20-F 1 fsd_20f.htm FORM 20-F fsd_20f.htm

 

 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report ____________________

 

Commission file number: 001-39152

 

FSD Pharma Inc.

(Exact name of Registrant as specified in its charter)

  

Ontario, Canada

(Jurisdiction of incorporation or organization)

 

199 Bay St., Suite 4000

Toronto, Ontario M5L 1A9, Canada

(Address of principal executive offices)

 

Zeeshan Saeed, Founder, Chief Executive Officer, President and Executive Co-Chairman of the Board

FSD Pharma Inc.

199 Bay St., Suite 4000

Toronto, Ontario M5L 1A9, Canada

Telephone: (416) 854-8884

Email: zsaeed@fsdpharma.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 Class B Subordinate Voting Shares, no par value

 

HUGE

 

The Nasdaq Stock Market LLC

 

 

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act. None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Class A Multiple Voting Shares, no par value: 72 shares outstanding as of December 31, 2023

 

Class B Subordinate Voting Shares, no par value: 39,376,723 shares outstanding as of December 31, 2023

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐   No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐   No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐

International Financial Reporting Standards as

issued by the International Accounting Standards Board ☒

Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ☐ Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No

 

 

 

 

TABLE OF CONTENTS

 

INTRODUCTION

6

 

 

FORWARD-LOOKING STATEMENTS

6

 

 

MARKET AND INDUSTRY DATA

9

 

 

SUMMARY RISK FACTORS

10

 

 

PART I

 

11

 

 

 

Item 1.

Identity of Directors, Senior Management and Advisers.

11

 

 

 

Item 2.

Offer Statistics and Expected Timetable.

11

 

 

 

Item 3.

Key Information.

11

 

 

 

A.

[Reserved]

11

B.

Capitalization and Indebtedness

11

C.

Reasons for the Offer and Use of Proceeds

11

D.

Risk Factors

11

 

 

 

Item 4.

Information on the Company.

29

 

 

 

A.

History and Development of the Company

29

B.

Business Overview

34

C.

Organizational Structure

46

D.

Property, Plants and Equipment

48

 

 

 

Item 4A.

Unresolved Staff Comments.

48

 

 

 

Item 5.

Operating and Financial Review and Prospects.

48

 

 

 

A.

Operating Results

48

B.

Liquidity and Capital Resources

48

C.

Research and Development, Patents and Licenses, etc.

48

D.

Trend Information

48

E.

Critical Accounting Estimates

48

 

 

 

Item 6.

Directors, Senior Management and Employees.

48

 

 

 

A.

Directors and Senior Management

48

B.

Compensation

51

C.

Board Practices

59

D.

Employees

65

E.

Share Ownership

65

 

 
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Table of Contents

 

Item 7.

Major Shareholders and Related Party Transactions.

65

 

 

 

A.

Major Shareholders

65

B.

Related Party Transactions

67

C.

Interests of Experts and Counsel

68

 

 

 

Item 8.

Financial Information.

68

 

 

 

A.

Consolidated Statements and Other Financial Information

68

B.

Significant Changes

71

 

 

 

Item 9.

The Offer and Listing.

71

 

 

 

A.

Offer and Listing Details

 

B.

Plan of Distribution

71

C.

Markets

71

D.

Selling Shareholders

71

E.

Dilution

71

F.

Expenses of the Issue

71

 

 

 

Item 10.

Additional Information.

72

 

 

 

A.

Share Capital

72

B.

Memorandum and Articles of Association

72

C.

Material Contracts

72

D.

Exchange Controls

72

E.

Taxation

73

F.

Dividends and Paying Agents

79

G.

Statement by Experts

79

H.

Documents on Display

79

I.

Subsidiary Information

79

J.

Annual Report to Security Holders

79

 

 

 

Item 11.

Quantitative and Qualitative Disclosures About Market Risk.

 

 

 

79

Item 12.

Description of Securities Other than Equity Securities.

79

 

 

 

A.

Debt Securities

79

B.

Warrants and Rights

79

C.

Other Securities

79

D.

American Depositary Shares

79

 

 

 

PART II

 

 

 

 

 

Item 13.

Defaults, Dividend Arrearages and Delinquencies.

80

 

 
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Table of Contents

 

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds.

80

 

 

 

A.-D.

80

E.

Use of Proceeds

80

 

 

 

Item 15.

Controls and Procedures

82

 

 

 

A.

Disclosure Controls and Procedures

82

B.

Management’s Annual Report on Internal Control over Financial Reporting

82

C.

Attestation Report of the Registered Public Accounting Firm

82

D.

Changes in Internal Control Over Financial Reporting

82

 

 

 

Item 16.

[Reserved.]

82

 

 

 

Item 16A.

Audit Committee Financial Expert.

82

 

 

 

Item 16B.

Code of Ethics.

83

 

 

 

Item 16C.

Principal Accountant Fees and Services.

83

 

 

 

Item 16D.

Exemptions from the Listing Standards for Audit Committees.

83

 

 

 

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

83

 

 

 

Item 16F.

Change in Registrant’s Certifying Accountant.

85

 

 

 

Item 16G.

Corporate Governance.

86

 

 

 

Item 16H.

Mine Safety Disclosure.

86

 

 

 

Item 16I.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

86

 

 

 

Item 16J.

Insider Trading Policies.

86

 

 

 

Item 16K.

Cybersecurity.

86

 

 

 

PART III

 

 

 

 

Item 17.

Financial Statements.

88

 

 

 

Item 18.

Financial Statements.

88

 

 

 

Item 19.

Exhibits.

88

 

 
5

Table of Contents

 

INTRODUCTION

 

Unless otherwise noted or the context otherwise requires, all references in this Annual Report on Form 20-F (this “Annual Report”), or this Annual Report, to “FSD,” “FSD Pharma,” “Company,” “Corporation,” “we,” “us” and “our” refer to FSD Pharma Inc., a corporation formed under the Business Corporations Act (Ontario) (the “OBCA”) and the direct or indirect subsidiary entities of FSD and any partnership interests held by FSD Pharma and its subsidiary entities, including Lucid Psycheceuticals Inc. (“Lucid”), FSD BioSciences Inc. (“FSD Biosciences”), FV Pharma Inc. (“FV Pharma”), Prismic Pharmaceuticals, Inc. (“Prismic”), FSD Strategic Investments Inc. (“FSD Strategic Investments”), FSD Pharma Australia Pty Ltd. (“FSD Australia”) and Celly Nutrition Corp. (“Celly Nu”).

 

Our fiscal year ends on December 31. This Annual Report includes our audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022, (the “2023 Annual Financial Statements”) which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

 

Except where expressly indicated otherwise, our financial information is presented in U.S. dollars.  All references in this Annual Report to “$” or “US$” mean United States of American (“U.S.” or “United States”) dollars, and all references in this Annual Report to “C$” mean Canadian dollars. For the convenience of the reader, in this Annual Report, unless otherwise indicated, translations from Canadian dollars into U.S. dollars were made at the rate of US$1.00 to C$1.3497, which is the average rate for the 2023 fiscal year, (2022 average rate: US$1.00=C$1.3013). Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of Canadian dollars at the dates indicated.

 

We have made rounding adjustments to some of the figures included in this Annual Report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

 

This Annual Report includes registered and unregistered trademarks such as “Unbuzzd,” and “ALCOHOLDEATH,” which are protected under applicable intellectual property laws and are the property of the Company. Solely for convenience, our trademarks referred to in this Annual Report and in other publicly filed documents may appear without the ® or ™ symbol, but such references are not intended to indicate, in any way, that we will not assert our rights to the fullest extent under applicable law. All other trademarks used in this Annual Report are the property of their respective owners. For more information, please see “Item 4. Information on the Company. – B. Business Overview – Intellectual Property”.

 

We are incorporated under the laws of Ontario, Canada. Substantially all of our assets are located outside the United States. In addition, several of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such directors’ and officers’ assets may be located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or our officers or directors or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, investors should not assume that the courts of Canada (i) would enforce judgments of United States courts obtained in actions against us, our officers or directors, or other said persons, predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States or (ii) would enforce, in original actions, liabilities against us or such directors, officers or experts predicated upon the United States federal securities laws or any securities or other laws of any state or jurisdiction of the United States.

 

In addition, there is doubt as to the applicability of the civil liability provisions of the United States federal securities law to original actions instituted in Canada. It may be difficult for an investor, or any other person or entity, to assert United States securities laws claims in original actions instituted in Canada.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report contains statements that constitute forward-looking statements. All statements other than statements of historical facts contained in this Annual Report, including statements regarding our future results of operations and financial position, business strategy, product candidates, product pipeline, ongoing and planned clinical studies, including those of our collaboration partners, regulatory approvals, research and development (“R&D”) costs, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. Many of the forward-looking statements contained in this Annual Report are often, but not always, identified by words or phrases such as “hope”, “would”, “seek”, “anticipate”, “believe”, “expect”, “plan”, “continue”, “estimate”, “will”, “predict”, “intend”, “forecast”, “future”, “target”, “project”, “capacity”, “could”, “should”, “might”, “focus”, “proposed”, “scheduled”, “outlook”, “potential”, “may” or similar expressions and includes suggestions of future outcomes, including, but not limited to statements about:

 

 

·

discussions concerning the Company’s exploration of near-term funding strategies;

 

·

the Company’s plans to advance the R&D of its Product Candidates (as defined herein) to commercialization through studies and clinical trials, including anticipated timing and associated costs;

 

·

the application and the costs associated with such planned trials, and the Company’s ability to obtain required funding and the terms and timing thereof;

 

·

the expansion of our product offering(s);

 

·

our business objectives and the expected impacts of previously announced acquisitions and developments;

 

·

the U.S. Food and Drug Administration (“FDA”) and Health Canada, or comparable regulatory authority, application process and any review thereof and its effects on our business objectives.

 

 
6

Table of Contents

 

Readers are cautioned not to place undue reliance on Forward-Looking Statements as the Company’s actual results may differ materially and adversely from those expressed or implied.

 

The Corporation has made certain assumptions with respect to the Forward-Looking Statements regarding, among other things:

 

 

·

the Corporation’s ability to generate sufficient cash flow from operations and obtain financing, if needed, on acceptable terms or at all;

 

·

the general economic, financial market, regulatory and political conditions in which the Corporation operates;

 

·

the interest of potential purchasers in the Product Candidates;

 

·

anticipated and unanticipated costs; the government regulation of the Corporation’s activities and Product Candidates;

 

·

the timely receipt of any required regulatory approvals;

 

·

the Corporation’s ability to obtain qualified staff, equipment and services in a timely and cost efficient manner;

 

·

the Corporation’s ability to conduct operations in a safe, efficient and effective manner; and

 

·

the Corporation’s expansion plans and timeframe for completion of such plans.

 

Although the Corporation believes that the expectations and assumptions on which the Forward-Looking Statements are based are reasonable, undue reliance should not be placed on the Forward-Looking Statements, because no assurance can be given that such statements will prove to be correct.

 

Forward-looking statements appear in a number of places in this Annual Report and include, but are not limited to, statements regarding our intent, belief, or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions, and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under “Item 3. Key information - D. Risk Factors” in this Annual Report. These risks and uncertainties include multiple factors:

 

 

·

the success of our clinical studies, our ability to obtain and maintain regulatory approval and to commercialize our Product Candidates, which include Lucid-21-302 (“Lucid-MS”), for the treatment of multiple sclerosis (“MS”) and our product for alcohol misuse in the healthcare area;

 

·

the ability of our licensing partner, Celly Nu to commercialize, sell and distribute Unbuzzd™, a functional beverage product that seeks to provide relief from inebriation and accelerate alcohol metabolism in the consumer market;

 

·

the ability of our competitors to discover, develop or commercialize competing products to Unbuzzd™, Lucid-MS or other product candidates before or more successfully than we do;

 

·

our plans to research, develop and commercialize our Product Candidates;

 

·

the identification of serious adverse, undesirable, or unacceptable side effects related to our Product Candidates;

 

·

our ability to maintain our current strategic relationships with Celly Nu, our licensing partner to commercialize Unbuzzd™;

 

·

our ability to protect and maintain our, and not infringe on third parties’, intellectual property rights throughout the world;

 

·

our ability to raise capital when needed in order to continue our product development programs and commercialization efforts;

 

·

our ability to attract and retain qualified employees and key personnel;

 

·

the acceptance by the FDA and applicable foreign regulatory authorities of data from studies for Lucid-MS that we and our collaboration partners conduct within and outside the U.S. now and in the future;

 

·

our foreign private issuer status, the loss of which would require us to comply with the Exchange Act of 1934’s, as amended (the “Exchange Act”) domestic reporting regime, and cause us to incur significant legal, accounting, and other expenses;

 

·

our incorporation in Ontario, the laws of which govern our corporate affairs and may differ from those applicable to companies incorporated in the U.S.;

 

·

the limited operating history of the Company and history of losses, and anticipated significant losses for the foreseeable future incurred to pursue commercialization of the Product Candidates;

 

·

the Company’s inability to file investigational new drug applications (“INDs”) or clinical trial application (“CTAs”) on timelines it reasonably anticipates, if at all;

 

·

the Company’s ability to identify, license or discover additional product candidates;

 

·

the Product Candidates being in the preclinical development stage;

 

·

the Company’s reliance on its Product Candidates;

 

·

the Company’s ability to successfully develop new commercialized products or find a market for their sale;

 

·

the impact of any future recall of the Company’s products;

 

·

the Company’s ability to promote and sustain its products, including any restrictions or constraints on marketing practices under the regulatory framework in which the Company operates;

 

·

failure to achieve the degree of market acceptance and demand for our products or Product Candidates by physicians, patients, healthcare payors, and others in the medical community which are necessary for commercial success, including due to the possibility that alternative, superior treatments may be available prior to the approval and commercialization of Product Candidates, should such approval be received at all;

 

 
7

Table of Contents

 

 

·

failure of clinical trials to demonstrate substantial evidence of the safety and/or effectiveness of Product Candidates, which could prevent, delay or limit the scope of regulatory approval and commercialization, including from difficulties encountered in enrolling patients in clinical trials, and reliance on third parties to conduct our clinical trials and some aspects of our research and preclinical testing, or results from future clinical testing which may demonstrate opposing evidence and draw negative conclusions regarding the effectiveness of any Product Candidate, including the effectiveness of Lucid-MS as a treatment for MS;

 

·

results of earlier studies or clinical trials not being predictive of future clinical trials and initial studies or clinical trials not establishing an adequate safety or efficacy profile for the Product Candidates to justify proceeding to advanced clinical trials or an application for regulatory approval;

 

·

potential side effects, adverse events or other properties or safety risks of the Product Candidates, which could delay or halt their clinical development, prevent their regulatory approval, cause suspension or discontinuance of clinical trials, abandonment of a Product Candidate, limit their commercial potential, if approved, or result in other negative consequences;

 

·

preliminary, interim data obtained from the Company’s clinical trials that it may announce or publish from time to time may not be indicative of future scientific observations or conclusions as more patient data becomes available, further analyses are conducted, and as the data becomes subject to subsequent audit and verification procedures;

 

·

inability to establish sales and marketing capabilities, or enter into agreements with third parties, to sell and market any Product Candidates that the Company may develop;

 

·

the ability to provide the capital required for research, product development, operations and marketing;

 

·

violations of laws and regulations resulting in repercussions;

 

·

risks inherent in an pharmaceutical business and the development and commercialization of pharmaceutical products, including the inability to accurately predict timing or amounts of expenses, requirements of regulatory authorities, and completion of clinical studies on anticipated timelines, which may encounter substantial delays or may not be able to be completed at all;

 

·

delays in clinical trials;

 

·

the Company’s inability to attain or maintain the regulatory approvals it needs in any jurisdiction to commercialize, distribute or sell any Product Candidate or other pharmaceutical products;

 

·

failure of counterparties to perform contractual obligations;

 

·

changes, whether anticipated or not, in laws, regulations and guidelines that may result in significant compliance costs for the Company, including in relation to restrictions on branding and advertising, regulation of distribution and excise taxes;

 

·

uncertainty associated with insurance coverage and reimbursement status for newly-approved pharmaceutical products, which could result in Product Candidates becoming subject to unfavorable pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, including legislative measures aimed at reducing healthcare costs;

 

·

the effect that any public health crises, such as pandemics or epidemics may have on the Company’s business;

 

·

the price of our securities may be volatile due to a variety of factors, including volatility in the capital markets generally, geopolitical events, public health emergencies, macro economic pressures and natural disasters;

 

·

the inability to obtain required additional financing on terms favourable to the Corporation or at all;

