s imposition of a clinical hold on trials, refusal to approve pending applications, withdrawal
of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, product
detention or refusal to permit the import or export of products, injunctions, fines, civil penalties or criminal prosecution. Any agency
or judicial enforcement action could have a material adverse effect.
Other Special Regulatory Procedures
Priority Review (United
States) and Accelerated Assessment (European Union)
Based on results of the Phase
III clinical trial(s) submitted in an NDA, upon the request of an applicant, a priority review designation may be granted to a product
by the FDA, which sets the target date for FDA action on the application at six months from the FDA’s decision on priority review
application, or eight months from the NDA filing. Priority review is given where preliminary estimates indicate that a product, if approved,
has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists, or a significant improvement
compared to marketed products is possible. If criteria are not met for priority review, the standard FDA review period is ten months from
the FDA’s decision on priority review application, or 12 months from the NDA filing. The priority review designation does not change
the scientific/medical standard for approval or the quality of evidence necessary to support approval.
Under the Centralized Procedure
in the European Union, the maximum timeframe for the evaluation of a MAA is 210 days (excluding “clock stops,” when additional
written or oral information is to be provided by the applicant in response to questions asked by the Committee for Medicinal Products
for Human Use, or “CHMP”). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product
is expected to be of a major public health interest, which takes into consideration: the seriousness of the disease (e.g., disabling or
life-threatening diseases); the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high
therapeutic benefit. In this circumstance, EMA ensures that the opinion of the CHMP is given within 150 days.
Accelerated Approval
Under the FDA’s accelerated
approval regulations, the FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit
to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit. This approval
mechanism is provided for under 21CRF314 Subpart H and 21CRF601 Subpart E. In this case, clinical trials are conducted in which a surrogate
endpoint is used as the primary outcome for approval. A surrogate endpoint is reasonably likely to predict clinical benefit, or an effect
on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, that is reasonably likely to
predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments. This surrogate endpoint substitutes for a direct measurement
of how a patient feels, functions, or survives and is considered reasonably likely to predict clinical benefit. Such surrogate endpoints
may be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on this basis is subject to rigorous post-marketing
compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint.
When the Phase IV commitment is successfully completed, the biomarker is deemed to be a surrogate endpoint. Failure to conduct required
post-approval studies or confirm a clinical benefit during post-marketing studies, could lead the FDA to withdraw the drug from the market
on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review
by the FDA.
Other Healthcare Laws and Compliance Requirements
In the United States, our
activities are potentially subject to additional regulation by various federal, state and local authorities in addition to the FDA, including,
among others, the Centers for Medicare and Medicaid Services, other divisions of HHS, the DOJ, and individual United States Attorney offices
within the DOJ and state and local governments.
Compliance with Environmental Laws
Other than our ongoing research
and development, our only operations consist of our pre-clinical trial being in conducted in Israel for RA, which may further our COVID-19
product candidate. At this time, compliance with environmental laws in Israel, where we conduct our operations, has not been a burden
and has not required from us the use of material resources or capital expenditures.
Employees
As of December 31, 2022, we
do not have any employees. Our officers are engaged through consulting agreements.
Corporate Information
Easy Energy was incorporated
under the laws of the State of Nevada in May 2017. On May 14, 2021, Raphael Israel and Easy Energy completed the Share Exchange, pursuant
to which we changed our name to Raphael Pharmaceutical Inc.. Our registered address is 4 Lui Paster, Tel Aviv-Jaffa, Israel 6803605. Our
website address is https://www.raphaelpharmaceutical.com/. Information contained on, or that can be accessed through, our website is not
incorporated by reference into this Annual Report, and you should not consider information on our website to be part of this Annual Report. We
have included our website address in this Annual Report solely as an inactive textual reference.The SEC also maintains an Internet website
that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Our filings with the SEC are also available to the public through the SEC’s website at http://www.sec.gov.
Item 1A. Risk Factors.
An investment in our securities
carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in
this Annual Report, including our historical financial statements and related notes included elsewhere in this Annual Report, before you
decide to purchase our securities. Additional risks and uncertainties that we are unaware of may become important factors that affect
us. If any of the following events occur, our business, financial conditions and operating results may be materially and adversely affected.
In that event, the trading price of our common stock and warrants may decline, and you could lose all or part of your investment.
We may not be successful
in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties
may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently
unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could
lose all or a significant portion of your investment due to any of these risks and uncertainties.
Summary Risk Factors
Our business is subject to
a number of risks, including risks that may adversely affect our business, financial condition and results of operations. These risks
are discussed more fully below and include, but are not limited to, risks related to:
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We have a limited operating history and we have incurred significant operating losses since our inception, and anticipate that we will incur continued losses for the foreseeable future. |
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We have not generated revenue from any product candidate and may never be profitable. |
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We expect that we will need to raise substantial additional funding before we can expect to complete the development of our RA product candidate or any other product candidate. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product candidate development efforts or other operations. |
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The lack of an existing trading market could adversely impact our ability to raise working capital and adversely impact our ability to continue operations. |
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We are heavily dependent on the success of our product candidates, which are in various stages of pre-clinical development. We cannot give any assurance that any of our product candidates will proceed to clinical development or that they will receive regulatory approval, which is necessary before they can be commercialized. |
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The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed. |
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Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results. |
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We hold no patents on our products, and our business employs proprietary technology (know-how) and information may be difficult to protect and/or infringe on the intellectual property rights of third parties. |
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We manage our business through a small number of employees and key consultants. |
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We will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations. |
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We rely on third parties to conduct our preclinical and, in the future, clinical studies and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed. |
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We will rely on third parties to grow and provide us with our active pharmaceutical ingredient, or API, and formulations. Our business could be harmed if those third parties fail to provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices. |
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We rely on third parties to supply and manufacture our product candidates, and we expect to continue to rely on third parties to manufacture our products, if approved. The development of such product candidates and the commercialization of any products, if approved, could be stopped, delayed, or made less profitable if any such third party fails to provide with sufficient quantities of product candidates or products, or fails to do so at acceptable quality levels or prices, or fails to maintain or achieve satisfactory regulatory compliance. |
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We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity. |
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Our executive officer, directors and certain stockholders who are beneficial owners of 5% or more of our outstanding Common Stock possess the majority of our voting power, and through this ownership, have the ability to control our Company and our corporate actions. |
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Investors may have difficulty in reselling their shares due to the lack of market or state Blue Sky laws. |
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Because we previously had our registration with the SEC revoked and because our business operations resulted from public by means of a “reverse merger,” we may not be able to attract the attention of major brokerage firms. |
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As a former shell company, resales of shares of our restricted Common Stock in reliance on Rule 144 of the Securities Act are subject to the requirements of Rule 144(i). |
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Our headquarters and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel. |
Risks Related to Our Financial Condition and
Capital Requirements
We have a limited operating history and
we have incurred significant operating losses since our inception, and anticipate that we will incur continued losses for the foreseeable
future.