 

·

the Company’s anticipated negative cash flow from operations and non-profitability for the foreseeable future;

 

·

the issuances of equity securities and the conversion of outstanding securities to Class B subordinate voting shares in the capital of the Company (the “Class B Shares”);

 

·

the Company’s dual class share structure;

 

·

the market price of the Class B Shares possibly being subject to wide price fluctuations;

 

·

whether an active trading market for the Class B Shares is sustained;

 

·

the Company’s ability to maintain compliance with Nasdaq Stock Market LLC’s (“Nasdaq”) rules for continued listing on the Nasdaq;

 

·

the Company’s ability to identify and execute future acquisitions or dispositions effectively, including the ability to successfully manage the impacts of such transactions on its operations;

 

·

lack of dividends, and reinvestment of retained earnings, if any, into the Company’s business;

 

·

the Company’s reliance on management, key persons and skilled personnel;

 

·

reliance on contract manufacturing facilities;

 

·

manufacturing problems that could result in delay of the Company’s development or commercialization programs;

 

·

the Company’s expected minimal environmental impacts; insurance and uninsured risks;

 

·

claims from suppliers; conflicts of interest between the Company and its directors and officers;

 

·

the Company’s ability to manage its growth effectively;

 

·

the Company’s ability to realize production targets;

 

·

supply chain interruptions and the ability to maintain required supplies of, equipment, parts and components;

 

·

the Company’s ability to successfully implement and maintain adequate internal controls over financial reporting or disclosure controls and procedures;

 

·

results of litigation;

 

·

the dependence of the Company’s operations, in part, on the maintenance and protection of its information technology systems, and the information technology systems of its third-party research institution collaborators, contract research organizations (“CROs”) or other contractors or consultants, which could face cyber-attacks;

 

·

failure to execute definitive agreements with entities in which the Company has entered into letters of intent or memoranda of understanding;

 

·

unfavorable publicity or consumer perception towards the Product Candidates;

 

 
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·

reputational risks to third parties with whom the Company does business; failure to comply with laws and regulations;

 

·

the Company’s reliance on its own market research and forecasts;

 

·

competition from other technologies and pharmaceutical products, including from synthetic production, new manufacturing processes and new technologies, and expected significant competition from other companies with similar businesses, and significant competition in an environment of rapid technological and scientific change;

 

·

the Company’s ability to safely, securely, efficiently and cost-effectively transport our products to consumers;

 

·

liability arising from any fraudulent or illegal activity, or other misconduct or improper activities that the Company’s directors, officers, employees, contractors, consultants, commercial partners or vendors may engage in, including noncompliance with regulatory standards and requirements;

 

·

unforeseen claims made against the Company, including product liability claims or regulatory actions;

 

·

reliance on single-source suppliers, including single-source suppliers for the acquisition of the drug substance and drug product for any of the Product Candidates;

 

·

inability to obtain or maintain sufficient intellectual property protection for the Product Candidates;

 

·

third-party claims of intellectual property infringement;

 

·

patent terms being insufficient to protect competitive position on Product Candidates;

 

·

inability to obtain patent term extensions or non-patent exclusivity;

 

·

inability to protect the confidentiality of trade secrets;

 

·

inability to protect trademarks and trade names;

 

·

filing of claims challenging the inventorship of the Company’s patents and other intellectual property;

 

·

invalidity or unenforceability of patents, including legal challenges to patents covering any of the Product Candidates;

 

·

claims regarding wrongfully used or disclosed confidential information of third parties;

 

·

risks related to the Company’s investment in Celly Nu, including the ability of Celly Nu to commercialize the exclusive rights to the recreational applications for the Company’s alcohol misuse technology for rapid alcohol detoxification;

 

·

inability to protect property rights around the world; the impact of general economic conditions on the Company’s mortgage investment activities;

 

·

risks related to the Company’s status as a foreign private issuer;

 

·

the Company taking advantage of reduced disclosure requirements applicable to emerging growth companies;

 

·

the Company’s classification as a “passive foreign investment company”;

 

·

that the Company’s international business operations, including expansion to new jurisdictions, could expose it to regulatory risks or factors beyond our control such as currency exchange rates and changes in governmental policy;

 

·

risks related to expansion of international operations;

 

·

the Company’s ability to produce and sell products in, and export products to, other jurisdictions within and outside of Canada and the United States, which is dependent on compliance with additional regulatory or other requirements;

 

·

regulatory regimes of locations for clinical trials outside of Canada and the United States;

 

·

failure to obtain approval to commercialize Product Candidates outside of Canada and the United States;

 

·

if clinical trials are conducted for Product Candidates outside of Canada and the United States, FDA, Health Canada and comparable regulatory authorities may not accept data from such trials, or the scope of such approvals from regulatory authorities may be limited;

 

·

other factors beyond the Company’s control;

 

·

the other risk factors discussed under “Item 3. Key information - D. Risk Factors”.

 

These forward-looking statements are applicable only as of the date of this Annual Report, and are subject to a number of risks, uncertainties and assumptions described under the sections in this Annual Report entitled “Item 3. Key information - D. Risk Factors” and “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

MARKET AND INDUSTRY DATA

 

This Annual Report includes market and industry data that has been obtained from third party sources, including industry publications. The Company believes that its industry data is accurate and that its estimates and assumptions are reasonable, but there is no assurance as to the accuracy or completeness of this data. Third party sources generally state that the information contained therein has been obtained from sources believed to be reliable, but there is no assurance as to the accuracy or completeness of included information. Although the data is believed to be reliable, the Company has not independently verified any of the data from third party sources referred to in this Annual Report or ascertained the underlying economic assumptions relied upon by such sources.

 

 
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SUMMARY RISK FACTORS

 

Our business is subject to a number of risks and uncertainties, including those risks discussed at length in the section below titled “Risk Item 3. Key information - D. Risk Factors”. These risks include, among others, the following:

 

RISKS RELATED TO OUR PRODUCT CANDIDATES

 

 

·

We have a limited operating history and funding, which may make it difficult to evaluate Lucid-MS, our products for alcohol misuse and their product development, product prospects and overall likelihood of success;

 

·

Our drug product candidate, Lucid-MS or our products relating to alcohol misuse, may not receive regulatory approval from Health Canada or the FDA, in a timely manner, if at all, or may receive regulatory approval on limiting terms;

 

·

We are relying on Celly Nu, our licensing partner, to develop and promote Unbuzzd™, an alcohol misuse product for the retail market;

 

·

The Company may be unable to raise the capital necessary for it to execute its strategy on favorable terms or at all; and

 

·

Drug development is a highly uncertain undertaking and involves a substantial degree of risk.

 

RISKS RELATED TO THE PHARMACEUTICAL BUSINESS

 

 

·

We rely on the UHN License (as defined herein) to use for pharmaceutical purposes certain patents and other intellectual property rights associated with Lucid-MS;

 

·

We rely on the Epitech License Agreement and the UHN License to use for pharmaceutical purposes certain patents and other intellectual property rights associated with FSD-PEA and Lucid-MS;

 

·

Even if Lucid-MS receives regulatory approval, we may nonetheless fail to achieve the degree of market acceptance of Lucid-MS by physicians, patients, healthcare payors, and others in the medical community necessary for commercial success;

 

·

We face significant competition for our Lucid-MS drug, and there is a possibility that our competitors may achieve regulatory approval for an effective treatment for MS before us or develop therapies that are safer, more advanced, or more effective than ours;

 

· 

Psychedelic or psychedelic-inspired drugs may never be approved as medicines or other therapeutic applications, and violations of applicable laws and regulations, or changes in the regulatory or political discourse with respect to psychedelic or psychedelic-inspired drugs, could result in repercussions;

 

·

The loss of single-source suppliers, or their failure to supply us with the drug substance or drug product, could materially and adversely affect our business;

 

·

We currently rely on, and expect to continue to rely on, third parties to conduct drug trials and aspects of our research and preclinical testing for Lucid-MS, our products relating to alcohol misuse and other possible drug candidates;

 

·

We, our service providers, or any third-party manufacturers may fail to comply with regulatory requirements which could subject us to enforcement actions; and

 

·

The FDA, Health Canada or other comparable regulatory authorities may not accept data from trials conducted in foreign jurisdictions.

 

RISKS RELATED TO OUR INTELLECTUAL PROPERTY

 

 

·

We may be unable to obtain and maintain sufficient intellectual property protection for our Product Candidates;

 

·

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts; and

 

·

If we are unable to adequately protect the confidentiality of our trade secrets, our trademarks or trade names, our business may be adversely affected.

 

GENERAL CORPORATE RISKS

 

 

·

Macroeconomic pressures in the markets in which we operate, including, but not limited to, the lasting effects of the COVID-19 pandemic, epidemic, or outbreak of an infectious disease, inflation, stagflation, supply chain and interest rate pressures, foreign currency exchange rate fluctuations, the ongoing conflict between Russia and Ukraine and political developments in Hong Kong and Taiwan, natural disasters and other macroeconomic and geopolitical events may materially and adversely affect our business and financial results and could cause a disruption to the development of our Product Candidates;

 

·

The Company operates in a highly regulated industry and is subject to a wide range of federal, state, and local laws, rules, and regulations, including FDA and Health Canada regulatory requirements and laws pertaining to fraud and abuse in healthcare, that affect nearly all aspects of our operations. Failure to comply with these laws, rules, and regulations, or to obtain and maintain required licenses, could subject the Company to enforcement actions, including substantial civil and criminal penalties, and might require us to recall or withdraw a product from the market or cease operations, which could materially and adversely affect our business, financial condition, and results of operations;

 

·

Any significant interruption in the supply chain for key inputs could materially impact the Company’s business;

 

·

Future sales or issuances of equity securities and the conversion of outstanding securities to Class B Shares could decrease the value of the Class B Shares and dilute investors’ voting power;

 

·

The Company’s dual class structure has the effect of concentrating voting control and the ability to influence corporate matters with a limited number of holders of Class A multiple voting shares in the capital of the Company (the “Class A Shares”);

 

·

A decline in general economic conditions may impact the viability and success of our mortgage investment activities;

 

·

We may lose our status as a foreign private issuer;

 

·

There can be no assurance that we will be able to comply with the continued listing standards of the Nasdaq and/or Canadian Securities Exchange (the “CSE”);

 

·

The Company is currently party to several legal proceedings and may become a party to potential future litigation; and

 

·

We are a passive foreign investment company for U.S. federal income tax purposes, which may result in adverse U.S. federal income tax consequences for U.S. Holders of our Class B Shares.

 

 
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PART I

 

Item 1. Identity of Directors, Senior Management and Advisers.

 

A. Directors and Senior Management

Not applicable.

 

B. Advisers

Not applicable.

 

C. Auditors

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

 

Item 3. Key Information

 

A. [Reserved]

 

B. Capitalization and Indebtedness

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

D. Risk Factors

 

An investment in securities of the Company should only be made by persons who can afford a significant or total loss of their investment.  We are exposed to a number of risks through the pursuit of our business objectives. The following risks and uncertainties identified below are those we believe may, individually or in combination with other risks and uncertainties, have a material impact on our business, but these are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us, or risks that we currently deem immaterial, may also impair our business operations. If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur, or become material risks, our business, financial condition, results of operations and cash flows, and consequently the price of the Class B Shares, could be materially and adversely affected.

 

The risks discussed below also include Forward-Looking Statements and our actual results may differ substantially from those discussed in these Forward-Looking Statements. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.

 

Risks relating to our Product Candidates

 

Drug development is highly uncertain undertaking and involves a substantial degree of risk. We have no product sales, which, together with our limited operating history, makes it difficult to evaluate our business and assess our future viability.

 

Pharmaceutical and biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a biotechnology corporation with a limited operating history. We have no pharmaceutical products approved for commercial sale and have not generated any revenue from pharmaceutical product sales. We are currently focused on developing Lucid-MS, a patented new chemical entity targeting the treatment of MS. The effectiveness of Lucid-MS is not yet known.  We continue to incur significant research and development and other expenses related to clinical trials and other operating expenses, ongoing operations and expect to incur losses for the foreseeable future. We anticipate these losses will increase and that we will not generate any revenue from product sales of Lucid-MS unless and until after we have successfully completed clinical development and received regulatory approval, for the commercial sale of this product.

 

We may never be able to develop or commercialize Lucid-MS or any other drug candidate or achieve profitability. Revenue from the sale of Lucid-MS, if regulatory approval is obtained, will be dependent, in part, upon the size of the markets in the territories for which we obtain regulatory approval, the accepted price for the product, the ability to obtain reimbursement at any price and whether we own the commercial rights for that territory, as well as the efficiency and availability of any comparable products. Our growth strategy depends on our ability to generate revenue. In addition, if the number of addressable patients is less than anticipated, the indication approved by regulatory authorities is narrower than expected, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of Lucid-MS or any other drug product, even if approved. Even if we are able to generate revenue from the sale of Lucid-MS, we may not become profitable and may need to obtain additional funding to continue operations. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to achieve sustained profitability would depress our value and could impair our ability to raise capital, expand our business, diversify our research and development pipeline, market Lucid-MS and any other product candidates that we may identify and pursue or continue our operations.

 

 
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Our future success is dependent on the regulatory approval and commercialization of our Product Candidates.

 

We do not have any products that have gained regulatory approval. As a result, our ability to finance our operations and generate revenue, are substantially dependent on our ability to obtain regulatory approval for, and, if approved, to successfully commercialize our product candidates in a timely manner. We cannot commercialize our other product candidates in Canada or the U.S. without first obtaining regulatory approval for each product from Health Canada or the FDA; similarly, we cannot commercialize any product candidates outside of the U.S. or Canada without obtaining regulatory approval from comparable foreign regulatory authorities, including the European Medicines Agency (the “EMA”). The FDA review process typically takes years to complete and approval is never guaranteed. Before obtaining regulatory approvals for the commercial sale of Lucid-MS or any of our potential product candidates for a target indication, we must demonstrate with substantial evidence gathered in preclinical and well-controlled clinical studies, with respect to approval in Canada and in the U.S. to the satisfaction of Health Canada and  the FDA, and in Europe, to the satisfaction of the EMA, that the product candidate is safe and effective for use for that target indication; and that the manufacturing facilities, processes and controls are adequate. Obtaining regulatory approval for marketing of Lucid-MS or future product candidates in one country does not ensure we will be able to obtain regulatory approval in other countries. A failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.

 

Even if Lucid-MS or any of our other product candidates were to successfully obtain approval from Health Canada or the FDA or comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions, or contraindications, or may be subject to burdensome post-approval studies or risk management requirements. If we are unable to obtain regulatory approval for our Product Candidates in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of any of our other Product Candidates that we are developing or may discover, in-license, develop or acquire in the future. Also, any regulatory approval of our Product Candidates, once obtained, may be withdrawn. Furthermore, even if we obtain regulatory approval for any of our Product Candidates, their commercial success will depend on a number of factors, including the following:

 

 

·

development of a commercial organization within the Company or establishment of a commercial collaboration with a commercial infrastructure;

 

·

establishment of commercially viable pricing and obtaining approval for adequate reimbursement from third-party and government payers;

 

·

our ability to manufacture quantities of our Product Candidates using commercially satisfactory processes and at a scale sufficient to meet anticipated demand and enable us to reduce our cost of manufacturing;

 

·

our success in educating physicians and patients about the benefits, administration, and use of our Product Candidates;

 

·

the availability, perceived advantages, relative cost, relative safety, and relative efficacy of alternative and competing treatments;

 

·

the effectiveness of our own or our potential strategic collaborators’ marketing, sales and distribution strategy and operations;

 

·

acceptance as a safe and effective therapy by patients and the medical community; and

 

·

· a continued acceptable safety profile following approval.

 

Many of these factors are beyond our control. If we are unable to successfully commercialize our Product Candidates, we may not be able to earn sufficient revenues to continue our business.

 

We our relying on Celly Nu, our licensing partner, to promote our Unbuzzd™ brand and if we fail to maintain a good relationship with Celly Nu our business, financial condition and results of operations could be adversely affected.

 

On July 31, 2023, we entered into the Celly Nu IP License Agreement (as defined herein). Pursuant to the Celly Nu IP License Agreement, we are relying on Celly Nu to promote, commercialize and distribute Unbuzzd™  to the consumer market. Although we can maintain control over Celly Nu’s products and content to a certain degree through contractual provisions in the licensing agreement, we have limited control over its marketing and commercialization strategy.