We are an emerging pharmaceutical
research and clinical development company with a limited operating history in our industry. Before the Share Exchange, we did not have
any operations dating back to 2011. To date, we have focused almost exclusively on developing our RA product candidate. Raphael Israel
has funded its operations to date primarily through proceeds from investors and from its own resources. Other than the funding that Easy
Energy received, and which was lent to Raphael Israel after the closing of the Share Exchange, Easy Energy has had no sources of funding
since ceasing its operations in 2011. We have only a limited operating history in our current industry upon which you can evaluate our
business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many
of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical
industry. To date, we have not generated revenue from the sale of our product candidates (see Item 7. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” for additional information). We incurred losses in each year since
our inception and, while operational, we have never been profitable and have incurred losses since inception. We expect to continue to
incur losses until, and if, a product candidate that we are developing, such as our RA product candidate, receives approval from regulators
for commercialization. Our net loss attributable to holders of our ordinary shares for the years ended December 31, 2022 and 2021
was approximately $3.36 million and 1.62 million, respectively. As of December 31, 2022, we had an accumulated deficit of approximately
$6.01 million. Substantially all of our operating losses resulted from costs incurred in connection with our development program and from
general and administrative costs associated with our operations.
We expect our research and
development expenses to increase in connection with our planned preclinical and clinical trials. In addition, even if we obtain marketing
approval for any current or future product candidate, we will likely incur significant business development expenses as we seek to commercialize
such products, as well as continued research and development expenses. Furthermore, we expect to incur additional costs associated with
operating as a reporting company, which we estimate will be at least tens of thousands of dollars annually. As a result, we expect to
continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties
associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable,
if at all.
We expect to continue to incur
significant losses until we are able to commercialize our product candidates, which we may not be successful in achieving. We anticipate
that our expenses will increase substantially if and as we:
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continue the research and development of our RA product candidate or any other product candidate; |
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expand the scope of our current clinical studies for our RA product candidate or any other product candidate; |
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seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies; |
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seek to maintain, protect, and expand our intellectual property portfolio; |
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seek to attract and retain skilled personnel; and |
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create additional infrastructure to support our operations as a reporting company and our product candidate development and planned future commercialization efforts. |
We have not generated revenue from any product
candidate yet and may never be profitable.
Our ability to become profitable
depends upon our ability to generate revenue. We do not expect to generate significant revenue unless or until we obtain marketing approval
of, and commercialize, our RA product candidate or any other product candidate that we may seek to develop. Our ability to generate future
revenue from product candidate sales depends heavily on our success in many areas, including but not limited to:
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obtaining favorable results from and progress the pre-clinical and clinical development of our product candidate(s); |
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developing and obtaining regulatory approval for registration studies protocols for our product candidate(s); |
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subject to successful completion of registration and clinical trials of our RA product candidate, applying for and obtaining marketing approval; |
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establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products, and at acceptable costs, to support market demand for our product candidates, if marketing approval is received; |
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identifying, assessing, acquiring and/or developing new product candidate(s); |
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accurately identifying demand for our product candidate(s); |
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continued consumer interest in treatments to the symptoms of RA; |
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obtaining market acceptance of our product candidates, if approved for marketing, as viable treatment options; |
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negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; and |
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attracting, hiring and retaining qualified personnel. |
We do not believe that our current cash
on hand will be sufficient to fund our projected operating requirements. This raises substantial doubt about our ability to continue as
a going concern. In addition, the report of our independent registered public accounting firm contains an explanatory paragraph regarding
substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable
terms or at all.
We do not believe that our
current cash on hand will be sufficient to fund our projected operating requirements. This raises substantial doubt about our ability
to continue as a going concern. In addition, the report of our independent registered public accounting firm on our audited financial
statements for each of the two years ended December 31, 2022 and 2021 contains an explanatory paragraph regarding substantial doubt about
our ability to continue as a going concern. Our audited financial statements do not include any adjustments that might result from the
outcome of the uncertainty regarding our ability to continue as a going concern. This going concern opinion could materially limit our
ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further reports on our financial statements
may include an explanatory paragraph with respect to our ability to continue as a going concern. If we cannot continue as a going concern,
our investors may lose their entire investment in our Common Stock. Until we can generate significant revenues, if ever, we expect to
satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on
acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development
plans for, or commercialization efforts with respect to our products.
We expect that we will need to raise substantial
additional funding before we can expect to complete the development of our RA product candidate or any other product candidate. This additional
financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay,
limit or terminate our product candidate development efforts or other operations.
As of December 31, 2022, our
cash and cash equivalent were approximately $0.29 million and we had a working capital of $0.12 million and an accumulated deficit of
$6.02 million. Based upon our currently expected level of operating expenditures, we expect that our existing cash and cash equivalents
will only be sufficient to fund operations through June 2023. In addition, our operating plans may change as a result of many factors
that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future funding requirements will
depend on many factors, including but not limited to:
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our clinical trial results; |
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the cost, timing and outcomes of seeking marketing approval of any product candidate for which we may seek marketing approval and the costs associated with our plans to have third parties commercialize any approved product candidate(s); |
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the cost of filing and prosecuting patent applications and the cost of defending patents, if any; |
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development of other early-stage development product candidates; |
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subject to receipt of marketing approval, revenue received from sales of approved products, if any, in the future; |
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any product liability or other lawsuits related to our products; |
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the expenses needed to attract and retain skilled personnel; and |
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the costs associated with being a reporting company. |
Any additional fundraising
efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize
our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable
to us, if at all, during or after the COVID-19 pandemic. Moreover, the terms of any financing may adversely affect the holdings or the
rights of holders of our securities and the issuance of additional securities, whether equity or debt, by us, or the possibility of such
issuance, may cause the trading price of our shares to decline. The incurrence of indebtedness could result in increased fixed payment
obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative
partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our
technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our
business, operating results and prospects. Even if we believe that we have sufficient funds for our current or future operating plans,
we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
If we are unable to obtain
funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development
programs or the development or commercialization, if any, of any product candidates or be unable to expand our operations or otherwise
capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
The lack of an existing trading market could
adversely impact our ability to raise working capital and adversely impact our ability to continue operations.
Our Common Stock is not
currently traded on any national securities exchange and is not quoted on any over-the-counter market (see “Item 1A. Risk Factors
– Risks Related to Ownership of Our Securities – Investors may have difficulty in reselling their shares due to the lack of
market or state Blue Sky laws” for additional information). Because our Common Stock is considered illiquid, we may find it more
difficult to raise capital. If we are unable to raise sufficient capital in the future, we may not be able to have the resources
to continue our normal operations.