 

The viability of the Celly Nu IP License Agreement depends on our ability to establish and maintain good relationship with Celly Nu. The value of our Unbuzzd™ brand and the rapport that we maintain with Celly Nu is an important factor for the success of this relationship.  If we are unable to maintain a good relationship with Celly Nu, it could have a material adverse effect on our results of operations. Our license agreements require us and Celly Nu to comply with operational and performance conditions that are subject to interpretation and could result in disagreements. At any given time, we could have a dispute with Celly Nu regarding the interpretation of a provision in the Celly Nu IP License Agreement. An adverse result in any such dispute could materially adversely impact our results of operations and business.

 

For more information, please see “Item 4. Information on the Company. - A. History and Development of the Company - Overview and History”.

 

 
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We rely on the UHN License to use for pharmaceutical purposes certain patents and other intellectual property rights associated with  Lucid-MS.

 

One of our principal assets is the UHN License, which provides us with an exclusive, multi-jurisdictional license to use certain patents and other intellectual property rights associated with Lucid-MS, which is owned by the University Health Network (“UHN”).  We are obligated to make milestone payments and royalties to UHN under the UHN License Agreement, which may limit our future profitability and our ability to enter into marketing partnership agreements. If we materially breach any of the terms of the UHN License Agreement (and fail to cure such breach with the specified time, to the extent a cure period is available for such breach), UHN, could terminate such agreement. If we were to lose or otherwise be unable to maintain the UHN License on acceptable terms, or find that it is necessary or appropriate to secure new licenses from other third parties, we may not be able to market Lucid-MS, and our current business model and plan would be impaired, which would have a material adverse effect on our business, operating results, and financial condition.

 

After receiving regulatory approvals, Lucid-MS may fail to achieve a sufficient degree of market acceptance by physicians, patients, healthcare payors, and others in the medical community.

 

The commercial success of Lucid-MS or other drug candidates that we develop, after receiving required regulatory approvals,  will depend on their degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.  The degree of market acceptance of Lucid-MS will depend on a number of factors, including (i) the availability of alternative, superior treatments for a MS prior to the approval and commercialization Lucid-MS for such treatment; (ii) the efficacy and safety of Lucid-MS, including side effects or unexpected characteristics; (iii) the ability to offer Lucid-MS for sale at competitive prices; (iv) the ability to manufacture Lucid-MS in sufficient quantities and to offer appropriate patient access programs, such as co-pay assistance; (v) convenience and ease of dosing and administration compared to alternative treatments; (vi) the clinical indications for which Lucid-MS is approved by the FDA or Health Canada, if it approved at all, or comparable regulatory agencies; (vii) product labeling or product insert requirements of the FDA, Health Canada or other comparable regulatory authorities, including any limitations, contraindications or warnings contained in a product’s approved labeling; (viii) restrictions on how Lucid-MS is distributed; (ix) publicity concerning Lucid-MS or competing products and treatments; (x) the strength of marketing and distribution support; (xi) favorable third-party coverage and sufficient reimbursement; and (xii) the prevalence and severity of any side effects or adverse effects. 

 

Sales of pharmaceutical products, such as Lucid-MS if and when it is approved by regulatory authorities, will depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that Lucid-MS is safe, therapeutically effective and cost effective as compared with competing treatments. If Lucid-MS does not achieve adequate levels of acceptance, we may not generate significant product revenue, and we may not become profitable.

 

We face significant competition for our Lucid-MS drug and there is a possibility that our competitors may develop therapies that are safer, more advanced, or more effective than ours from MS.

 

The development and commercialization of new drug products is highly competitive. We face competition with respect to Lucid-MS for the treatment of MS from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies world-wide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization. Even if we are successful in achieving regulatory approval to commercialize Lucid-MS ahead of our competitors, our future pharmaceutical products may face direct competition from generic and other follow-on drug products.

 

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 obtain regulatory approval of their products before we do, which will limit our ability to develop or commercialize any of our Product Candidates. In addition, many companies are developing new therapeutics to supplant or expand upon the standard of care for a number of diseases, as a result, we cannot predict what the standard of care will be as our Product Candidates progress through clinical development.

 

Interim, “top-line,” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data becomes available or as additional analyses are conducted, and as the data are subject to audit and verification procedures, that could result in material changes in the final data.

 

From time to time, we may publish interim, “top-line,” or preliminary data from our clinical studies. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Material adverse changes between preliminary, “top-line,” or interim data and final data could significantly harm our business prospects.

 

 
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We expect to rely on third parties to conduct product candidate drug trials and aspects of our research and preclinical testing.

 

We currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct some aspects of research and preclinical testing and clinical trials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, or at all. If we need to enter into alternative arrangements, it could delay our development activities.

Our reliance on these third parties for research and development activities reduces control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that product candidate drug trials are each conducted in accordance with the general investigational plan and protocols for each trial and applicable legal, regulatory, and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. In addition, the FDA, Health Canada, and other comparable regulatory authorities require compliance with good clinical practices for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible, reproducible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce these good clinical practices through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable good clinical practice regulations, some or all of the clinical data generated in any product candidate drug trials may be deemed unreliable and the FDA, Health Canada or other comparable regulatory authorities may reject our marketing applications or require us to perform additional nonclinical or clinical trials or to enroll additional patients before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any product candidate drug trial complies with the good clinical practice regulations. For any violations of laws and regulations during the conduct of clinical trials, we could be subject to untitled and warning letters or enforcement action that may include civil penalties and criminal prosecution. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database within certain timeframes. Failure to do so can result in fines, adverse publicity, and civil and criminal sanctions.

 

If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or conduct clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for a product candidate and will not be able to, or may be delayed in our efforts to, successfully commercialize product candidates. Our failure or the failure of these third parties to comply applicable regulatory requirements or our stated protocols could also subject us to enforcement action.

 

We also expect to rely on other third parties to store and distribute drug supplies for product candidate drug trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our medicines or other therapeutic applications, producing additional losses and depriving us of potential product revenue.

 

Results of earlier studies or clinical trials may not be predictive of future clinical trial results and may not justify proceeding to advanced clinical trials or an application for regulatory approval.

 

Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of an investigational drug. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials. We do not know whether the clinical trials we are conducting, or may conduct, will demonstrate adequate efficacy and safety to result in regulatory approval to market any of our product candidates in any particular jurisdiction. Even if we believe that we have adequate data to support an application for regulatory approval to market our product candidates, the FDA or other comparable foreign regulatory authorities may not agree and could require us to conduct additional research studies, including late-stage clinical trials. If late-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for any of our product candidates may be adversely impacted.

 

Product candidates could be associated with side effects which could delay or halt clinical development, prevent regulatory approval, or result in other significant negative consequences.

 

As is the case with pharmaceuticals generally, it is likely that there may be side effects associated with Lucid-MS or our other drug product candidates. If Lucid-MS or our other drug product candidates are associated with undesirable side effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for this product candidate if approved. We may also be required to modify or terminate our study plans based on findings in our preclinical studies or clinical trials.

 

Additionally, adverse developments in clinical trials of pharmaceutical and biopharmaceutical products conducted by others may cause the FDA, Health Canada, or other regulatory oversight bodies to suspend or terminate our clinical trials or to change the requirements for approval of Lucid-MS or our other drug product candidates.

 

Additionally, if we or others later identify undesirable side effects caused by Lucid-MS or our other drug product candidates once approved, several potentially significant negative consequences could result, including: (i) regulatory authorities may suspend or withdraw approvals of such product candidate; (ii) we may be required to change the way a product candidate is administered or conduct additional clinical trials; (iii) we may be required to include additional warnings on a product candidate’s labeling or the product candidate may be subject to restrictive distribution requirements; (iv) we could be sued and held liable for harm caused to patients; and (v) our reputation may suffer. Any of these occurrences may harm our business, financial condition, and prospects significantly.

 

In addition to side effects caused by the product candidate, the administration process or related procedures also can cause adverse side effects. If any such adverse events occur, our clinical trials could be suspended or terminated. If we are unable to demonstrate that any adverse events were caused by the administration process or related procedures, the FDA, Health Canada, or other regulatory authorities could order us to cease further development of, or deny approval of, a product candidate for any or all targeted indications. Even if we can demonstrate that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of Lucid-MS or any of our product candidates, the commercial prospects of Lucid-MS or such other product candidates may be harmed and our ability to generate product revenues from Lucid-MS or any of these other product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition, and prospects significantly.

 

 
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The Company may not be successful in its efforts to identify, license or discover additional product candidates.

 

Although a substantial amount of the Company’s effort will focus on the continued research and pre‐clinical and clinical testing, potential approval and commercialization of its Product Candidates, the success of its business also depends in part upon its ability to identify, license or discover additional product candidates. The Company’s 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: (i) the Company’s research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;  (ii) the Company may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates; (iii) the Company’s product candidates may not succeed in pre‐clinical or clinical testing; (iv) the Company’s product candidates may be shown to have harmful side effects or may have other characteristics that may make the product candidates unmarketable or unlikely to receive marketing approval; (v) competitors may develop alternatives that render the Company’s product candidates obsolete or less attractive; (vi) product candidates the Company develops may be covered by third parties’ patents or other exclusive rights; (vii) the market for a product candidate may change during the Company’s program such that the further development of a product candidate may become undesirable; (viii) a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and (ix) 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 occurs, the Company may be forced to abandon its development efforts to identify, license or discover additional product candidates, which could have a material adverse effect on its business, prospects, results of operations and financial condition and could potentially cause the Company to cease operations. Research programs to identify new product candidates require substantial technical, financial, and human resources. The Company may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.

 

The FDA, Health Canada or other comparable regulatory authorities may not accept data from trials conducted in foreign jurisdictions.

 

Obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country.  We intend on submitting our initial regulatory approvals for Lucid-MS in the U.S. and Canada. Approval processes vary among countries and can involve additional product testing and validation and additional or different administrative review periods, including additional preclinical studies or clinical trials, as data from clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States and Canada, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

 

Non-U.S. and non-Canadian regulatory approval processes may include all of the risks associated with obtaining FDA or Health Canada approval, as well as additional risks. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approval in international markets is delayed, our target market will be reduced and our ability to realize the full market potential of our Product Candidates will be harmed. In addition, if we conduct trials outside of the U.S. or Canada, the FDA or Health Canada, as applicable, may not accept the data from such trials and may require additional trials, which could be costly and time-consuming and delay aspects of our business plan.

 

Our suppliers could experience manufacturing problems that result in delays in our development or commercialization programs or otherwise harm our business.

 

Our contract manufacturing organization (“CMO”) must employ multiple steps to control the manufacturing process to assure that the process is reproducible and the product candidate is made strictly and consistently in compliance with the process.  Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory to conduct clinical trials or supply commercial markets.  Furthermore, all entities involved in the preparation of product candidates for clinical trials or commercial sale, including our existing CMOs for all of our Product Candidates, are subject to extensive regulation. Components of a finished therapeutic products approved for commercial sale or used in certain clinical trials must be manufactured in accordance with good manufacturing practices (“GMP”), or similar regulatory requirements outside the United States and Canada.  Our failure, or the failure of third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, suspension of production, seizures or recalls of Product Candidates or marketed drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect clinical or commercial supplies of our Product Candidates and increase our costs. Consequently, there may be a material adverse effect on the business, results of operations, financial condition, and prospects of the Company.

 

In addition, the FDA, Health Canada, and other regulatory authorities may require us to submit samples of any lot of any approved Product Candidates together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, Health Canada, or other regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, results of operations, financial condition, and prospects.

 

 
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Our CMOs also may encounter problems hiring and retaining the experienced scientific, quality assurance, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements.

 

Any problems in our CMOs’ manufacturing process or facilities could result in delays or cancellations of planned clinical trials, failures in satisfying ongoing regulatory obligations (before and after regulatory approval for a product candidate is obtained) and increased costs.  Such problems could also make us a less attractive collaborator for potential partners, including larger biotechnology companies and academic research institutions, which could limit access to additional attractive development programs. Problems in our manufacturing process could restrict our ability to meet potential future market demand for products.

 

Lucid-MS, after it is approved, will be subject to extensive post-approval regulation.

 

After a product is approved, numerous post-approval requirements apply. Among other things, the holder of an approved NDA is subject to periodic and other FDA monitoring and reporting obligations, including obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the NDA. Application holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical studies.

 

Depending on the circumstances, failure to meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval. Similar laws in other jurisdictions would also apply.

 

After our Product Candidates are commercialized, they may be subject to recalls for a variety of reasons, which could require the Company to expend significant management and capital resources.

 

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If any of the Company’s approved and commercialized Product Candidates are recalled due to an alleged product defect or for any other reason, the Company could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. The Company may lose a significant amount of sales made on such products and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although the Company has detailed procedures in place for testing its products, there can be no assurance that any quality, potency, or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of the Company’s significant brands were subject to recall, the image of that brand and the Company could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for the Company’s products and could have a material adverse effect on the results of the operations and financial condition of the Company. Additionally, product recalls may lead to increased scrutiny of the Company’s operations by the FDA, Health Canada or other regulatory agencies, requiring further management attention and potential legal fees and other expenses.

 

If approved, Lucid-MS may face competition from generic drugs approved through an abbreviated regulatory pathway.

 

The Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act (the “FDC Act”), authorized the FDA to approve generic drugs that are the same as drugs previously approved for marketing under the new drug application (“NDA”) provisions of the statute pursuant to an abbreviated new drug application (“ANDA”). An ANDA relies on the preclinical and clinical testing conducted for a previously approved reference listed drug (“RLD”), and must demonstrate to the FDA that the generic drug product is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug and also that it is “bioequivalent” to the RLD. The FDA is prohibited by statute from approving an ANDA when certain marketing or data exclusivity protections apply to the RLD. If any such competitor or third party is able to demonstrate bioequivalence without infringing our patents, then this competitor or third party may then be able to introduce a competing generic product onto the market.  The Hatch-Waxman Amendments also enacted the 505(b)(2) NDA pathway, which permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. A Section 505(b)(2) applicant may eliminate the need to conduct certain preclinical or clinical studies, if it can establish that reliance on studies conducted for a previously approved product is scientifically appropriate.

 

Market exclusivity provisions authorized under the FDC Act can delay the submission or the approval of certain marketing applications. The FDC Act provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not approve or even accept for review an ANDA or an NDA submitted under Section 505(b)(2) by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder.

 

 
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The FDC Act also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to any preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

 

If competitors are able to obtain marketing approval for generic drugs referencing our products, our products may become subject to competition from such generic drugs. The availability of competitive generic products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.

 

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidates that we may develop.

 

We face an inherent risk of product liability exposure related to the testing of product candidates in human clinical trials and will face an even greater risk if we commercially sell any medicines or other therapeutic applications that we may develop. If we cannot successfully defend ourselves against claims that our Product Candidates, medicines, or other therapeutic applications caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: (i) decreased demand for any product candidates, medicines or other therapeutic applications that we may develop; (ii) injury to our reputation and significant negative media attention; (iii) withdrawal of clinical trial participants; (iv) significant costs to defend the related litigation; (v) substantial monetary awards to trial participants or patients; (vi) loss of revenue; and (vii) the inability to commercialize our Product Candidates.

 

Although we intend to maintain product liability insurance, including coverage for clinical trials that we plan to sponsor, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we commence additional clinical trials and if we successfully commercialize any Product Candidates. The market for insurance coverage is increasingly expensive, and the costs of insurance coverage will increase as our clinical programs increase in size. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

 

We may become liable for uninsured or uninsurable risk.

 

The Company may become subject to liability for risks which are uninsurable or against which the Company may opt out of insuring due to the high cost of insurance premiums or other factors. The payment of any such liabilities would reduce the funds available for usual business activities. Payment of liabilities for which insurance is not carried may have a material adverse effect on the Company’s financial position and operations.

 

Our employees, directors, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

 

We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, directors, independent contractors, consultants, commercial partners, and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: (i) comply with the requirements of the FDA, Health Canada and other comparable regulatory authorities; (ii) provide true, complete and accurate information to the FDA, Health Canada and other comparable regulatory authorities; (iii) comply with manufacturing standards we have established; (iv) comply with healthcare fraud and abuse laws and similar other fraudulent misconduct laws in the United States or Canada; or (v) report financial information or data accurately or to disclose unauthorized activities appropriately. If we obtain approval of our Product Candidates from the FDA, Health Canada or other comparable regulatory authorities and begin commercializing those products in the United States, Canada or other countries, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. In particular, research, sales, marketing, education, and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs and other business arrangements generally. Activities subject to these laws and regulations also involve the improper use of information obtained in the course of patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. The board of directors of the Company (the “Board”) has adopted a Code of Conduct and Ethics (the “Code”) which provides guidelines surrounding, among other items, compliance with applicable laws, conflicts of interest, certain opportunities, confidentiality and disclosure, employment practices, and use of company property and resources. However, it is not always possible to identify and deter misconduct by employees, directors and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws and regulations. If any such actions or lawsuits are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions or lawsuits could have a significant impact on our business, including the imposition of significant fines or other sanctions.