Risks Related to Product Development, Regulatory
Approval and Commercialization
We are heavily dependent on the success
of our product candidates, which are in various stages of pre-clinical development. We cannot give any assurance that any of our product
candidates will proceed to clinical development or that they will receive regulatory approval, which is necessary before they can be commercialized.
Since its inception, Raphael
Israel has invested substantially all of its efforts and financial resources to design and develop its product candidates, including conducting
preclinical studies and providing general and administrative support for these operations. Our future success is dependent on our ability
to continue these operations, and more specifically, to successfully complete pre-clinical and clinical development of our product candidates,
which will require coordination from applicable regulatory agencies, obtain regulatory approval for, and then successfully commercialize
one or more product candidates for which we receive regulatory approval. We currently generate no revenue from, and we may never be able
to generate revenue.
Our RA product candidate and
the product candidate that we are seeking to develop for the treatment of inflammation associated with COVID-19 are both in pre-clinical
development and will require clinical development (and in some cases additional pre-clinical development), management of non-clinical,
clinical and manufacturing activities, regulatory approval, obtaining adequate manufacturing supply, building of a commercial organization
and significant marketing efforts before we generate any revenue from product candidate sales. It may be months or years before a pivotal
study is initiated, if at all. Any clinical trials in the United States will require the approval of an Investigational New Drug, or IND,
application by the FDA, and we cannot assure that we will obtain such approval in a timely manner, or at all. We are not permitted to
market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities,
and we may never receive such regulatory approval for any of our product candidates.
We as a company have never
submitted marketing applications to the FDA or comparable foreign regulatory authorities. We cannot be certain that any of our product
candidates will be successful in clinical studies or receive regulatory approval or what regulatory pathway the regulatory authorities
shall designate for our product candidates. Further, our product candidates may not receive regulatory approval even if they are successful
in clinical studies. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.
We generally plan to seek
regulatory approval to commercialize our product candidates in the United States, the European Union, Israel and other foreign countries.
To obtain regulatory approvals we must comply with the numerous and varying regulatory requirements of such countries regarding safety,
efficacy, chemistry, manufacturing and controls, clinical studies, commercial sales, pricing and distribution of our product candidates.
Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions.
If we are unable to obtain approval for our product candidates in multiple jurisdictions, our revenue and results of operations would
be negatively affected.
The regulatory approval processes of the
FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If we are ultimately unable to obtain
regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain
approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical
studies and depends upon numerous factors. In addition, approval policies, regulations or the type and amount of clinical data necessary
to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which
may cause delays in the approval or the decision not to approve an application. We have not obtained regulatory approval for any product
candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future
will ever obtain regulatory approval.
Applications for our product
candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies; |
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we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s safety-benefit ratio for its proposed indication is acceptable; |
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical studies; |
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the data collected from clinical studies of our product candidates may not be sufficient to support the submission of a new drug application, or NDA, in the United States or elsewhere; |
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and |
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
This lengthy approval process,
as well as the unpredictability of the results of clinical studies, may result in our failing to obtain regulatory approval to market
any of our product candidates, which would significantly harm our business, results of operations and prospects.
Clinical drug development involves a lengthy
and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results.
Clinical testing is expensive
and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical study
process. The results of pre-clinical studies and early clinical studies, if any are commenced, of our product candidates may not be predictive
of the results of later-stage clinical studies. Product candidates that have shown promising results in early-stage clinical studies may
still suffer significant setbacks in subsequent advanced clinical studies. There is a high failure rate for drugs proceeding through clinical
studies, and product candidates in later stages of clinical studies may fail to show the desired safety and efficacy traits despite having
progressed satisfactorily through preclinical studies and initial clinical studies. A number of companies in the pharmaceutical industry
have suffered significant setbacks in advanced clinical studies due to lack of efficacy or adverse safety profiles, notwithstanding promising
results in earlier studies. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. We
do not know whether any Phase 1, Phase 2, Phase 3 (if any) or other clinical studies we may conduct will demonstrate consistent
or adequate efficacy and safety sufficient to obtain regulatory approval to market our product candidates.
We may find it difficult to enroll patients
in our clinical studies. Difficulty in enrolling patients could delay or prevent clinical studies of our product candidates.
Identifying and qualifying
patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical studies depends
in part on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays in
our clinical studies if we encounter difficulties in enrollment.
Additionally, the process
of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete
our clinical studies because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of
competing therapies and clinical studies, the proximity and availability of clinical study sites for prospective patients and the patient
referral practices of physicians. If patients are unwilling to participate in our studies for any reason, the timeline for recruiting
patients, conducting studies and obtaining regulatory approval of potential product candidates will be delayed.
If we experience delays in
the completion or termination of any clinical study of our product candidates, the commercial prospects of our product candidates will
be harmed, and our ability to generate product candidate revenue from any of these product candidates could be delayed or prevented. In
addition, any delays in completing our clinical studies will increase our costs, slow down our product candidate development and approval
process and jeopardize our ability to commence product candidate sales and generate revenue. Any of these occurrences may harm our business,
financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement
or completion of clinical studies may also ultimately lead to the denial of regulatory approval of our product candidates.
We may encounter substantial delays in our
clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
Before obtaining marketing
approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate
the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time consuming and uncertain as to outcome.
We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more
clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful
or timely completion of clinical development include but are not limited to:
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inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical studies; |
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delays in reaching a consensus with regulatory agencies on study design; |
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delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites; |
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delays in obtaining required Institutional Review Board, or IRB, approval at each clinical study site; |
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imposition of a clinical hold by regulatory agencies, after review of an IND, application, or equivalent application, or an inspection of our clinical study operations or study sites; |
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delays in recruiting suitable patients to participate in our clinical studies; |
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difficulty collaborating with patient groups and investigators; |
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failure by our CROs, other third parties or us to adhere to clinical study requirements; |
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failure to perform in accordance with the FDA’s Good Clinical Practices, or GCP, requirements, or applicable regulatory guidelines in other countries; |
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delays in having patients complete participation in a study or return for post-treatment follow-up; |
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patients dropping out of a study; |
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occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; |
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changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; |
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the cost of clinical studies of our product candidates being greater than we anticipate; |
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clinical studies of our product candidates producing negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional clinical studies or abandon product candidate development programs; and |
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delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing. |
Any inability to successfully
complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. We may
also be required to conduct additional safety, efficacy and comparability studies before we will be allowed to start clinical studies
with our repurposed drugs. Clinical study delays could also shorten any periods during which our product candidates have patent protection
and may allow our competitors to bring product candidates to market before we do, which could impair our ability to obtain orphan exclusivity
and successfully commercialize our product candidates and may harm our business and results of operations.
Our product candidates may cause undesirable
side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved
label or result in significant negative consequences following marketing approval, if any.
The use of dronabinol has
been associated with seizures, paranoia, rapid heart rate and unusual thoughts and behaviors. Undesirable side effects caused by our product
candidates could cause us or regulatory authorities to interrupt, delay or halt clinical studies and could result in a more restrictive
marketing label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Potential side effects
of our cannabinoid-based treatments may include: asthenia, palpitations, tachycardia, vasodilation/facial flush, abdominal pain, nausea,
vomiting, amnesia, anxiety/nervousness, ataxia, confusion, depersonalization, dizziness, euphoria, hallucinations, paranoid reaction,
somnolence and abnormal thinking. Results of our studies may identify unacceptable severity and prevalence of these or other side effects.
In such an event, our studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us
to cease further development of or deny or withdraw approval of our product candidates for any or all targeted indications.
Drug-related side effects
could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product candidate liability
claims.
Additionally, if one or more
of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such product
candidates, a number of potentially significant negative consequences could result, including but not limited to:
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regulatory authorities may withdraw approvals of such product candidate; |
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regulatory authorities may require additional warnings on the label; |
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we may be required to create a Risk Evaluation and Mitigation Strategy, or REMS, plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use; |
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we could be sued and held liable for harm caused to patients; and |
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our reputation may suffer. |
Any of these events could
prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm
our business, results of operations and prospects.
Even if we obtain regulatory approval for
a product candidate, our product candidates will remain subject to regulatory scrutiny.
If our product candidates
are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion,
sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including
both federal and state requirements in the United States. In addition, manufacturers and manufacturers’ facilities are required
to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current Good
Manufacturing Practices, or cGMP, regulations and Quality System Regulation, or QSR. As such, we and our contract manufacturers will be
subject to continual review and inspections to assess compliance with cGMP, QSR and adherence to commitments made in any NDA. Accordingly,
we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing,
production and quality control.
Any regulatory approvals that
we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product candidate
may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4
clinical trials and surveillance to monitor the safety and efficacy of the product candidate. We will also be required to report certain
adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for
our product candidates. 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 candidate’s approved label. As such, we may not promote
our product candidates for indications or uses for which they do not have FDA approval. The holder of an approved NDA must also submit
new or supplemental applications and obtain FDA approval for certain changes to the approved product candidate, product candidate labeling
or manufacturing process. We could also be asked to conduct post-marketing clinical studies to verify the safety and efficacy of our product
candidates in general or in specific patient subsets. If original marketing approval were obtained via the accelerated approval pathway,
we could be required to conduct a successful post-marketing clinical study to confirm clinical benefit for our product candidates. An
unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval. Furthermore,
any new legislation addressing drug safety issues could result in delays in product candidate development or commercialization or increased
costs to assure compliance. Foreign regulatory authorities impose similar requirements.
If a regulatory agency discovers
previously unknown problems with a product candidate, such as adverse events of unanticipated severity or frequency, or problems with
the facility where the product candidate is manufactured, or disagrees with the promotion, marketing or labeling of a product candidate,
such regulatory agency may impose restrictions on that product candidate or us, including requiring withdrawal of the product candidate
from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among
other things:
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issue warning letters; |
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impose civil or criminal penalties; |
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suspend or withdraw regulatory approval; |
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suspend any of our ongoing clinical studies; |
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refuse to approve pending applications or supplements to approved applications submitted by us; |
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impose restrictions on our operations, including closing our contract manufacturers’ facilities; or |
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seize or detain product candidates, or require a product candidate recall. |
Any government investigation
of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity.
Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate
revenue from our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company
and our operating results will be adversely affected.
We are subject to numerous complex regulations
and failure to comply with these regulations, or the cost of compliance with these regulations, may harm our business.
The research, testing, development,
manufacturing, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, marketing, distribution,
possession and use of our product candidates, among other things, are subject to regulation by numerous governmental authorities in the
United States and elsewhere. The FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act of 1938, or the FDC Act, and implementing
regulations. Noncompliance with any applicable regulatory requirements can result in refusal to approve product candidates for marketing,
warning letters, product candidate recalls or seizure of product candidates, total or partial suspension of production, prohibitions or
limitations on the commercial sale of product candidates or refusal to allow the entering into of federal and state supply contracts,
fines, civil penalties and/or criminal prosecution. Additionally, the FDA and comparable governmental authorities have the authority to
withdraw product candidate approvals that have been previously granted. Moreover, the regulatory requirements relating to our product
candidates may change from time to time and it is impossible to predict what the impact of any such changes may be.
We are developing product
candidates that are controlled substances as defined in the Controlled Substances Act of 1970, or CSA, which establishes, among other
things, certain registration, production quotas, security, recordkeeping, reporting, import, export and other requirements administered
by the Drug Enforcement Administration, or the DEA. The active ingredient in our product candidates is CBD, which, when derived from cannabis,
is a Schedule V controlled substance, meaning that any drug containing it cannot be marketed before it receives regulatory approval from
the FDA.
The manufacture, shipment,
storage, sale and use, among other things, of controlled substances that are pharmaceutical product candidates are subject to a high degree
of regulation. The DEA also conducts periodic inspections of registered establishments that handle controlled substances. Facilities that
conduct research, manufacture, distribute, import or export controlled substances must be registered to perform these activities and have
the security, control and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to maintain compliance,
particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect
on our business, results of operations, financial condition and prospects. The DEA may seek civil penalties, refuse to renew necessary
registrations, or initiate proceedings to suspend or revoke those registrations. In certain circumstances, violations could lead to criminal
proceedings.
Individual states also have
controlled substances laws. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions,
they may separately schedule our product candidates as well. While some states automatically schedule a drug when the DEA does so, other
states schedule drugs through rulemaking or a legislative action. State scheduling may delay commercial sale of any product candidate
for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness
of such product candidate. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to
obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory
requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal
law.
If the market opportunities for our product
candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
Our projections of both the
number of people who have our target diseases, as well as the subset of people with these diseases who have the potential to benefit from
treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources,
including the scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect. Further,
new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected.
The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients
for whom treatment might be possible. Additionally, the potentially addressable patient population for each of our product candidates
may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to
identify or gain access to, which would adversely affect our results of operations and our business.
We face intense competition and rapid technological
change and the possibility that our competitors may discover, develop or commercialize therapies that are similar, more advanced or more
effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.
The biotechnology and pharmaceutical
industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and
research organizations actively engaged in the research and development of products that may be similar to our product candidates.
More established companies
may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our
competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may
have an advantage in marketing their approved products and may obtain regulatory approval of their product candidates before we are able
to, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are safer,
more effective, more widely used and less expensive than ours, and may also be more successful than us in manufacturing and marketing
their products. These advantages could materially impact our ability to develop and commercialize our product candidates successfully.