 

 
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We may be unable to establish sufficient sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates in a compliant manner even if regulatory approvals are obtained.

 

We do not currently have a comprehensive infrastructure for the sales, marketing, and distribution of pharmaceutical drug products. The cost of establishing and maintaining such an infrastructure may exceed the cost-effectiveness of doing so. In order to market any products that may be approved by the FDA and comparable foreign regulatory authorities, we must build our sales, marketing, managerial and other nontechnical capabilities or make arrangements with third parties to perform these services for which we would incur substantial costs. If we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not sustain profitability. We will be competing with many companies that have extensive and well-funded sales and marketing operations. Without an internal commercial organization or the support of a third party to perform sales and marketing functions, or a combination of both, we may be unable to compete successfully against more established companies.

 

Our Product Candidates may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, which would harm our business.

 

The regulations that govern marketing approvals, pricing, coverage, and reimbursement for new drugs vary widely from country to country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more Product Candidates, even if any Product Candidates we may develop obtain marketing approval.

 

Our ability to successfully commercialize our Product Candidates also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our Product Candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.

 

In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medicines, but monitor and control corporation profits. Additional price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our Product Candidates.

 

Risks Related to our Intellectual Property

 

We may be unable to obtain and maintain sufficient intellectual property protection for our Product Candidates.

 

As is the case with pharmaceutical companies and other biotechnology companies, our success depends in large part on our ability to obtain and maintain protection of the intellectual property we may own solely and jointly with others, particularly patents, in the United States, Canada and other countries with respect to our Product Candidates and technology. We seek to protect our proprietary position by filing patent applications in the United States, Canada and in other countries related to the Product Candidates or other product candidates that we may identify.  On April 24, 2023, the Company filed a provisional patent application with the United States Patent and Trademark Office (“USPTO”) with respect to the Company’s alcohol misuse treatment technology.  We have an exclusive license from UHN to use patents and other intellectual property that is used in our Lucid-MS compound.  

 

Obtaining and enforcing pharmaceutical and biopharmaceutical patents is costly, time consuming and complex, and we or our licensors may not be able to file and prosecute all necessary or desirable patent applications, or maintain, enforce, and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner, if at all. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

 

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal, technological, and factual questions and has in recent years been the subject of much litigation. In addition, the laws of certain countries may not protect our rights to the same extent as the laws of other countries, including the United States and Canada, and vice versa. Further, we may not be aware of all third-party intellectual property rights potentially relating to our Product Candidates. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States, Canada and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether our licensors were the first to make the inventions claimed in our licensed patents, or that our licensors were the first to file for patent protection of such inventions. Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history and can involve other factors such as expert opinion. Our analysis of these issues, including interpreting the relevance or the scope of claims in a patent or a pending application, determining applicability of such claims to our proprietary technologies or Product Candidates, predicting whether a third party’s pending patent application will issue with claims of relevant scope, and determining the expiration date of any patent in the United States, Canada or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our Product Candidates. We do not always conduct independent reviews of pending patent applications of and patents issued to third parties. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights, including licensed patent rights, are highly uncertain. Our future patent applications may not result in patents being issued that protect our Product Candidates, in whole or in part, or which effectively prevent others from commercializing competitive product candidates. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our licensed patents by developing similar or alternative product candidates in a non-infringing manner.

 

 
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Our licensors’ ability to enforce patent rights also depends on our licensors’ ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. We, along with our licensors, may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. If we initiate lawsuits to protect or enforce our licensed patents, or litigate against third-party claims, such proceedings would be expensive and would divert the attention of our management and technical personnel. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our or our licensed patents are invalid or otherwise unenforceable.

 

Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, re-examination, inter partes review, post-grant review or interference proceedings challenging our or our licensors’ patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our licensed patents, allow third parties to commercialize our Product Candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our licensed patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

 

In addition, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensed patents may be challenged in the courts or patent offices in the United States, Canada and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our licensors’ abilities to stop others from using or commercializing similar or identical product candidates to ours, or limit the duration of the patent protection of our Product Candidates.

 

Filing, prosecuting, and defending the licensed patents on our Product Candidates in all countries throughout the world would be prohibitively expensive. Additionally, the laws of some other countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained licensed patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. or Canada. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio, including licensed patents, may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours.

 

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

 

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. In May 2023, GBB Drink Lab, Inc. (“GBB”) filed a lawsuit against the Company alleging a material breach of a mutual nondisclosure agreement and trade secret misappropriation in the U.S. District Court for the Southern District of Florida. This lawsuit is ongoing. For more information, please see “Item 8. Financial Information - A. Consolidated Statements and Other Financial Information – Legal Proceedings”.

 

There is a substantial amount of litigation, both within and outside the U.S. and Canada, involving patent, trade secret and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes re-examination proceedings.  Numerous U.S. and international issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our Product Candidates may be subject to claims of infringement of the patent rights of third parties.

 

Other third parties may assert that we are employing their proprietary technology without authorization. There may be other third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of the Product Candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that the Product Candidates or other product candidates that we may identify may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of the Product Candidates or other product candidates that we may identify, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.

 

Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all, or it may be non-exclusive, which could result in our competitors gaining access to the same intellectual property.

 

 
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Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize the Product Candidates or other product candidates that we may identify. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing Product Candidates, or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

 

Parties making claims against us, may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition, and prospects.

 

If our licensors are not able to obtain patent term extension or non-patent exclusivity in the United States under the Hatch-Waxman Act and in other countries under similar legislation, thereby potentially extending the marketing exclusivity term of our product candidates, our business may be materially harmed.

 

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional or international patent application filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited.

 

Depending upon the timing, duration, and specifics of FDA marketing approval of our Product Candidates, one of the U.S. patents covering each of such Product Candidates or the use thereof may be eligible for up to five years of patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended.

 

Patent term extension also may be available in certain other countries upon regulatory approval of our Product Candidates. Nevertheless, our licensors may not be granted patent term extension either in the United States, Canada or in any other country because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than requested.

 

If our licensors are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product may be shortened and our competitors may obtain approval of competing products following the patent expiration sooner, and our revenue could be reduced, possibly materially.

 

It is possible that our licensors will not obtain patent term extension under the Hatch-Waxman Act for a U.S. patent covering a Product Candidate even where that patent is eligible for patent term extension, or if we obtain such an extension, it may be for a shorter period than we had sought. Further, for certain of our licensed patents, we do not have the right to control prosecution, including filing with the USPTO, a petition for patent term extension under the Hatch-Waxman Act. Thus, if one of our licensed patents is eligible for patent term extension under the Hatch-Waxman Act, we may not be able to control whether a petition to obtain a patent term extension is filed, or obtained, from the USPTO.

 

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

 

We seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose proprietary information, including trade secrets, and we may not be able to obtain adequate remedies for such breaches. We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

 

 
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Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our Product Candidates that we consider proprietary. We may not be able to obtain adequate remedies in the event of such unauthorized use. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts are less willing or unwilling to protect trade secrets. Trade secrets will also over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from corporation to corporation or academic to industry scientific positions. Though our agreements with third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors, and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights.

 

In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Despite employing the contractual and other security precautions described above, the need to share trade secrets 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. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of this information may be greatly reduced and our competitive position, business, results of operations, financial condition and prospects would be harmed.

 

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

 

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our competitive position, business, results of operations, financial condition, and prospects.

 

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

 

Our agreements with employees and our personnel policies provide that any inventions conceived by an individual in the course of rendering services to us shall be our exclusive property. Although our policy is to have all such individuals complete these agreements, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. The assignment of intellectual property may not be automatic upon the creation of an invention and despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information.

 

We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our Product Candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our licensors’ ownership of our owned or licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our Product Candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

Any of the foregoing could have a material adverse effect on our competitive position, business, results of operations, financial condition, and prospects.

 

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

 

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

Risks relating to our Psychedelic Products

 

Due to funding issues, we made a decision to place all research relating to Lucid-PSYCH on hold in April 2023. If and when we resume this research, we will encounter the following risks with respect to our Lucid-PSYCH drug.

 

The loss of single-source suppliers, or their failure to supply us with the drug substance or drug product, could materially and adversely affect our business.

 

When we were actively researching Lucid-PSYCH, we relied upon a single-source supplier for the supply of drug substances and products for this compound.   Although we believe that there are alternate sources of supply that could satisfy our clinical and commercial requirements, we cannot assure you that identifying alternate sources and establishing relationships with such sources would not result in significant delay in the development of the Lucid-PSYCH Product Candidate.

 

Our dependence on a single-source supplier exposes us to certain risks, that may materially impact our ability to progress our business, including (i) our supplier may cease or reduce production or deliveries, raise prices or renegotiate terms; (ii) delays caused by supply issues which may harm our reputation; and (iii) our single-source supplier or CMOs may experience significant business challenges, disruption or failures due to issues such as financial difficulties or bankruptcy, issues relating to regulatory or quality compliance issues, or other legal or reputational issues.

 

Additionally, we may not be able to enter into supply arrangements with alternative suppliers on commercially reasonable terms, or at all. A delay in the development of a Product Candidate or having to enter into a new agreement with a different third party on less favorable terms than we have with our current suppliers could have a material adverse impact upon on our business.

 

Psychedelic or psychedelic-inspired drugs may never be approved as medicines or other therapeutic applications and violations of applicable laws and regulations could result in repercussions.

 

In the United States, certain psychedelic drugs are classified as Schedule I drugs under the CSA (21 U.S.C. § 811) and the Controlled Substances Import and Export Act and as such, medical and recreational use is illegal under the U.S. federal laws.

 

 
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In Canada, certain substances are classified as controlled substances and are listed on Schedule III of the Controlled Drugs and Substances Act (Canada) (“CDSA”) and are also listed under the Schedule to Part J to the Food and Drug Regulations, which results in very restricted use as substances listed under Part J can generally only be used for research or clinical testing under limited circumstances. There is no guarantee that psychedelic drugs will ever be approved as medicines or other therapeutic applications in any jurisdiction in which the Company operates.

 

The Company's programs for Lucid-PSYCH involved controlled drugs and were conducted in strict compliance with the laws and regulations regarding the production, storage, and use of such drugs. Although the Company put a temporary hold on all research and development related to controlled drugs, if it begins research again, it will be subject to these risks.  As such, all facilities engaged with such substances by or on behalf of the Company do so under current licenses and permits issued by appropriate governmental agencies. Unforeseen delays to the drug substance and drug product manufacture and supply chain may occur due to delays, errors, or other unforeseen problems with the permitting and quota process.

 

The failure of the Company to maintain compliance with applicable federal, state, or provincial requirements, or the loss or diversion of controlled substances, can result in significant enforcement actions. The Drug Enforcement Administration (“DEA”) and/or state authorities could seek civil penalties, refuse to renew registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to civil and criminal prosecutions, fines, penalties, and forfeitures. Overall, a violation of any laws and regulations in the jurisdictions in which the Company operates could result in significant fines, penalties, administrative sanctions, convictions, or settlements arising from civil proceedings initiated by either government entities in the jurisdictions in which the Company operates, or by private citizens, or through criminal charges. The loss of the necessary licenses, permits or exemptions, including the loss of access to licensed facilities, for use of controlled drugs could have an adverse effect on the Company's operations.

 

Regulatory or political change with respect to psychedelic-inspired drugs could occur.

 

When the Company begins actively researching psychedelic drugs, its success will depend in part, on the legality of the use of psychedelic-inspired drugs for the treatment of neuropsychiatric disorders and the acceptance of such use in the medical community. The political environment surrounding the psychedelics industry in general can be volatile and a shift in the regulatory or political realm could occur and have a drastic impact on the use of psychedelics as a whole, adversely impacting the Company's ability to successfully operate or grow its business. Furthermore, failure to follow applicable regulatory requirements will have a materially negative impact on the business of the Company.

 

General Corporate Risks

 

Macroeconomic pressures in the markets in which we operate, including, but not limited to, the lasting effects of the COVID-19 pandemic, political developments, geopolitical unrest or other conflicts or natural disasters in foreign nations, including the ongoing conflict between Russia and Ukraine, political developments in Hong Kong and Taiwan, and inflationary pressures may alter the ways in which we conduct our business operations and manage our financial capacities.

 

To varying degrees, the ways in which we conduct our business operations and manage our financial capacities are influenced by macroeconomic conditions that affect companies directly involved in or providing services related to the drug and biological product development. For example, real GDP growth, business and investor confidence, the lasting effects of COVID-19 pandemic, inflation, employment levels, oil prices, interest rates, tax rates, availability of consumer and business financing, housing market conditions, foreign currency exchange rate fluctuations, costs for items such as fuel and food and other macroeconomic trends can adversely affect not only our decisions and ability to engage in research and development and clinical trials, but also those of our management, employees, third-party contractors, manufacturers and suppliers, competitors, Shareholders and regulatory authorities. The ongoing military conflict between Russia and Ukraine and other geopolitical and social unrest has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may adversely affect our business or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest, natural disasters or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates can adversely affect us by increasing our costs, including labor and employee benefit costs. In addition, higher inflation and macro turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products.

 

Economic uncertainty may adversely affect our access to capital, cost of capital and ability to execute our business plan as scheduled.

 

Generally, worldwide economic conditions remain uncertain. Access to capital markets is critical to our ability to operate. Traditionally, biotechnology companies have funded their research and development expenditures through raising capital in the equity markets. Declines and uncertainties in these markets in the past have severely restricted raising new capital and have affected companies’ ability to continue to expand or fund existing research and development efforts. We require significant capital for research and development for our product candidates and clinical trials. The general economic and capital market conditions, both in the U.S. and worldwide, have been volatile and at times have adversely affected our access to capital and increased the cost of capital. For example, the ongoing military conflict between Russia and Ukraine, the possibility of a wider European or global conflict, global sanctions imposed in response thereto and the possibility of a global energy crisis resulting therefrom, has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may adversely affect our business or the third parties on whom we rely. If global capital markets deteriorate, including as a result of political unrest or war, it may make any necessary financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. If economic conditions become worse, our future cost of equity or debt capital and access to the capital markets could be adversely affected. If we are unable to access the capital markets on favorable terms, our ability to execute our business plan as scheduled would be compromised. Moreover, we rely and intend to rely on third parties, including clinical research organizations, contract manufacturing organizations and other important vendors and consultants. Global economic conditions may result in a disruption or delay in the performance of our third-party contractors and suppliers. If such third parties are unable to adequately satisfy their contractual commitments to us in a timely manner, our business could be adversely affected.

 

The Company’s limited operating history makes it difficult to evaluate its current business and future prospects and the Company may never be able to generate sufficient revenue to be profitable.

 

The Company’s limited operating history makes it difficult to evaluate its current business and future prospectus. The Company has never generated any material amount of revenue and has not generated any revenue from its bio-tech business. We have incurred significant losses since our inception, and we anticipate that we will continue to incur significant losses and will not be profitable or generate positive cash flow from operating activities for the foreseeable future. In addition, the Company expects to continue to increase operating expenses as it implements initiatives to continue to grow its business and pursue the commercialization of its Product Candidates.  If the Company does not generate sufficient revenue to offset these expected increases in costs and operating expenses, it will not be profitable. The Company cannot predict when it will generate any revenue, or when or if it will become profitable or generate positive cash flow from operating activities, if at all.

 

In general, the Company is subject to many of the risks common to early-stage enterprises, including undercapitalization, cash shortages, limitations with respect to personnel, financial, and other resources and lack of revenues. There is no assurance that the Company will be successful in achieving a return on the Company’s shareholders’ (“Shareholders”) investment and the likelihood of success must be considered in light of the early stage of our operations.

 

Future transfers by holders of Class A Shares to arm’s length parties or other than to permitted holders will generally result in those shares converting to Class B Shares, which will have the effect, over time, of increasing the relative voting power of those holders of Class A Shares who retain their shares. Such holders could, in the future, control a significant percentage of the combined voting power of Class A Shares and Class B Shares.