Our product candidates may
also compete with medical and recreational marijuana, in markets where the recreational and/or medical use of marijuana is legal. There
is support in the United States for further legalization of marijuana. In markets where recreational and/or medical marijuana is
not legal, our product candidates may compete with marijuana purchased in the illegal drug market. We cannot assess the extent to which
patients may utilize marijuana obtained illegally for the treatment of the indications for which we are developing our product candidates.
Even if we successfully develop
our product candidates, and obtain marketing approval for them, other treatments or therapeutics may be preferred and we may not be successful
in commercializing our product candidates or in bringing them to market.
Many of our competitors have
substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing
and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in
even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than
we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove
to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase
further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in
these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective
or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization
and market penetration than we do. Additionally, technologies developed by our competitors may render our potential product candidates
uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
The commercial success of any current or
future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the
medical community.
Even with the requisite approvals
from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates will depend in part on the
medical community, patients and third-party payors accepting our product candidates as medically useful, cost-effective and safe. Any
product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical
community. The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number
of factors, including:
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the safety and efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments; |
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the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling; |
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the clinical indications for which approval is granted; |
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relative convenience and ease of administration; |
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the cost of treatment, particularly in relation to competing treatments; |
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
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the strength of marketing and distribution support and timing of market introduction of competitive products; |
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publicity concerning our products or competing products and treatments; and |
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sufficient third-party insurance coverage and reimbursement. |
Even if a potential product
displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be fully
known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates
may require significant resources and may never be successful. If our product candidates are approved but fail to achieve an adequate
level of acceptance by physicians, patients, third-party payors and others in the medical community, we will not be able to generate sufficient
revenue to become or remain profitable.
The insurance coverage and reimbursement
status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products
could limit our ability to market those products and decrease our ability to generate revenue.
The pricing, coverage and
reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure. Our per-patient prices
must be sufficient to recover our development and manufacturing costs and potentially achieve profitability. Accordingly, the availability
and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to be able to afford expensive
treatments such as ours, assuming approval. Sales of our product candidates will depend substantially, both domestically and abroad, on
the extent to which the costs of our product candidates will be paid for by health maintenance, managed care, pharmacy benefit and similar
healthcare management organizations, or reimbursed by government authorities, private health insurers and other third-party payors. If
coverage and reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize
our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish
or maintain pricing sufficient to realize a return on our investment.
There is significant uncertainty
related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about coverage
and reimbursement for new drugs are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within
the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new drug will be covered and reimbursed
under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult
to predict what CMS will decide with respect to reimbursement for products such as ours.
Outside the United States,
international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the
increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the
pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms
as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United
States. Other countries allow companies to fix their own prices for medicinal products, but monitor and control company profits. Additional
foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates.
Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and
may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts
by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations
to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate
payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.
The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has
become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Healthcare legislative reform measures may
have a material adverse effect on our business and results of operations.
In the United States, there
have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in 2010, the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, was
passed. The Affordable Care Act is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and the health insurance industry,
impose new taxes and fees on the healthcare industry and impose additional health policy reforms. This law revises the definition of “average
manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision
is effective. Further, the law imposes a significant annual fee on companies that manufacture or import branded prescription drug products.
Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business practices with healthcare
practitioners. While the U.S. Supreme Court upheld the constitutionality of most elements of the Affordable Care Act in 2012, other legal
challenges are still pending final adjudication in several jurisdictions. In addition, Congress has also proposed a number of legislative
initiatives, including possible repeal of the Affordable Care Act. At this time, it remains unclear whether there will be any changes
made to the Affordable Care Act, whether to certain provisions or its entirety. We can provide no assurance that the Affordable Care Act,
as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict
how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.
We continue to evaluate the
effect that the Affordable Care Act has on our business. Other legislative changes have been proposed and adopted in the United States
since the Affordable Care Act was enacted. For example, through the process created by the Budget Control Act of 2011, there are automatic
reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative
amendments, will remain in effect through 2030 unless additional Congressional action is taken. However, the CARES Act, which was signed
into law in March 2020 and is designed to provide financial support and resources to individuals and businesses affected by the COVID-19
pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through
2031. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced
Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments
to providers from three to five years. In addition, on January 28, 2021, President Biden issued an executive order to initiate a special
enrolment period from February 26, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the Affordable
Care Act marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies
and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that
include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid
or the Affordable Care Act. In addition, on August 16, 2022, President Biden signed the IRA into law, which among other things, extends
enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025. The
IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary
maximum out-of-pocket cost through a newly established manufacturer discount program. Affordable Care Act Additional legislative and regulatory
changes and judicial challenges to the Affordable Care Act, its implementing regulations and guidance and its policies, remain possible.
It is possible that the Affordable
Care Act will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare
reform measures of the Biden administration will impact the Affordable Care Act. In the coming years, additional legislative and regulatory
changes could be made to governmental health programs that could significantly impact pharmaceutical companies and the success of our
product candidates. 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, and, in some cases, designed to encourage importation from other
countries and bulk purchasing. The Affordable Care Act, as well as other federal, state and foreign healthcare reform measures that have
been and may be adopted in the future, could harm our future revenues. Further, it is also possible that additional governmental action
is taken in response to the COVID-19 pandemic.
Risks Related to our Business and Operations
We hold no patents on our products,
and our business employs proprietary technology (know-how) and information may be difficult to protect and/or infringe on the intellectual
property rights of third parties.
Raphael has no patents and
therefore, as a result of the Share Exchange, we did not acquire any patents. As such, we currently rely on trade secrets, proprietary
know-how, and technology methods that we seek to protect, in part, by confidentiality agreements. We cannot assure you that these agreements
will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and proprietary know-how will not
otherwise become known or be independently discovered by others. We currently do not hold patents from the United States Patent and Trademark
Office, or USPTO.
We cannot assure you that
the patents of others will not have an adverse effect on our ability to conduct our business, that any of our trade secrets and applications
will be protected, that we will develop additional proprietary technology (know-how) or methods that is defensible against theft or will
provide us with competitive advantages or will not be challenged by third parties.
We manage our business through our three
executive officers and key consultants and are highly dependent upon our Chief Technology Officer.
Key service providers are
serving as our Chief Executive Officer, Chief Financial Officer and Chief Technology Officer and other scientific services consultants.
Due to the lean nature of our operations and our current operations which mainly consist of outsourcing services, we are highly dependent
upon our Chief Technology Officer. If our Chief Technology Officer, and to a lesser extent, any key consultants, resigns, this could adversely
affect our ability to execute our business plan and harm our operating results. We do not currently carry “key person” insurance
on the lives of members of management.
We will need to expand our organization
and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations.