 

Each of the Company’s directors and officers owes a fiduciary duty to the Company and must act honestly and in good faith with a view to the best interests of Company. However, any director and/or officer that is a Shareholder, even a controlling Shareholder, is entitled to vote its shares in its own interests, which may not always be in the interests of the Shareholders generally. The inability of the Class B Shares to control the matters affecting the Company, combined with the ability of holders of Class A Shares to control matters affecting the Company and to take actions that the holders of Class B Shares may not view as beneficial, may adversely affect the market price of the Class B Shares.

 

 
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Dilution of the percentage ownership of the Shareholders

 

Future sales and issuances of the Company’s Class B Shares or rights to purchase Class B Shares, including pursuant to the Company’s equity incentive plans, could result in additional dilution of the percentage ownership of the Shareholders and could cause the Company’s stock price to fall. The Company expects that significant additional capital may be needed in the future to continue its planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities, potential acquisitions, in licenses, or collaborations and costs associated with operating a public company. To raise capital, the Company may sell Class B Shares, convertible securities, or other equity securities in one or more transactions at prices and in a manner it determines from time to time. If the Company sells Class B Shares, convertible securities, or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to the Shareholders, and new investors could gain rights, preferences, and privileges senior to the holders of our Class B Shares, including Class B Shares sold in this offering upon exercise of Class B Share purchase warrants.

 

Failure to comply with laws and regulations could have a material adverse effect on the Company's business.

 

We are subject to complex laws, rules and regulations affecting our domestic and international operations in Canada, the United States and Australia relating to numerous topics, including the research and development of our pharmaceutical drugs, health care and data privacy laws, labor and employment and regulatory requirements of the CSE and Nasdaq. In addition, we are required to comply with certain U.S. Securities Exchange Commission  (the “SEC”) and other legal requirements affecting public companies. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments, and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial acquisitions, and our future results.

 

Although, to our knowledge, we are currently in material compliance with all applicable laws, regulations and guidelines in such jurisdictions, no assurance can be given that new laws, regulations, and guidelines will not be enacted or that existing laws, regulations, and guidelines will not be interpreted or applied in a manner which could limit or curtail our operations in such jurisdictions.

 

On April 17, 2023, FSD Strategic Investments entered into the CEO Mortgage Loan (as defined herein). Although the Company believes the CEO Mortgage Loan complies with the exemption contained in Section 13(k) of the Exchange Act, there can be no assurances that it complies with these regulations. There is limited regulatory guidance or legislative history as to the scope of this exemption. If the CEO Mortgage Loan does not comply, the Company could be subject to fines, penalties and/or other regulatory actions, which would have an adverse effect on our business, financial condition, and results of operations. Furthermore, amendments to current laws, regulations and guidelines, more stringent implementation, or enforcement thereof or other unanticipated events, are beyond our control and could require extensive changes to our operations, which in turn may also result in a material adverse effect on our business, financial condition, and results of operations.

 

For more information, see “Item 7. Major Shareholders and Related Party Transactions - B. Related Party Transactions.

 

Any significant interruption in the supply chain for key inputs could materially impact the Company’s business.

 

Our business is dependent on a number of key inputs and their related costs including raw materials and supplies, as well as electricity, water, and other local utilities. The ability of the Company to research and develop pharmaceutical products is dependent upon, among other things, sufficient access to timely delivery of equipment, parts, and components at reasonable costs. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact our business, financial condition, and operating results. Any inability to secure required supplies and services or to do so on appropriate terms could have a material adverse impact on our business, financial condition, and operating results.

 

The Company may be unable to raise the capital necessary for it to execute its strategy on favorable terms or at all.

 

There is no guarantee that the Company will be able to execute on its strategy. Developing Lucid-MS, a biopharmaceutical products,  and products for alcohol misuse, is expensive and time-consuming, and we expect to require substantial additional capital to conduct research, preclinical testing and human studies, to potentially establish pilot scale and commercial scale manufacturing processes and facilities, and to establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support our existing programs and pursue potential additional programs. We are or may in the future also be responsible for the payments to third parties of expenses that may include milestone payments, license maintenance fees and royalties, including in the case of certain of our agreements with academic institutions or other companies from whom intellectual property rights underlying their respective programs have been licensed or acquired. Because the outcome of any preclinical or clinical development and regulatory approval process for Lucid-MS and other product candidates that we may develop in the future is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of any product candidates we may identify.

 

 
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Our future funding requirements for the development of pharmaceutical products will depend on many factors, including, but not limited to: (i) the time and cost necessary to complete planned clinical trials to pursue regulatory approvals for our Lucid-MS and any other drug candidates, and to conduct post-marketing studies that could be required by regulatory authorities; (ii) the progress, timing, scope and costs of our nonclinical studies, preclinical studies, clinical trials and other related activities, including the ability to enroll patients in a timely manner for planned clinical trials described in this Annual Report and potential future clinical trials; (iii) the costs of obtaining clinical and commercial supplies of raw materials and drug products for Lucid-MS and other product candidates; (iv) our ability to successfully identify and negotiate acceptable terms for third-party supply and contract manufacturing agreements with CMO’s; (v) our ability to successfully commercialize our Product Candidates,  either directly or through licensing agreements, ;(vi) the manufacturing, selling and marketing costs associated with our Product Candidates, including the cost and timing of expanding our internal sales and marketing capabilities or entering into strategic collaborations with third parties to leverage or access these capabilities; (vii) the amount and timing of sales and other revenues from our Product Candidates, if any are approved, including the sales price and the availability of adequate third-party reimbursement; (viii) the cash requirements of any future acquisitions or discovery of product candidates; (ix) the time and cost necessary to respond to technological, market, regulatory or political developments; (x) the costs of acquiring, licensing or investing in intellectual property rights (including the protection of such rights), products, product candidates and businesses; and (xi) our ability to attract, hire and retain qualified personnel.

 

Additional funds may not be available when we need them, on terms that are acceptable, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, or terminate one or more research or development programs or the commercialization of any Product Candidates or be unable to expand operations or otherwise capitalize on business opportunities, as desired, which could materially affect our business, results of operations, financial condition, and prospects.

 

In addition, the continued development of the Company’s pharmaceutical operations will require significant additional financing over several years. The failure to raise such capital could result in the delay or indefinite postponement of current business strategy or the Company ceasing to carry on business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to the Company, at times for reasons beyond the Company’s control. For example, economic downturns or uncertain market conditions, whether affecting the economy in general or the pharmaceutical industry in particular, could adversely impact the Company’s ability to raise capital through equity or debt financing. In addition, any further issuances of equity securities could have a significant dilutive effect on the holders of Class B Shares.

 

In addition, from time to time, the Company may enter into transactions to acquire assets or the shares of other companies. These transactions may be financed wholly or partially with debt, which may temporarily increase the Company’s debt levels above industry standards. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.

 

Future sales or issuances of equity securities and the conversion of outstanding securities to Class B Shares could decrease the value of the Class B Shares and dilute investors’ voting power.

 

The Company may sell additional equity securities in future offerings, including through the sale of securities convertible into equity securities, to finance operations, acquisitions or projects, and issue additional Class B Shares, which may result in dilution.

 

The Board has the authority to authorize certain offers and sales of additional securities without the vote of, or prior notice to, shareholders. Based on the need for additional capital to fund expected expenditures and growth, it is likely that the Company will issue additional securities to provide such capital. Such additional issuances may involve the issuance of a significant number of Class B Shares.

 

Sales of substantial amounts of the Company’s securities, or the availability of such securities for sale, as well as the issuance of substantial amounts of the Class B Shares upon conversion of outstanding convertible, exercisable or exchangeable securities, could adversely affect the prevailing market prices for the Company’s securities and dilute investors’ earnings per share. A decline in the market prices of the Company’s securities could impair its ability to raise additional capital through the sale of securities should the Company desire to do so.

 

The success of the Company is dependent upon its senior management and key personnel and ability to hire skilled personnel.

 

Another risk associated with the production and sale of pharmaceutical products is the loss of important personnel. The success of the Company will be dependent upon the ability, expertise, judgment, discretion and good faith of its senior management and key personnel. While employment agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. While, as of the date of this Annual Report, the Company does not anticipate any senior management turnover in the near term, there is no guarantee that the Company will be able to retain its senior management going forward. If key personnel depart, including Zeeshan Saeed, Anthony Durkacz, Nathan Coyle, Dr. Lakshmi Kotra or Donal Carroll, the Company may not be able to find appropriate replacements on a timely basis.

 

Furthermore, each of our executive officers may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or employees. Recruiting and retaining qualified scientific and clinical personnel and, if any of our Product Candidates are commercialized, sales and marketing personnel, will be critical to our success. The loss of the services of key personnel as well as the diversion of management’s and the Board’s attention to replace the services of such individuals, could have a material adverse effect on the Company’s business, operating results, or financial condition.

 

 
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In addition, the Company’s future success depends on its continuing ability to attract, develop, motivate, and retain highly qualified and skilled employees. Due to the specialized scientific and managerial nature of our business, the Company relies heavily on its ability to attract and retain qualified scientific, technical, and managerial personnel.  In particular, specialized knowledge with respect to research and clinical development is important to the pharmaceutical industry. Qualified individuals are in high demand, and the Company may incur significant costs to attract and retain them, if it is able to hire them at all.  If we are unable to identify, attract, hire, and retain qualified personnel in the future, such inability could have a material adverse effect on our business, operating results, and financial condition.

 

The Company’s dual class structure has the effect of concentrating voting control and the ability to influence corporate matters with a limited number of holders of Class A Shares.

 

The Company’s dual class structure has the effect of concentrating voting control for holders of Class A Shares and the ability to influence corporate matters with those Shareholders. Currently, there are 72 outstanding Class A Shares issued and outstanding. Class A Shares have 276,660 votes per share and Class B Shares have one vote per share. As of March 28, 2024, Shareholders who hold Class A Shares together hold approximately 33.6% of the voting power of the Company’s outstanding voting shares and therefore have significant influence over management and affairs of the Company and over all matters requiring Shareholder approval.

 

In addition, because of the voting ratio between Class A Shares and Class B Shares, the holders of Class A Shares collectively continue to control a majority of the combined voting power of the voting shares even where the Class A Shares represent a substantially reduced percentage of the total outstanding shares. The different voting rights could diminish the value of the Class B Shares to the extent that investors or any potential future purchasers of the Class B Shares attribute value to the superior voting or other rights of the Class A Shares. Other than as required by applicable law, holders of the Class B Shares will only have a right to vote, as a class, in limited circumstances as described in its constating documents.

 

The concentrated voting control of holders of Class A Shares limits the ability of holders of Class B Shares to influence corporate matters and all matters requiring Shareholder approval, including the election of directors as well as with respect to decisions regarding amendment of the Company’s share capital, creating and issuing additional classes of shares, making significant acquisitions, selling significant assets or parts of our business, merging with other companies and undertaking other significant transactions.

 

As a result, holders of Class A Shares have the ability to control substantially all matters affecting us and actions may be taken that our holders of Class B Shares may not view as beneficial. The market price of the Class B Shares could be adversely affected due to the significant influence and voting power of the holders of Class A Shares. Additionally, the significant voting interest of holders of Class A Shares may discourage transactions involving a change of control, including transactions in which an investor, as a holder of the Class B Shares, might otherwise receive a premium for the Class B Shares over the then-current market price, or discourage competing proposals if a going private transaction is proposed by one or more holders of Class A Shares.

 

The market price of the Class B Shares may be subject to wide price fluctuations.

 

The market price of the Class B Shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of the Company and its subsidiaries, divergence in financial results from analysts’ expectations, changes in earnings estimates by stock market analysts, changes in the business prospects for the Company, general economic conditions, legislative changes, and other events and factors outside of the Company’s control. In addition, stock markets have from time to time experienced extreme price and volume fluctuations, which, as well as general economic and political conditions, could adversely affect the market price for the Class B Shares.

 

There is no assurance of an active or liquid market.

 

No assurance can be given that an active or liquid trading market for the Class B Shares will be sustained. If an active or liquid market for the Class B Shares fails to be sustained, the prices at which such securities trade may be adversely affected. Whether or not the Class B Shares will trade at lower prices depends on many factors, including the liquidity of the Class B Shares, prevailing interest rates, the markets for similar securities, general economic conditions and the Company’s financial condition, historic financial and operating performance, and future prospects.

 

The Company may be unable to manage its growth, including capacity constraints and pressure on its internal systems and controls.

 

The Company may be subject to growth-related risks including capacity constraints and pressure on its internal systems and controls. The ability of the Company to manage growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of the Company to deal with this growth may have a material adverse effect on the Company’s business, results of operations, financial condition and prospects.

 

Management may not be able to successfully implement and maintain adequate internal controls over financial reporting or disclosure controls and procedures.

 

Effective internal controls are necessary for the Company to provide reliable financial reports and to help prevent fraud. Although the Company has undertaken a number of procedures and has implemented a number of safeguards, in each case, in order to help ensure the reliability of its financial reports, including those imposed on the Company under applicable securities laws, the Company cannot be certain that such measures will ensure that the Company will maintain adequate control over financial processes and reporting. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s results of operations, or cause it to fail to meet its reporting obligations.

 

 
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Effective systems of internal control over financial reporting and disclosure are critical to the operation of a public corporation. However, we do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results could be materially adversely affected, which could cause investors to lose confidence in us and our reported financial information, which in turn could result in a reduction in the value of the Class B Shares.

 

A decline in general economic conditions may impact the viability and success of our mortgage investment activities.

 

FSD Strategic Investments has made and intends on continuing to make investments in loans that are secured by first or second collateral mortgages on residential real estate in the Greater Toronto Area. A decline in general economic conditions could adversely impact the ability of borrowers to service their loans and could cause default rates to increase. This could have a material adverse effect on FSD Strategic Investments’ financial condition and results of operations.

 

A decline in property values could adversely affect the value of the security on mortgages held by FSD Strategic Investments, thereby reducing the ability to liquidate properties held by defaulting borrowers at favorable prices.

 

The profits earned on mortgages depend, in part, on the spread between mortgage rates and capital market funding rates and any fee income derived therefrom. FSD Strategic Investments’ mortgage portfolios include assets whose value can fluctuate because of changing interest rates and economic and market conditions. In addition, some of these assets could be difficult to sell at any given time. Changes in interest rates and other market factors such as stock market prices and demographics could affect the preferences of its customers for different types of loan products and adversely impact our profitability. A reduction in positive spreads between mortgage rates and capital market funding rates could have a material adverse effect on FSD Strategic Investments’ financial condition and results of operations.

 

Investments in mortgages are relatively non-liquid assets. The nature of the assets held by FSD Strategic Investments may inhibit its ability to quickly respond to changes in broader economic or investment conditions. If the value of the properties underlying FSD Strategic Investments’ mortgages begin to deteriorate, it will be difficult for FSD Strategic Investments to liquidate certain assets in response to these changes. The liquidity profile of FSD Strategic Investments’ mortgages can create challenges for it to manage its risk exposure. Reduced asset liquidity may restrict FSD Strategic Investments’ ability to sell assets for cash without taking significant losses, which may result in a material adverse effect on FSD Strategic Investments’ financial condition and results of operations.

 

Risks related to our status as a foreign private issuer.

 

As a “foreign private issuer” under the rules and regulations of the SEC, we are permitted to, and will, file less or different information with the SEC than a company incorporated in the United States or otherwise subject to these rules, and will follow certain home country corporate governance practices in lieu of certain Nasdaq requirements applicable to U.S. issuers.

 

The Company is considered a “foreign private issuer” under the Exchange Act and is therefore exempt from certain rules under the Exchange Act. For example, we are not required to file current reports on Form 8-K or quarterly reports on Form 10-Q, we are exempt from the U.S. proxy rules which impose certain disclosure and procedural requirements for U.S. proxy solicitations and we will not be required to file financial statements prepared in accordance with or reconciled to U.S. GAAP so long as our financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board. We are not required to comply with Regulation FD, which imposes restrictions on the selective disclosure of material information to shareholders, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. In addition, we are not required to file periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered under the Exchange Act. Accordingly, holders of the Company’s securities may receive less or different information about the Company than they may receive with respect to public companies incorporated in the United States.

 

In addition, as a “foreign private issuer” whose common shares are listed on Nasdaq, we are permitted to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements, including those related to: shareholder approval for certain dilutive events under Nasdaq Marketplace Rule 5635, quorum requirements for shareholder meetings under Nasdaq Marketplace Rule 5620(c), certain independence requirements of certain committees of our Board under Nasdaq Marketplace Rule 5605 and proxy delivery requirements under Nasdaq Marketplace Rule 5620(b). Accordingly, the Company has opted to follow certain corporate governance practices required by its home country under the CSE, Canadian federal and provincial corporate and securities laws and the Company’s Articles, as applicable. See “Item 16G. Corporate Governance” for more details related to the differences between our home country requirements and Nasdaq requirements.

 

We could lose our status as a “foreign private issuer” under current SEC rules and regulations if more than 50% of our outstanding voting securities become directly or indirectly held of record by U.S. holders and one of the following is true: (i) the majority of our directors or executive officers are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we lose our status as a foreign private issuer in the future, we will no longer be exempt from the rules described above and, among other things, will be required to file periodic reports and annual and quarterly financial statements as if we were a company incorporated in the United States (including preparation of financial statements in accordance with U.S. GAAP). If this were to happen, we would likely incur substantial costs in fulfilling these additional regulatory requirements and members of our management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled.

 

 
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There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq and/or CSE.

 

Our Class B Shares are listed on Nasdaq and CSE. There can be no assurance that we will continue to meet Nasdaq and/or CSE’s listing standards. On September 27, 2022, we received a letter from the listing qualifications department staff of Nasdaq notifying us that the Company is not in compliance with the minimum bid price requirement set forth in Nasdaq’s rules for continued listing on the Nasdaq Capital Market. While we have since regained compliance with Nasdaq’s minimum bid price requirement, there can be no guarantee that we will be able to maintain such compliance in the future. If we lose our ability to maintain compliance with Nasdaq and/or the CSE’s continued listing rules, we and our Shareholders could face significant material adverse consequences, including:

 

 

·

a limited availability of market quotations for our securities;

 

·

reduced liquidity for our securities;

 

·

a determination that our Class B Shares is a “penny stock,” in the U.S. which will require brokers trading in our Class B Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

·

a limited amount of news and analyst coverage; and

 

·

decreased ability to issue additional securities or obtain additional financing in the future.

 

As an “emerging growth company,” the Company cannot be certain if the reduced disclosure and governance requirements applicable to “emerging growth companies” will make its shares less attractive to investors.

 

As an “emerging growth company,” the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to obtain an assessment of the effectiveness of its internal controls over financial reporting from its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, the U.S. Jumpstart Our Business Startups Act (the “JOBS Act”) provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, which the Company has elected to do.

 

We cannot predict if investors will find our shares less attractive because we will rely on these exemptions. If some investors find our shares less attractive as a result, there may be a less active market for our shares, our share price may be more volatile and the price at which our securities trade could be less than if we did not use these exemptions.

 

We expect to incur costs related to our internal control over financial reporting in the upcoming years to further improve our internal control environment. If we identify deficiencies in our internal controls over financial reporting or if we are unable to comply with the requirements applicable to us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. If this occurs, we also could become subject to sanctions or investigations by the SEC or other regulatory authorities. In addition, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, or express an adverse opinion, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our share price may be adversely affected.

 

We may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on our operations.

 

The Company has made and may continue to pursue acquisition opportunities to advance its strategic plan. The successful integration of an acquired business typically requires the management of the pre-acquisition business strategy, including the retention and addition of senior management, customers, realization of identified synergies, retention of key staff and the development of a common corporate culture. Achieving the benefits of acquisitions depends in part on successfully consolidating functions and integrating operations and procedures in a timely and efficient manner, as well as the ability to realize anticipated growth opportunities and synergies from newly formed partnerships. Any failure to integrate an acquired business or realize the anticipated benefits of new partnerships may have a material adverse effect on the Company’s business, results of operations, financial condition, and prospects, including its future prospects for acquisitions or partnerships. There is no assurance that the Company will be able to successfully integrate an acquired business in order to maximize or realize the benefits associated with an acquisition.

 

In addition, from time to time the Company enters into letters of intent and memoranda of understanding with respect to which definitive agreements have not yet been, but are expected to be, executed. The Company may not be able to perform under these contracts as a result of operational or other breaches or due to events beyond its control, and the Company may not be able to ultimately execute a definitive agreement in cases where one does not currently exist.

 

 
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Any expansion of our international operations will result in increased operational, regulatory, and other risks.

 

We established an Australian subsidiary in November 2022 and may in the future expand into other geographic areas, which could increase our operational, regulatory, compliance, reputational and foreign exchange rate risks. The failure of our operating infrastructure to support such expansion could result in operational failures and regulatory fines or sanctions.

 

The Company is currently party to several legal proceedings and may become a party to potential future litigation.

 

The Company is currently party to a number of proceedings; see “Item 8. Financial Information - A. Consolidated Statements and Other Financial Information – Legal Proceedings”. Such litigation could be costly and time-consuming and could divert the attention of management and other key personnel from the Company’s business and operations. The complexity of any such claims and the inherent uncertainty of commercial, employment and other litigation increases these risks. In recognition of these considerations, the Company could suffer significant litigation expenses in defending any of these claims and may enter into settlement agreements.

 

The Company may also become party to additional litigation in the future, including class action lawsuits, securities litigation and anti-trust and anti-competitive actions, which could adversely affect its business. Should any litigation in which the Company becomes involved be determined against the Company, such a decision could adversely affect the Company’s ability to continue operating and the market price for Company’s Class B Shares and could result in the use of significant resources. Even if the Company is involved in litigation and wins, litigation can redirect significant corporate resources and management attention.

 

Conflicts of interest may arise between the Company and its directors and officers as a result of other business activities undertaken by such individuals.

 

Certain directors and officers of the Company are, and may in the future become, directors and officers of other entities, or are otherwise engaged, and will continue to be engaged, in activities that may put them in conflict with the business strategy of the Company. In particular, certain directors and officers of the Company serve as directors or officers of entities that may compete with or have conflicting interests with the Company.

 

The Company’s directors and the officers are required to act honestly and in good faith with a view to its best interests. However, in conflict of interest situations, the Company’s directors and officers may owe the same duty to another corporation and will need to balance their competing interests with their duties to the Company. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company. These business interests could require the investment of significant time and attention by our executive officers and directors. In some cases, our executive officers and directors may have fiduciary obligations associated with business interests that interfere with their ability to devote time to our business and affairs, which could adversely affect our operations.

 

The Company does not anticipate paying dividends in the near future.

 

Effective November 29, 2023, the Corporation completed the Plan of Arrangement, which included the distribution of the Celly Nu Shares to the FSD Pharma Securityholders. For more information, please see “Item 4. Information on the Company. - A. History and Development of the Company - Significant Developments in Fiscal 2023 through to March 28, 2024”.

 

The Company does not anticipate paying cash or stock dividends in the near future. The Company expects to retain earnings to finance the development and enhancement of its Product Candidates and to otherwise reinvest in the Company’s business. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, financial results, cash requirements, contractual restrictions, and other factors that the Board may deem relevant. As a result, investors may not receive any return on their investment in Class B Shares unless they sell them for a share price that is greater than that at which such investors purchased them.

 

The Company’s operations depend, in part, on the maintenance and protection of its information technology systems and the information technology systems of its third-party research institution collaborators, CROs or other contractors or consultants, which could face cyber-attacks that cause material losses to our business.

 

We have entered into agreements with third parties for hardware, software, telecommunications, and other information technology (“IT”) services in connection with our operations. Our operations depend, in part, on how well we, our CROs, other contractors, consultants and our suppliers protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, terrorism, fire, power loss, hacking, computer viruses, vandalism and theft. Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact our reputation and results of operations.

 

For example, the loss of, or damage to, clinical trial data from completed, ongoing or future preclinical or clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely or expect to rely on third parties for research and development, the manufacture and supply of drug product and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our Product Candidates could be delayed.

 

 
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Certain data breaches must also be reported to affected individuals and certain regulatory bodies, and in some cases may be required to be publicly disclosed under U.S. federal and state law, federal and provincial data protection legislation in Canada and the requirements of other jurisdictions, and financial or other penalties may also apply.

 

Cyber incidents can result from deliberate attacks or unintentional events. Cyber-attacks could result in any person gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, including personally identifiable information, corrupting data, or causing operational disruption. Cyber-attacks could also result in important remediation costs, increased cyber security costs, lost revenues due to a disruption of activities, litigation and reputational harm affecting customer and investor confidence, which could materially adversely affect our business and financial results.

 

We have not experienced any material losses to date relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not incur such losses in the future, which could be in excess of any available insurance and could materially adversely affect our business and financial results. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.

 

We may be a passive foreign investment company, which may result in adverse U.S. federal income tax consequences for holders of our Class B Shares who are U.S. taxpayers.

 

Generally, if for any taxable year 75% or more of our gross income is passive income, or 50% or more of the average quarterly value of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or “passive foreign investment company” (“PFIC”), for U.S. federal income tax purposes. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies that in some circumstances are unclear and subject to varying interpretation, and the Company’s PFIC status will depend among other things upon changes in the composition and relative value of its gross receipts and assets. We believe that we were a PFIC for the year ended December 31, 2023. In addition, although PFIC status is determined on an annual basis and generally cannot be determined until the end of the taxable year, we believe that we may be considered a PFIC for the current taxable year. Because we may continue to hold a substantial amount of cash and cash equivalents, and because the market value of the Company’s assets (including for this purpose goodwill) may be measured in large part by the market price of our shares, which is likely to fluctuate, no assurance can be given that the Company will not also be a PFIC in any future taxable year. If we are characterized as a PFIC, our shareholders who are U.S. taxpayers may suffer adverse tax consequences, including the treatment of gains realized on the sale of our Class B Shares as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our Class B Shares by individuals who are U.S. taxpayers, and the addition of interest charges to the tax on such gains and certain distributions. For more information, please see “Item 10. Additional Information - E. Taxation - Certain Material U.S. Federal Income Tax Considerations”.

 

Item 4. Information on the Company.

 

A. History and Development of the Company

 

Overview and History

 

We were incorporated in 1998 under the OBCA under the name of Century Financial Group, Inc. On May 24, 2018, pursuant to Articles of Amendment, the Company changed its name to “FSD Pharma Inc.” From May 2018 to March 2020, the focus of the Company’s business was the cultivation, processing and sale of medical cannabis; in March 2020, however, the Company pivoted its focus to pharmaceuticals and biotechnology.

 

The Company is building a portfolio of innovative assets and biotech solutions for the treatment of challenging neurodegenerative and metabolic disorders and alcohol misuse disorders with drug candidates (“Product Candidates”) in different stages of development.  We are currently focused on the research and development of our lead compound, Lucid-MS, a patented new chemical entity shown to prevent and reverse myelin degradation, the underlying mechanism of multiple sclerosis, in preclinical models. The Company is also focused on the research and development of novel formulations for the treatment for alcohol misuse. In addition, the Company maintains a portfolio of strategic investments through its wholly owned subsidiary, FSD Strategic Investments, which represent loans secured by residential properties.

 

Alcohol Misuse Disorder Product Candidates

 

With respect to the Product Candidates for alcohol misuse disorders, the Corporation sees two distinct routes where this segment can be developed, (i) recreational retail and (ii) healthcare; Celly Nu, through the Celly Nu IP License Agreement will be focusing on the recreational retail sector and the Corporation will be focusing on the healthcare sector as further outlined below:

 

(i) Alcohol Misuse: Retail Product (known as “Unbuzzd™”)

 

 
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A consumer recreational beverage product that will be sold via retail distribution. On July 31, 2023, the Corporation entered into a definitive exclusive intellectual property license agreement (the “Celly Nu IP License Agreement”) with Celly Nu and Lucid, which granted Celly Nu the exclusive rights to the recreational applications for the Corporation’s alcohol misuse technology for rapid alcohol detoxification, and the rights to the trademarks, Unbuzzd™ and ALCOHOLDEATH™, in exchange for securities in Celly Nu and a royalty on any product sales, so that Celly Nu could fund research and development, market and sell Unbuzzd™. As part of the Celly Nu IP License Agreement, the Corporation loaned Celly Nu C$1,000,000 on a secured basis with a term of 3 years, which bears interest at a rate of 10% per annum, payable on each anniversary, to assist Celly Nu in achieving that goal; however, the Corporation does not have an obligation to fund Celly Nu in the future (the “Celly Nu Loan Agreement”). The Celly Nu loan was secured by all of Celly Nu’s collateral (the “Celly Nu Security Agreement”).

 

Pursuant to the Celly Nu IP License Agreement, the Corporation will receive a 7% royalty on revenue from Celly Nu, until total royalties in the amount of C$250,000,000 have been paid to the Corporation, at which point the royalty rate is reduced to 3%. In addition, Celly Nu issued the Corporation 100,000,000 Celly Nu Shares (as defined below) as a licence fee and issued the Corporation an anti-dilution warrant, entitling the Corporation to exercise the warrant at any time, in whole or in part, for a period of five years from the date of issuance to increase their holdings in Celly Nu to 25% for nominal consideration. Upon completion of the transaction with Celly Nu, the Corporation held approximately 34.66% of the issued and outstanding Celly Nu Shares on a non-diluted basis.

 

The Corporation will retain all rights to medical and pharmaceutical applications under its umbrella to further develop the franchise as part of its portfolio.

 

Effective November 29, 2023, the Corporation completed the Plan of Arrangement (as defined herein). Upon completion of the Plan of Arrangement, the Corporation continues to hold 154,287,471 Celly Nu Shares, which represents approximately 26.15% of the issued and outstanding Celly Nu Shares on a non-diluted basis. For more information, please see “Item 4. Information on the Company. - A. History and Development of the Company - Significant Developments in Fiscal 2023 through to March 28, 2024”.

 

The Plan of Arrangement has not had, and does not expect to have, any impact on the development of the retail product, Unbuzzd™.

 

The Corporation’s continued operations are not dependent on the development of Unbuzzd™.

 

(ii) Alcohol Misuse: Healthcare Product (the “Healthcare Product”)

 

The Healthcare Product has the potential to assist emergency room physicians and their medical staff with the abundance of intoxicated patients they receive as these patients are utilizing critical resources (i.e. the physicians and their medical staff) whose time can be used for more urgent and critical needs. The Corporation did not license the intellectual property with respect to the Product Candidate for the Healthcare Product to Celly Nu and will be conducting further research and development, including clinical trials, into the viability of the Healthcare Product. Although any research and development conducted by the Corporation on the Healthcare Product could be shared with, and may assist, Celly Nu in developing Unbuzzd™, the Corporation has no obligation, pursuant to the Celly Nu IP License Agreement, to share such information with Celly Nu.

 

The viability, development and advancement of the Healthcare Product is dependent on the Corporation obtaining requisite funding, in the amount of approximately US$10,998,811, for the Corporation to complete further research and development. The Corporation, through its initial research, has discovered that there is significant demand in the market for this type of product, an opportunity for them to capture market share and believes that if it were able to develop and sell the Healthcare Product, it would bring immense value to its shareholders. If the requisition financing is not obtained, the Corporation will be unable to develop the Healthcare Product.

 

The Corporation’s continued operations are not dependent on the Healthcare Product’s development.

 

Lucid-MS

 

Through Lucid, the Corporation is also currently focused on the research and development of its Lucid-MS compound. Lucid-MS is a patented new chemical entity shown to prevent and reverse myelin degradation, the underlying mechanism of MS, in preclinical models. On April 17, 2023, the Corporation announced the completion of its first-in-human dosing of Lucid-MS in the Corporation’s Phase 1 clinical trial. On May 10, 2023, the Corporation announced the completion of dosing for the first cohort of patients in the Phase 1 clinical trial of Lucid-MS.

 

FSD-PEA

 

On June 2, 2023, the Corporation terminated any further clinical development of its proprietary ultra-micronized palmitoylethanolamide (“FSD-PEA”) (also known as “FSD201”) formulation which was being developed for the treatment of inflammatory diseases. The Corporation’s team of internal medical experts conducted a profitability assessment of FSD-PEA and ultimately determined that the FSD-PEA molecule was not profitable compared against the currently available products in the market and it would not be possible to cover the Corporation’s manufacturing and research and development investments at a price that would be accepted in the market.

 

 
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Lucid-PSYCH

 

Additionally, management made the decision to put the research and development activities associated with Lucid-PSYCH (formerly Lucid-201) on hold during June 2023. This decision was made based on the cumulative cash requirements to advance the research and development of the Corporation’s portfolio of compounds. Due to cash flow prioritization strategies, management elected to prioritize the Lucid-MS compound and its alcohol misuse treatment products. The Corporation has not recognized an amount specific to Lucid-PSYCH. When the Corporation acquired Lucid, it recognized an intangible asset consisting of the world-wide exclusive license agreement with the University Health Network (the “UHN License”) for the exclusive rights to the novel Lucid-MS compound and the U.S. patent for the Lucid-MS compound covered by the UHN license. Lucid-PSYCH was not covered by the license agreement and did not have any patent protection.