As our development and commercialization
plans and strategies develop and because we are so leanly staffed, we will need additional managerial, operational, sales, marketing,
financial, legal and other resources. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense
competition, we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable
replacement personnel.
Our management may need to
divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing
these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our
infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.
Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the
development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase
more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy.
Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on
our ability to effectively manage any future growth.
We may not be successful in our efforts
to identify, license or discover additional product candidates.
Although a substantial amount
of our effort will focus on the continued clinical testing, potential approval and commercialization of our existing product candidates,
the success of our business also depends in part upon our ability to identify, license or discover additional product candidates. Our
research programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons,
including but not limited to the following:
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our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates; |
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we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates; |
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our product candidates may not succeed in preclinical or clinical testing; |
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our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval; |
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competitors may develop alternatives that render our product candidates obsolete or less attractive; |
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product candidates we develop may be covered by third parties’ patents or other exclusive rights; |
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the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop; |
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a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and |
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a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors. |
If any of these events occur,
we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license or discover
additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.
Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
We may be subject, directly or indirectly,
to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable
to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we obtain FDA approval
for any of our product candidates and begin commercializing those products in the United States, our operations may be directly or indirectly
through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback
Statute, the federal False Claims Act and physician sunshine laws and regulations. These laws may impact, among other things, our proposed
sales, and marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government
and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; |
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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; |
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the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; |
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HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; |
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the federal physician sunshine requirements under the Affordable Care Act requires manufacturers of drugs, devices and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and |
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
Because of the breadth of
these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities
could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these
laws. For example, the Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminal
healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it.
Moreover, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation
of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
If our operations are found
to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties,
including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare
and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect our ability to
operate our business and our results of operations.
International expansion of our business
exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the
United States or Israel.
Other than our headquarters
and other operations which are located in Israel (as further described below), we currently have limited international operations, but
our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product
candidates. We plan to maintain sales representatives and conduct physician and patient association outreach activities, as well as clinical
trials, outside of the United States and Israel. Doing business internationally involves a number of risks, including but not limited
to:
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multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses; |
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failure by us to obtain regulatory approvals for the use of our products in various countries; |
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additional potentially relevant third-party patent rights; |
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complexities and difficulties in obtaining protection and enforcing our intellectual property; |
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difficulties in staffing and managing foreign operations; |
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complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems; |
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limits in our ability to penetrate international markets; |
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financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; |
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natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions; |
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certain expenses including, among others, expenses for travel, translation and insurance; and |
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regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, or FCPA, its books and records provisions or its anti-bribery provisions. |
Any of these factors could
significantly harm our future international expansion and operations and, consequently, our results of operations.
If we fail to comply with environmental,
health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse
effect on the success of our business.
Our research and development
activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of
hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers
are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some
cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities
pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization
efforts, research and development efforts, business operations and environmental damage resulting in costly clean-up and liabilities under
applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although
we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally
comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of
accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability
could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt
our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more
stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological
or hazardous waste insurance coverage.
The use of any of our product candidates
could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.
Our business exposes us to
an inherent risk of potential product liability or similar claims. The pharmaceutical industry has historically been litigious, and we
face financial exposure to product liability or similar claims if the use of any of our products were to cause or contribute to injury
or death. There is also the possibility that defects in the design or manufacture of any of our products might necessitate a product recall.
Although we plan to maintain product liability insurance, the coverage limits of these policies may not be adequate to cover future claims.
In the future, we may be unable to maintain product liability insurance on acceptable terms or at reasonable costs and such insurance
may not provide us with adequate coverage against potential liabilities. A product liability claim, regardless of merit or ultimate outcome,
or any product recall could result in substantial costs to us, damage to our reputation, customer dissatisfaction and frustration and
a substantial diversion of management attention. A successful claim brought against us in excess of, or outside of, our insurance coverage
could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Reliance on Third Parties
We rely on third parties to conduct our
preclinical and, in the future, clinical studies and perform other tasks for us. If these third parties do not successfully carry out
their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval
for or commercialize our product candidates and our business could be substantially harmed.
We have relied upon and plan
to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these
parties for execution of our preclinical and, in the future, clinical studies, and control only certain aspects of their activities. Nevertheless,
we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and
scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors
will be required to comply with current cGMP, GCP, QSR and Good Laboratory Practices, or GLP, which are regulations and guidelines enforced
by the FDA, the Competent Authorities of the Member States of the European Economic Area, and comparable foreign regulatory authorities
for any product candidates that move into clinical development. Regulatory authorities enforce these regulations through periodic inspections
of study sponsors, principal investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with
applicable regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMA or comparable foreign
regulatory authorities may require us to perform additional clinical studies before approving our marketing applications. We cannot assure
you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical studies comply
with GCP regulations. In addition, our clinical studies must be conducted with product candidates which are produced under cGMP regulations.
Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process.
If any of our relationships
with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable
terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot
control whether or not they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs
do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the
quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory
requirements or for other reasons, our clinical studies may be extended, delayed or terminated and we may not be able to obtain regulatory
approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result,
our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability
to generate revenue could be delayed.
Switching or adding additional
CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO
commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines.
Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or
delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and
prospects.
We will rely on third parties to grow and
provide us with our active pharmaceutical ingredient, or API, and formulations. Our business could be harmed if those third parties fail
to provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices.
We do not have the infrastructure
or capability internally to manufacture the API formulations, and we lack the resources and the capability to manufacture any of our product
candidates on a clinical or commercial scale. We plan to rely on third parties for such supplies. In addition, we are reliant on one third
party for the CBD that we intend to use in our preclinical studies, which, has caused us to rely on their cooperation to meet their contractual
obligations, but there can be no guarantee that we are able to meet such obligations. In addition, there may be a need to identify alternate
manufacturers to prevent a possible disruption of our clinical studies. Any significant delay or discontinuity in the supply of these
components could considerably delay completion of our preclinical studies, product candidate testing and potential regulatory approval
of our product candidates, which could harm our business and results of operations.
We and our collaborators and contract manufacturers
are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely
may not continue to meet regulatory requirements and have limited capacity.
All entities involved in the
preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for our product candidates,
are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or a product candidate
used in late-stage clinical studies must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and
procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational
product candidates and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or
to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We,
our collaborators or our contract manufacturers must supply all necessary documentation in support of an NDA, or Marketing Authorization
Application, or MAA, on a timely basis and must adhere to GLP and cGMP QSR regulations enforced by the FDA and other regulatory agencies
through their facilities inspection program. Some of our contract manufacturers have never produced a commercially approved pharmaceutical
product and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some
or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations
as a condition of regulatory approval of our product candidates or any of our other potential product candidates. In addition, the regulatory
authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our
other potential product candidates or the associated quality systems for compliance with the regulations applicable to the activities
being conducted. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners
for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval
of the product candidates may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of
the regulatory authority, if ever.