 

Prismic

 

The Corporation does not operate through Prismic, however Prismic holds the right to receive certain payments based on net sales of certain products from the Corporation pursuant to an assignment agreement between Prismic and the Corporation.

 

FSD Strategic Investments

 

Through FSD Strategic Investments, the Corporation is involved in the issuance of loans secured by residential or commercial property.

 

The Company’s Class B Shares trades on the CSE and Nasdaq under the symbol “HUGE.”

 

The Company’s principal office is located at 199 Bay Street, Suite 4000, Toronto, Ontario M5L 1A9 and its telephone number is 416-854-8884. As at the date of this Annual Report, the Company is a reporting issuer in each of the provinces of Canada. The Company’s registrar and transfer agent is Marrelli Trust Company Limited. The Company’s agent for service in the United States is CT Company, 28 Liberty Street, New York, New York 10005.

 

For a description of our principal capital expenditures, principal acquisitions and divestitures for the three years ended December 31, 2023 and for those currently in progress, see. “Item 4. Information on the Company - A. History and Development of the Company” and “Item 4. Information on the Company - B. Business Overview and “Item 5. - Operating and Financial Review and Prospects.

 

The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov. Our internet address is www.fsdpharma.com. The information contained on our website is not incorporated by reference and does not form part of this Annual Report.

 

Significant Developments in Fiscal 2023 through to March 28, 2024

 

2023 Normal Course Issuer Bid

 

On January 12, 2023, the Board authorized a normal course issuer bid pursuant to which the Company was able to repurchase for cancellation up to 1,925,210 Class B Shares, being approximately 5% of the Company’s issued and outstanding Class B Shares as of January 12, 2023, over a 12-month period (the “2023 NCIB”). The 2023 NCIB commenced on January 18, 2023 and was terminated on January 12, 2024. Under the 2023 NCIB, the Company repurchased for cancellation 1,904,700 Class B Shares at an average price of approximately C$2.11 per Class B Shares. All Class B Shares were repurchased through the facilities of the CSE at the prevailing market price on the CSE at the time of repurchase.

 

Issuance of Warrants

 

On February 13, 2023, the Company issued warrants to purchase 500,000 Class B Shares to Jason Gold and warrants to purchase 300,000 Class B Shares to Pillow Hog Ventures Inc. in exchange for consulting services provided to the Company. The warrants vested on issuance and expire on March 30, 2024, with an exercise price ranging from US$1.50 to US$4.50.

 

On February 13, 2023, the Company issued warrants to purchase 500,000 Class B Shares to Zapability LLC in exchange for consulting services provided to the Company. Each tranche of warrants expires 12 months from the first day it vested, with the final tranche expiring on February 15, 2026. The warrants have an exercise price ranging from US$1.85 to US$8.00.

 

On February 27, 2023, the Company issued warrants to purchase 1,000,000 Class B Shares to Kevin Harrington in exchange for consulting services provided to the Company. The warrants vested on issuance and expire on February 27, 2026, with an exercise price ranging from US$1.75 USD to US$8.00.

 

 
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On March 24, 2023, the Company issued warrants to purchase 1,000,000 Class B Shares to Gerard David in exchange for consulting services provided to the Company. The Warrants on issuance and expire on March 24, 2026, with an exercise price ranging from US$1.75 to US$8.00.

 

Discontinuation of Research on Lucid-PSYCH and PEA

 

On June 2, 2023, the Corporation terminated any further clinical development of FSD-PEA

 

Interest-Bearing Mortgage Loan to CEO

 

On April 17, 2023, FSD Strategic Investments entered into a secured loan agreement with the CEO for C$1,200,000, with monthly payments of C$6,000 based on an annual interest rate of 6% and a blended rate of 7% (the “CEO Mortgage Loan”).  The business purpose of the CEO Mortgage Loan was a treasury function to earn a rate of return on excess capital held.  For more information, see “Item 7. Major Shareholders and Related Party Transactions - B. Related Party Transactions.”

 

Change in Board and Management

 

On July 4, 2023, the Company announced the appointment of Mr. Zeeshan Saeed as CEO of the Company, to succeed Mr. Anthony Durkacz, who served as interim CEO of the Company since July 2021.

 

At the annual general and special meeting of the Shareholders held on June 29, 2023, Messrs. Michael Zapolin and Dr. Eric Hoskins were elected as directors of the Company.

 

On January 24, 2024, the Company appointed Dr. Sanjiv Chopra, MD to the Board to replace Nitin Kaushal.

 

Celly Nu IP License Agreement

 

On July 31, 2023, the Company entered into the Celly Nu IP License Agreement, Celly Nu Loan Agreement and Celly Nu Licensing Agreement. For more information, please see “Item 4. Information on the Company. - A. History and Development of the Company - Overview and History”.

 

Plan of Arrangement

 

On April 11, 2023, the Corporation announced its intention to complete a spin-out transaction via a statutory plan of arrangement and to hold a regarding the same at its upcoming meeting of shareholders. The Corporation ultimately made the decision to defer the spin-out transaction and did not ask its shareholders to approve the transaction at its annual general and special meeting of shareholders held on June 29, 2023.

 

On October 5, 2023, the Corporation announced that it had entered into a definitive arrangement agreement with Celly Nu dated October 4, 2023 (the “Arrangement Agreement”) with respect to the distribution of a portion of the Corporation’s shareholdings of Celly Nu to the FSD Pharma Securityholders (as defined herein).

 

Pursuant to the Arrangement Agreement, the Corporation had FSD Pharma Securityholders pass a special resolution at the special meeting of shareholders held on November 20, 2023 to approve a statutory plan of arrangement under section 182 of the OBCA (the “Plan of Arrangement”), which involved (i) an amendment to the capital structure of the Corporation (the “Share Capital Amendment”); and (ii) the distribution of a portion of the common shares in the capital of Celly Nu (“Celly Nu Shares”) to the holders of the Corporation’s Class B Shares, class A multiple voting shares (“Class A Shares”), and outstanding warrants exercisable for the purchase of Class B Shares, provided the applicable warrant certificate entitles the holder thereof to receive distributions substantially similar to those received by the holders of Class B Shares (“FSD Pharma Distribution Warrants” and together with Class A Shares and Class B Shares, the “FSD Pharma Securities”). The Shareholders and the holders of FSD Pharma Distribution Warrants (collectively, the “FSD Pharma Securityholders”) would each receive one Celly Nu Share for each Class A Share, Class B Share or FSD Pharma Distribution Warrant held.

 

On November 24, 2023, the Corporation received a final order from the Ontario Superior Court of Justice (Commercial List) approving the Plan of Arrangement.

 

The record date of the Plan of Arrangement was set at November 28, 2023 (the “Record Date”), and the ex-dividend date was set at November 27, 2023.

 

Effective November 29, 2023, the Corporation completed the Plan of Arrangement. Holders of FSD Pharma Securities received one Celly Nu Share for each Class A Share, Class B Share, or FSD Pharma Distribution Warrant held. FSD Pharma Securityholders also received new Class A Shares, new Class B Shares, and new FSD Pharma Distribution Warrants (“New FSD Pharma Securities”) in exchange for their Class A Shares, Class B Shares, and FSD Pharma Distribution Warrants (the “Share Exchange”). Pursuant to the Share Exchange and in accordance with the terms of the Arrangement Agreement, 24 Class A Shares were exchanged to 24 new Class B Shares. Following the closing of the Plan of Arrangement, the Corporation had 48 new Class A Shares, 39,376,723 new Class B Shares, and 6,335,758 new FSD Pharma Distribution Warrants issued and outstanding. Further details concerning the Share Exchange are set forth in the Special Meeting Circular.

 

 
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All Celly Nu Shares distributed to FSD Pharma Securityholders pursuant to the Plan of Arrangement are subject to restrictions on resale, and may not be transferred until May 31, 2024, provided that, Celly Nu may, in its sole discretion, waive such restrictions, in whole or in part.

 

The New CUSIP and ISIN numbers for Class B Shares following the completion of the Plan of Arrangement are 35954B404 and CA35954B4047, respectively, the New CUSIP and ISIN numbers for Class A Shares following the completion of the Plan of Arrangement are 35954B305 and CA35954B3056, respectively and the Celly Nu Shares distributed pursuant to the Plan of Arrangement have CUSIP and ISIN numbers of 150965200 and CA1509652006, respectively.

 

The Plan of Arrangement resulted in an aggregate of 45,712,529 Celly Nu Shares being distributed to the FSD Pharma Securityholders and an aggregate of 154,287,471 Celly Nu Shares retained by the Corporation, which represents approximately 26.15% of the issued and outstanding Celly Nu Shares on a non-diluted basis.

 

For more information regarding the Plan of Arrangement, please see the Special Meeting Circular and Arrangement Agreement, each of which is available under the Corporation’s profile on System for Electronic Document Analysis and Retrieval plus (“SEDAR+”) at www.sedarplus.ca and on EDGAR at www.sec.gov.

 

The Plan of Arrangement was considered a “business combination” pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) since (i) the FSD Pharma Securityholders’ interest in the FSD Pharma Securities may have been terminated without their consent as a result of the Share Capital Amendment; and (ii)  Michael (Zappy) Zapolin (“Zapolin”), a director of the Corporation and therefore a “related party” under MI 61-101 was party to a “connected transaction” to the Plan of Arrangement. The Plan of Arrangement and subscription by Zapolin for 28,800,000 Celly Nu Shares on August 1, 2023 was a “connected transaction” (the “Related Party Purchase”). Both transactions involved Celly Nu as a common party and the Plan of Arrangement and Related Party Purchase were arguably negotiated at approximately the same time. At the time, Zapolin owned, directly or indirectly, nil Class B Shares, nil Class A Shares, nil FSD Pharma Distribution Warrants, and 500,000 warrants, each exercisable for the purchase of one Class B Share. Any FSD Pharma Securities held by Zapolin were treated in the same fashion under the Plan of Arrangement as the FSD Pharma Securities held by every other FSD Pharma Securityholder.

 

The Plan of Arrangement was not a “related party transaction” pursuant to MI 61-101 as a result of it being a “business combination” pursuant to MI 61-101. 

 

The Plan of Arrangement did not have a material impact or represent a material change on the Corporation’s financial performance and condition.

 

Settlement of Lawsuit with Syneos Health

 

On August 2, 2023, the Corporation entered into a settlement agreement  (the “Settlement Agreement”) with Syneos Health, LLC and Syneos Health UK Limited (collectively, the “Syneos”), whereby it was agreed that, among other things, the Corporation agreed to pay Syneos the amount of US$100,000 within five days of the execution of the Settlement Agreement and upon receipt by Syneos of such settlement payment, Syneos shall waive, release and forgive the Corporation’s payment of (i) the different between the settlement payment and the damages payment (i.e. US$1,607,831) and (ii) interest on the damages payment ordered by the award, and any other amounts that were or could have been sought in the arbitration. Pursuant to the Settlement Agreement, Syneos also agreed to withdraw its recognition application that was filed on June 30, 2023. Payment was made by the Corporation on August 4, 2023 and pursuant to the terms of the Settlement Agreement, the matter was concluded in its entirety.

 

Investigation of Market Activity

 

On July 10, 2023, the Corporation announced that it had retained Christian Attar Law, a regional litigation firm located in Houston, Texas, to co-lead, along with New York City law firm, Warshaw Burstein, LLP, an investigation of any potential naked short selling or other market manipulation of the Corporation’s securities. The Corporation has been advised that Christian Attar Law has completed their preliminary assessment of the predatory short selling and they anticipate that they will recommend to move the matter forward to the next stage but have yet to make a formal decision. The Corporation will provide updates in the event of any material progress on the investigation.

 

On November 22, 2023, the Corporation was provided an update from its United States counsel in connection with the possible naked short selling and market manipulation case, counsel informed the Corporation on a phone call that they plan to file a motion in the coming year. Although initially expected to be filed in February or March 2024, the Corporation is still in the information gathering process and expect to provide an update on the status of the potential naked short selling or other market manipulation in the coming months.

 

December Class A Share Private Placement

 

Effective December 4, 2023, the Corporation closed a non-brokered private placement of Class A Shares for gross proceeds of C$45.60 through the issuance of 24 Class A Shares at a price of C$1.90 per Class A Share (the “December Class A Private Placement”). All securities issued pursuant to the December Class A Private Placement were subject to a statutory hold period of four months plus a day from issuance in accordance with applicable securities laws of Canada. The Corporation intends to use the proceeds of the December Class A Private Placement for general working capital purposes. For more information, see “Item 7. Major Shareholders and Related Party Transactions - B. Related Party Transactions.”

 

 
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Dr. Raza Bokhari

 

For an update on the status of our outstanding lawsuits with Dr. Raz Bokhari in 2023, please see “Item 8.  Financial Statements – Legal Proceedings.”

 

Shelf Prospectuses

 

In order to replace its prior base shelf prospectus that expired, effective December 22, 2023, the Company filed and obtained a receipt for its final short form base shelf prospectus dated December 22, 2023 (the “Canadian Prospectus”) to provide the Company with the flexibility to take advantage of financing opportunities and favourable market conditions, if and when needed, during the 25-month period that the Prospectus remains effective (the “Effective Period”). The Canadian Prospectus has been filed in each of the provinces and territories in Canada. The Canadian Prospectus enables the Company to offer, issue and sell, from time to time: Class B Shares, subscription receipts, warrants and units, or any combination thereof (collectively, the “Prospectus Securities”) for up to an aggregate offering amount of US$50,000,000, in one or more transactions during the Effective Period.  Should the Company decide to offer Securities during the Effective Period, the specific terms, including the use of proceeds from any offering of Securities, will be set forth in one or more related prospectus supplements to the Canadian Prospectus.

 

Effective December 22, 2023, the Company also filed a registration statement on Form F-3 (File No. 333-276264) filed under the Securities Act with the SEC and declared effective on January 4, 2024 (the “Registration Statement”) containing a base shelf prospectus with the SEC (the “U.S. Base Prospectus”). The Registration Statement also qualifies the offer, issue and sale, from time to time of Securities up to an aggregate amount of US$50,000,000, subject to limitations, as applicable, under Form F-3. The Registration Statement is available for use by the Company until January 4, 2027. The terms of any Securities to be offered under the U.S. Base Prospectus will be specified in a prospectus supplement, which will be filed with the SEC in connection with any such offer.

 

ATM Offering

 

Effective February 16, 2024, the Company entered into an at-the-market offering agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company, at its discretion, may offer and sell, from time to time, through Wainwright as sales agent, Class B Shares, having an aggregate offering price of up to US$11,154,232 (the “ATM Offering”). A cash commission of 3.0% on the aggregate gross proceeds raised under the ATM Offering will be paid to Wainwright in connection with its services. The ATM Offering was made in the United States pursuant to the Registration Statement and the prospectus supplement dated February 16, 2024 (“Prospectus Supplement”, together with U.S. Base Prospectus, the “U.S. Prospectus”) filed with the SEC.

 

Sales of the Class B Shares under the U.S. Prospectus will be made in transactions that are deemed to be "at-the-market" offering as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, (the “Securities Act”) including sales made directly on or through the Nasdaq. The Class B Shares will be distributed at the prevailing market prices at the time of each sale. As a result, prices may vary as between purchasers and during the period of distribution. No Class B Shares in the ATM Offering will be sold on the CSE or any other trading market in Canada.

 

The volume and timing of sales, if any, will be determined at the sole discretion of the Corporation’s management and in accordance with the terms of the ATM Agreement. If the Company chooses to sell Class B Shares under the ATM Offering, the Company intends to use the net proceeds of the ATM Offering (i) to fund our various clinical studies, trials and development programs, (ii) to fund research and development, and (iii) for general corporate purposes and working capital.

 

B. Business Overview

 

For more information, please see “Item 4. Information on the Company. - A. History and Development of the Company - Overview and History”.

 

The Corporation currently has two (2) significant programs, which are focused on the development of treatments for challenging neurodegenerative, inflammatory, and metabolic disorders. They are:

 

 

1.

Lucid-MS: A potential treatment for Multiple Sclerosis with the lead candidate, Lucid-21-302; and

 

2.

Novel Treatments for Alcohol Misuse, and related conditions.

 

 
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All programs are clinical stage programs, with significant benefits to help patients, if successfully approved for clinical use. With respect to the Product Candidates for alcohol misuse disorders, the Corporation sees two distinct routes where this segment can be developed, (i) recreational retail and (ii) healthcare; Celly Nu, through the Celly Nu IP License Agreement will be focusing on the recreational retail sector and the Corporation will be focusing on the healthcare sector. Below, a brief summary on each program is provided and their corresponding status along with any partnership/licensing activities.