The regulatory authorities
also may, at any time following approval of a product candidate for sale, if ever, audit the manufacturing facilities of our collaborators
and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation
of our product candidate specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant
regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and
that may include the temporary or permanent suspension of a clinical study or commercial sales, or the temporary or permanent closure
of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
If we, our collaborators,
or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatory authority can impose
regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product, withdrawal of an
approval or suspension of production. As a result, our business, financial condition and results of operations may be materially harmed.
Additionally, if supply from
one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA or MAA amendment, or equivalent
foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer
is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in
our desired clinical and commercial timelines.
These factors could cause
us to incur higher costs and, if we commence clinical development, could cause the delay or termination of clinical studies, regulatory
submissions, required approvals or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual
requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our
clinical studies may be delayed or we could lose potential revenue.
Our reliance on third parties requires us
to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated
or disclosed.
Because we rely on third parties
to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary
technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research
agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning
research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our
confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need
to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors,
are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our
proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other
unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
Risks Related to Ownership of Our Securities
Our executive officer, directors and certain
stockholders who are beneficial owners of 5% or more of our outstanding Common Stock possess the majority of our voting power, and through
this ownership, have the ability to control our Company and our corporate actions.
Following the Share Exchange,
our current executive officer, directors and certain stockholders who are beneficial owners of 5% or more of our outstanding Common Stock
hold approximately 53% of the issued and outstanding voting power of the Company’s outstanding shares. These persons have a controlling
influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including
mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate
actions. As such, our directors and executive officer may have the power, acting alone or together, to prevent or cause a change in control;
therefore, without their consent we could be prevented from entering into transactions that could be beneficial to us. The interests of
our executive officer may give rise to a conflict of interest with the Company and the Company’s shareholders.
In addition, we have a number
of stockholders who are beneficial owners of more than 5% of our outstanding Common Stock, as of March 23, 2023, including our Chief
Executive Officer who beneficially owns approximately 28% of our issued and outstanding shares, and as such, also may have the ability
to prevent us from entering into transactions that could be beneficial to us and/or other shareholders. In addition, we have one additional
non-affiliated stockholder who is a beneficial owner of more than 5% of our outstanding Common Stock. Although this non-affiliated stockholder
currently does not have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to
our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors,
and other significant corporate actions, obtaining its vote on certain matters may be necessary to effect certain actions that our management
and directors otherwise deem to be in the best interests of the Company.
For additional details concerning
beneficial ownership of our securities, please refer to the section below entitled “Beneficial Ownership of the Company’s
Common Stock” and with respect to voting power, please refer to the section below entitled “Description of Securities.”
Investors may have difficulty in reselling
their shares due to the lack of market or state Blue Sky laws.
Our Common Stock is not
currently traded on any national securities exchange and is not quoted on any over-the-counter market. No market may ever develop for
our Common Stock, or if developed, may not be sustained in the future. The holders of our shares of Common Stock and persons who desire
to purchase them in any trading market that might develop in the future should be aware that there might be significant state law restrictions
upon the ability of investors to resell our shares. Accordingly, even if we are successful in having the shares available for trading
on the over-the-counter markets, investors should consider any secondary market for our Common Stock to be a limited one.
We may seek coverage and publication
of information regarding our Company in an accepted publication, which permits a “manual exemption.” This manual exemption
permits a security to be distributed in a particular state without being registered if the company issuing the security has a listing
for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized
manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer’s balance sheet, and (3)
a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. We
may not be able to secure a listing containing all of this information. Furthermore, the manual exemption is a non-issuer exemption restricted
to secondary trading transactions, making it unavailable for issuers selling newly issued securities. Most of the accepted manuals are
those published in Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment Service, and Best’s Insurance
Reports, and many states expressly recognize these manuals. A smaller number of states declare that they “recognize securities manuals”
but do not specify the recognized manuals. Accordingly, our Common Stock should be considered totally illiquid, which inhibits investors’
ability to resell their shares
Our Common Stock may never be listed on
a major stock exchange.
While we may seek the listing
of our Common Stock on a national or other securities exchange at some time in the future, we currently do not satisfy the initial listing
standards and cannot ensure that we will be able to satisfy such listing standards or that our Common Stock will be accepted for listing
on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our Common Stock is otherwise
rejected for listing, the trading price of our Common Stock could suffer, the trading market for our Common Stock may be less liquid,
and our Common Stock price may be subject to increased volatility.
As a former shell company, resales of shares
of our restricted Common Stock in reliance on Rule 144 of the Securities Act are subject to the requirements of Rule 144(i).
We previously were a “shell
company” and, as such, sales of our securities pursuant to Rule 144 under the Securities Act of 1933, as amended, cannot be made
unless, among other things, at the time of a proposed sale, we are subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, and have filed all reports and other materials required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 as amended, as applicable, during the preceding 12 months, other than Form 8-K reports. Because,
as a former shell company, the reporting requirements of Rule 144(i) will apply regardless of holding period, restrictive legends on certificates
for shares of our Common Stock cannot be removed except in connection with an actual sale that is subject to an effective registration
statement under, or an applicable exemption from the registration requirements of, the Securities Act of 1933, as amended. Because our
unregistered securities cannot be sold pursuant to Rule 144 unless we continue to meet such requirements, any unregistered securities
we issue will have limited liquidity unless we continue to comply with such requirements.
The securities issued in connection with the Share Exchange
are restricted securities and may not be transferred in the absence of registration or the availability of a resale exemption.
The shares of Common Stock
being issued in connection with the Share Exchange are being issued in reliance on an exemption from the registration requirements under
Section 4(a)(2) of the Securities Act. Consequently, these securities will be subject to restrictions on transfer under the Securities
Act and may not be transferred in the absence of registration or the availability of a resale exemption. In particular, in the absence
of registration, such securities cannot be resold to the public until certain requirements under Rule 144 promulgated under the Securities
Act have been satisfied, including certain holding period requirements. As a result, a purchaser who receives any such securities issued
in connection with the Share Exchange may be unable to sell such securities at the time or at the price or upon such other terms and conditions
as the purchaser desires, and the terms of such sale may be less favorable to the purchaser than might be obtainable in the absence of
such limitations and restrictions.
We do not plan to declare or pay any dividends
to our stockholders in the near future.
We have not declared any dividends
in the past, and we do not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends
will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows
and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is
no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such
dividend.
The requirements of being a reporting company
may strain our resources and distract management.
As a reporting company, we
are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).
These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business
and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls
over financial reporting.
We may incur significant costs
associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. We
expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some
activities more time consuming and costly. This may divert management’s attention from other business concerns, which could
have a material adverse effect on our business, financial condition and results of operations. We also expect that these applicable
rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may
be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As
a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive
officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount
of additional costs we may incur or the timing of such costs.
If in the future there is a trading market
for our Common Stock, “penny stock” rules may make buying or selling our Common Stock difficult.
The SEC has adopted regulations
that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain
exceptions. These rules require that any broker-dealer that recommends our Common Stock to persons other than prior customers and accredited
investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s
written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny
stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our Common Stock, which could severely limit the market price and liquidity of our Common
Stock.
The sales practice requirements of the Financial
Industry Regulatory Authority, or FINRA, may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny
stock” rules described above, FINRA has adopted Rule 2111 that requires a broker-dealer to have reasonable grounds for believing
that an investment is suitable for a customer before recommending the investment. Prior to recommending speculative low-priced securities
to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a
high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make
it more difficult for broker-dealers to recommend that their customers buy the Company’s Common Stock, which may limit your ability
to buy and sell the Company’s stock and have an adverse effect on the market for our shares.
We have not yet determined whether our existing
internal controls over financial reporting are in compliance with Section 404 of the Sarbanes-Oxley Act.
We are not currently required
to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act (“Section 404”) and therefore are not
required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Compliance
with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial
and other information in our annual reports and provide an annual management report on the effectiveness of control over financial reporting.
Though we will be required to disclose material changes in internal control over financial reporting on an annual basis, we will not be
required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following
our first annual report required to be filed with the SEC. Additionally, as we do not qualify as an emerging growth company, we are required
to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal
control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal
resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control
over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning
as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We have begun
the process of evaluating the adequacy of our accounting personnel staffing level and other matters related to our internal control over
financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at
all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses
once we are a public company, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability
of our financial statements. As a result, the market price of our Common Stock could be negatively affected, and we could become subject
to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require
additional financial and management resources.
Risks Related to our Operations in Israel
Our headquarters and other significant operations
are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel.
Our executive offices are
located in Tel Aviv-Jaffa, Israel. In addition, the majority of our officers and directors are residents of Israel. If these or any future
facilities in Israel were to be damaged, destroyed or otherwise unable to operate, whether due to war, acts of hostility, earthquakes,
fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise,
or if performance of our research and development is disrupted for any other reason, such an event could delay our clinical trials or,
if our product candidates are approved and we choose to manufacture all or any part of them internally, jeopardize our ability to manufacture
our products as promptly as our prospective customers will likely expect, or possibly at all. If we experience delays in achieving our
development objectives, or if we are unable to manufacture an approved product within a timeframe that meets our prospective customers’
expectations, our business, prospects, financial results and reputation could be harmed.
Political, economic and military
conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts
have taken place between Israel and groups in its neighboring countries, Hamas (an Islamist militia and political group that has historically
controlled the Gaza Strip) and Hezbollah (an Islamist militia and political group based in Lebanon). In addition, several countries, principally
in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel
and Israeli companies whether as a result of hostilities in the region or otherwise. Any hostilities involving Israel, terrorist activities,
political instability or violence in the region or the interruption or curtailment of trade or transport between Israel and its trading
partners could adversely affect our operations and results of operations and the market price of our ordinary shares.
Our commercial insurance does
not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli
government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of
war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully
for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and
results of operations.
Our operations are subject to currency and
interest rate fluctuations.
Although our functional currency
is the U.S. dollar, and our financial records are maintained in U.S. dollars, we also incur expenses in Euros and New Israeli Shekels.
In the future, we expect that a substantial portion of our revenues will be generated in U.S. dollars, Euros and other foreign currencies,
although we currently incur a significant portion of our expenses in currencies other than U.S. dollars, mainly New Israeli Shekels. As
a result, we are affected by foreign currency exchange fluctuations through both translation risk and transaction risk, and our financial
results may be affected by fluctuations in the exchange rates of currencies in the countries in which our prospective product candidates
may be sold. We currently partially hedge our foreign currency exchange rate risk to decrease the risk of financial exposure from fluctuations
in the exchange rates of our principal operating currencies.
It may be difficult to enforce a judgment
of a U.S. court against us and our executive officers and directors and the Israeli experts named in this Annual Report in Israel or the
United States, to assert U.S. securities laws claims in Israel or to serve process on our executive officers and directors and these experts.
We were incorporated in Israel.
Substantially all of our executive officers and directors reside outside of the United States, and all of our assets and most of the assets
of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including
a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and
may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United
States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor,
or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear
a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring
such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable
to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses,
which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding
case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against
us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court. See “Enforceability of Civil
Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors
named in this Annual Report.
General Risk Factors
Future changes in financial accounting standards
or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.
A change in accounting standards
or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before
the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and
may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial
results or the way we conduct business.
Raising additional capital would cause dilution
to our existing shareholders, and may affect the rights of existing shareholders.
We may seek additional capital
through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements.
To the extent that we raise additional capital through the issuance of equity or convertible debt securities, your ownership interest
will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder.
Failure in our information technology systems,
including by cybersecurity attacks or other data security incidents, could significantly disrupt our operations.
Our operations depend, in
part, on the continued performance of our information technology systems. Our information technology systems are potentially vulnerable
to physical or electronic break-ins, computer viruses and similar disruptions. Failure of our information technology systems could adversely
affect our business, profitability and financial condition. Although we have information technology security systems, a successful cybersecurity
attack or other data security incident could result in the misappropriation and/or loss of confidential or personal information, create
system interruptions, or deploy malicious software that attacks our systems. It is possible that a cybersecurity attack might not be noticed
for some period of time. The occurrence of a cybersecurity attack or incident could result in business interruptions from the disruption
of our information technology systems, or negative publicity resulting in reputational damage with our shareholders and other stakeholders
and/or increased costs to prevent, respond to or mitigate cybersecurity events. In addition, the unauthorized dissemination of sensitive
personal information or proprietary or confidential information could expose us or other third parties to regulatory fines or penalties,
litigation and potential liability, or otherwise harm our business.
We may be subject to securities litigation,
which is expensive and could divert management attention.
In the past, companies that
have experienced volatility in the market price of their shares have been subject to securities class action litigation. We may be the
target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s
attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant
liabilities.
The requirements associated with being a
reporting company will require significant company resources and management attention.
We are subject to the reporting
requirements of the Exchange Act. The Exchange Act requires that we file periodic reports with respect to our business and financial condition
and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules
implemented by the SEC may also impose various additional requirements on reporting companies. We estimate that these expenses will be
at least several tens of thousand dollars annually. Further, the need to establish the corporate infrastructure demanded of a reporting
company may divert management’s attention from implementing our development plans. We have made changes to our corporate governance
standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. The measures we take,
however, may not be sufficient to satisfy our obligations as a public company, which could subject us to fines, sanctions and other regulatory
action and potentially civil litigation.