 

Lucid-MS

 

This program is focused on the development of novel drugs for MS. Progressive MS has no standard of care, and almost all available drugs are immunomodulatory, and do not address the neurodegeneration in the patients. The Corporation believes it has a solution that can significantly change the course of neurodegenerative decline in MS patients. The Corporation, through the acquisition of Lucid, acquired the multiple sclerosis program with the lead candidate, Lucid-MS (development code, Lucid-21-302). Lucid-21-302 exhibits moderate inhibition profile against peptidyl arginine deiminase (“PAD”) 2 and PAD 4 isozymes. There is strong evidence that hypercitrullination of myelin, mediated by increased activities of PAD 2 and potentially PAD 4, may contribute to demyelination and multiple sclerosis pathogenesis through two mechanisms: (1) destabilizing myelin integrity on neuronal axons, leading to demyelination and degeneration, and (2) generating antigenic neoepitopes, leading to immune activation. Lucid-21-302 reduced hypercitrullination, prevented demyelination and helped remyelination in various non-clinical animal models of multiple sclerosis, including functional recovery in the animals. Lucid-MS is being developed as a first-in-class, non-immunomodulatory drug for the treatment of progressive multiple sclerosis. Current data from preclinical and clinical development suggests that Lucid-21-302 could achieve the therapeutic dose to launch a proof-of-concept human study in a small number of patients (Phase 2a PoC clinical trial). This trial will pave way for a larger Phase 2b study, with appropriate biomarkers and endpoints for the treatment of progressive MS with multiple clinical sites. The Corporation has actively been planning a potential phase-2 clinical trial. The current patent on Lucid-21-302 are effective until 2036 (US10716791B2) and was licensed from University Health Network (Toronto, Canada) exclusively for development and commercialization.

 

Clinical Trials

 

On January 17, 2023, the Company submitted the CTA for a planned Phase 1 clinical trial for Lucid-MS to Health Canada.  In February 2023, the Company received regulatory clearance from Health Canada to proceed with the Company’s Phase 1 clinical trial of Lucid-MS in Canada. On May 10, 2023, the Company announced the completion of dosing the first cohort of patients in the Phase 1 clinical trial of Lucid-MS.

 

On July 10, 2023, the Company received a “no objection letter” for a Phase 1 Lucid-MS clinical trial for the submission Clinical Trail Application, which was acknowledged on June 12, 2023.  On July 19, 2023, the Company submitted a request for pre-IND meeting to the FDA, which was acknowledged August 3, 2023, and a response was received on September 21, 2023. On August 25, 2023, the Company received a “no objection letter” for the Clinical Trail Application, which was acknowledged on July 31, 2023. On September 18, 2023, the completion of study notification (after completion of five cohorts) was submitted to Health Canada. On October 2, 2023, the Company submitted a provisional patent application to the USPTO was submitted on the clinical formulation containing Lucid-MS.

 

The Company presented the results from its first-in-human Phase 1 study of Lucid-MS at the America’s Committee meeting for the treatment and research in multiple sclerosis in February 2024.  This presentation detailed the final results including adverse events profile of Lucid-21-302 in the single-ascending dose studies. The study concluded that Lucid-21-302 is safe and well-tolerated in the dose range of 50-300 mg p.o. administered once, with no difference in pharmacokinetics between the fed and fasted states. There were no serious adverse effects, and most adverse effects (7/12) in participants receiving Lucid-21-302 were characterized as unlikely related or unrelated to study drug. In the dose range 50-300 mg, drug exposure was proportional to dose of the drug. It also demonstrated good oral absorption with ‘area under the curve’ at 300mg comparable to ‘area under the curve’ in mouse efficacy studies. Based on its internal review of the Phase 1 data, the Company believes that the positive results warrant moving to a Phase 2 clinical trial.  

 

Phase 2 Clinical Study

 

Based on the positive results that the Phase-1 study yielded, the Board, on recommendation from the advisory committee, resolved to proceed with completing a Phase II MS-Study on Lucid-MS with the goal of getting the Lucid-MS to commercialization. The Company has determined that in order to get to commercialization it will cost approximately US$30,655,469.

 

As Lucid-MS advances from Phase-1 to Phase-2, milestone-driven investigations are planned to expedite late-stage clinical development, aligned with our chronic toxicology program. This synergy ensures enabling data for regulatory submissions for the next clinical phases, such as Phase-1b multiple ascending dose (“MAD”) cohorts, Phase-2a, and Phase-2b. To initiate Phase-2, we require data from MAD cohorts, at least three months of toxicology data, and any additional data requested by regulatory authorities. Long-term toxicology data is crucial for dosing extending up to six months or more, reflecting Lucid-MS’s potential as a chronic treatment or disease-modifying therapy for MS patients. The Lucid-MS program’s ultimate goal is to conduct regulatory clinical studies, investigating its potential as a non-immunomodulatory drug to halt disease progression and neurodegeneration in multiple sclerosis.

 

 
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The Company’s innovative clinical development program targets multiple sclerosis, aiming to create a groundbreaking treatment. The Company has engaged thought leaders and conducted internal discussions on regulatory guidance to design an efficient, cost-effective program spanning chemistry, product development, and data acquisition for clinical stages. The Company’s clinical trials are moving forward in Australia.  

 

Novel Treatments for Alcohol Misuse and Related Conditions

 

Excess alcohol consumption (alcohol misuse or mild acute alcohol intoxication) is clinically harmful that typically follows the ingestion of excess amount of alcohol. Clinical symptoms and manifestations are heterogeneous, and can have behavioral, cardiac, gastrointestinal, pulmonary, neurological, and metabolic effects. The Company is focused on treatments to reverse inebriation and to assist accelerating alcohol metabolism in people who consumed excess alcohol, reaching blood alcohol levels around/slightly above the legal limits in various countries. Available options for the emergency response doctors and nurses are to provide a vitamin intravenous drip or let alcohol “wear off”, until medical professionals can tend to those individuals who are inebriated, occupying expensive resources in the emergency room. The Company also identified that excess alcohol consumption is a problem in the general society (consumer market), and the commonly available remedies mostly fall in the category of “hangover remedies”. Thus, there is a great need for immediate treatments that can address the challenges when one consumes excess alcohol.

 

Medical and R&D teams at Lucid identified several natural ingredients that are dietary supplements that can function as alcohol metabolism accelerants and enhance mental alertness; the team developed several formulations that will help enhance mental alertness, replenish cofactors, and may accelerate the rate of alcohol metabolism. This formulation may be useful in treating intoxicated individuals who wish to speed up their recovery from the effects of alcohol as well as for the treatment of intoxicated patients entering emergency departments in the hospitals. The Company will continue its R&D program and develop products for use in emergency departments and other healthcare settings. Regulatory activity in the United States, and other markets globally will be continued, aligned with the R&D and potential clinical trials (as needed) for commercialization, marketing, and distribution.

 

As of March 28, 2024, the Company has registered five trademarks with the Canadian Intellectual Property Office (Registrar of Trademarks) (“CIPO”) and the USPTO and 17 trademarks with the CIPO, relating to novel treatments for alcohol misuse and related conditions, including Unbuzzd™ and ALCOHOLDEATH™, which were licensed to Celly Nu pursuant to the Celly Nu IP License Agreement.

 

On April 24, 2023, the Company filed a provisional patent application with the USPTO with respect to the Company’s alcohol misuse treatment technology, which was licensed to Celly Nu under the Celly Nu IP License Agreement for retail use.

 

The Company sees two distinct routes where this segment can be developed, (i) recreational retail and (ii) healthcare.  Celly Nu, through the Celly Nu IP License Agreement will be focusing on the recreational retail sector and the Company will be focusing on the healthcare sector.

 

Product Development on Hold or Discontinued

 

In June 2023, the Company terminated any further clinical development of its proprietary ultra-micronized FSD-PEA formulation for the treatment of inflammatory diseases. The Company’s team of internal medical experts conducted a profitability assessment of FSD-PEA and ultimately determined that the FSD-PEA molecule was not profitable compared against the currently available products in the market and it would not be possible to cover the Company’s manufacturing and research and development investments at a price that would be accepted in the market.

 

Additionally, management made the decision to put the research and development activities associated with Lucid-PSYCH (formerly Lucid-201) on hold during June 2023. This decision was made based on the cumulative cash requirements to advance the research and development of the Company’s portfolio of compounds. Due to cash flow prioritization strategies, management elected to prioritize the Lucid-MS compound and its alcohol misuse treatment products.

 

Milestones for Future Development

 

In light of the above, the Company has determined that it will prioritize the development of its viable assets, utilizing the limited in-house resources available, to maximize the chances of their successful commercialization. Therefore, the Company resolved to push forward with the development of (i) Lucid-MS and (ii) the Healthcare Product, (ii) license Unbuzzd™ to Celly and (iv), pause the development of Lucid-PSYCH and terminate the development of FSD201.

 

The Company’s adaptable trial planning integrates insights from clinical and non-clinical studies, regulatory guidance, and market dynamics. Our adjusted timelines, especially in 2024 and 2025, are influenced by key market regulations, ensuring efficiency and cost-effectiveness across chemistry, product development, and data acquisition.

 

The Company’s overarching strategy allows it to conduct studies efficiently in terms of time and cost, considering that toxicology and clinical studies can span several months to several years. It also provides flexibility to adjust or explore alternative pathways cost-effectively in case of unexpected toxicities or efficacy issues.

 

The table below sets forth the status of these milestones as of March 28, 2024, the estimated costs and estimated timeframe for completion thereof. The following are “forward-looking statements” and as such, there is no guarantee that such milestones will be achieved on the timelines indicated or at all. Forward-looking statements are based on management’s current expectations and are subject to a number of risks, uncertainties, and assumptions. See “Caution Regarding Forward-Looking Statements” and “Item 3. Key information - D. Risk Factors” on the Company’s ability to achieve certain of its objectives and milestones, which are contingent upon raising additional financing.

 

 
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Table of Contents

 

Objective

Milestone(1)(2)

Estimated Cost

 

Estimated Timeframe for Completion(3)(4)

Notes

1. MAD Cohorts

 

 

 

 

Regulatory Agency Approval

 

US$601,742 

 

Q2, 2024

 

 

These studies are listed separately here; earlier they were a part of Clinical Studies below. Data from these studies will feed into Phase-2 clinical study designs. Timeframe is modified accordingly.

 

 

Site Pass Through Costs

 

US$730,413

 

Q2-Q4, 2024

 

First Participants In

 

 

US$376,012

 

 

Q2, 2024

 

 

Last Participant In

 

 

US$376,012

 

 

Q3, 2024

 

 

Completion of Report

 

 

US$150,282

 

 

Q1, 2025

 

 

 

 

 

Sub-total

 

 

US$2,234,461

 

 

 

 

 

 

 

 

2. Chronic Toxicity to initiate phase-2 (3-month study)

 

 

 

 

Study design for 2-species toxicity trial

 

 

US$37,158

 

 

Q2, 2024

 

 

These studies will be completed prior to Phase-2 initiation, and additional drug substances will be required. Proposed timeframe permits these activities.

 

 

First interim report

 

 

US$260,107

 

 

Q3, 2024

 

 

Second interim report

 

 

US$260,107

 

 

Q3, 2024

 

 

Final Report

 

 

US$185,791

 

 

Q4, 2024

 

 

 

 

Sub-total

 

US$743,163

 

 

 

 

 

3. Lucid-MS Program 

 

Non-clinical studies

 

 

 

 

Phase 2 enabling pharmacology studies

 

US$111,474

 Q3, 2024

These non-clinical studies will be launched a few months ahead of Phase-2 studies such that continuous safety data from the non-clinical studies will advance Phase-2 dosing for chronic treatment. Reproductive toxicology and autoradiography will be required for an NDA or for Phase 3 trial application submission.

 

Chronic tox studies to complete phase-2 (2 species, up to 9 months)

 

 

US$1,168,582

 

Q4, 2025

 

Reproductive toxicology and autoradiography

 

 

US$1,857,907

 

Q3, 2026

 

Drug Substance and Product Manufacturing

 

Synthesis of non-GMP drug substance for chronic toxicology studies

 

 

US$779,500

 

Q3, 2024

 

Proposed timeline of Q1, 2024 is required to obtain the drug substance in time for toxicology studies (3 months and 9 months).

 

Development of clinical and non-clinical Formulations

 

 

US$334,423

 

Q4, 2024-Q1, 2025

 

This development is required for launching chronic toxicity and Phase-2 clinical studies; thus, the time frame is adjusted to fit those milestones.

 

Drug Substance for Phase 2 studies

 

 

US$1,114,744

 

Q1-Q2, 2025

 

Manufacturing of the drug substance for launching Phase-2 study; time frame aligns with two quarters prior to the initiation of any Phase-2 activity. 

 

Drug Product for Phase 2 studies

 

 

US$445,898

 

Q2-Q3, 2025

 

Manufacturing of the drug substance for launching Phase-2 study; time frame aligns with one quarter prior to the initiation of any Phase-2 activity.

  

 
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Clinical Studies

 

 

2nd Phase 2a clinical trial site and CRO identification and deposits

 

US$966,112

 

Q4, 2024-Q3, 2025

 

The time frame includes submission of regulatory files, discussions and approvals from the regulator, identification of potential clinical sites and contracts negotiations. The time frame is scheduled after completing 3-month chronic toxicology, development of clinical formulation and other Phase-2 enabling studies.

 

Phase 2a proof of concept (“PoC”) clinical trial (launch, biomarkers, labs, clinical site, regulatory and other activities)

 

US$4,458,977

 

Q3, 2025-Q4, 2026

 

This time frame is after the above line item, to conduct the clinical trial.

 

Phase-2b clinical trial (launch, biomarkers, biostats, labs, clinical sites, regulatory and other activities)

 

US$14,863,258

 

Q3, 2025-Q4, 2026

 

Will be initiated after Phase 2a PoC, or can be in place of Phase 2a PoC, depending on market/regulatory strategy

 

Regulatory, licensing, and other support costs

 

 

US FDA/Health Canada/UK MHRA regulatory activities, patents maintenance/new filings, patent licensing costs.

 

US$3,715,815

 

Q4, 2024-Q4, 2026

 

These are continuous activities for patents maintenance, licensing costs (to UHN), regulatory filings for early market access among others. Milestones will be based on each activity undertaken, and success of regulatory reviews. Each major milestone calls for a milestone payment to UHN.

 

 

 

 

Sub-total

 

US$29,816,690

 

 

 

 

4.Alcohol Misuse Treatments Program: Healthcare Product

 

Non-clinical activities

 

In vitro and in vivo toxicology studies and dose range for the oral liquid formulation

 

US$743,163

 

Q4, 2024-Q1, 2025

 

These non-clinical activities will be undertaken as a part of our R&D program for new formulations in late 2024, that will serve the development of hospital and consumer products. Current focus is on licensed activities for consumer market, in early 2024.

 

In vitro and in vivo toxicology studies and dose range for the intravenous formulation

 

US$2,229,489

 

 

 

 

Q4, 2024-Q2, 2025

 

These studies are aligned with the above line item for hospital product development.

 

Drug Substance and Product Manufacturing

 

Oral liquid formulation development

 

US$743,163

 

Q1-Q3, 2025

 

GMP R&D manufacturing of oral liquid formulation for hospital line product; aligned with completion of non-clinical activities above.

 

Intravenous formulation development

 

US$1,114,744

 

Q1, 2025-Q1, 2026

 

GMP R&D manufacturing of intravenous formulation for hospital line product; aligned with completion of non-clinical activities above, and after the oral formulation development, in the above line item.

 

Oral liquid formulation manufacturing for clinical study

 

US$371,581

 

 

Q3, 2025

 

 

Manufacturing of clinical trial material (liquid oral), will commence after R&D during Q1-Q3, 2025

 

 

GMP Sterile formulation manufacturing for clinical studies

 

US$1,114,744

 

Q1-Q2, 2026

 

Manufacturing of clinical trial material (intravenous), will commence after R&D during Q1, 2025-Q1, 2026

 

 
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Table of Contents

 

 

Clinical Studies

 

Clinical study with one oral formulation

 

US$1,114,744

 

Q4, 2025-Q2, 2026

 

Clinical study using novel oral formulation is scheduled after the completion of toxicology and clinical trial materials manufacturing.

 

Clinical study with one intravenous formulation for regulatory submission

 

US$1,857,907

 

Q3-Q4, 2026

 

Clinical study using novel intravenous formulation is scheduled after the completion of toxicology and intravenous clinical trial materials manufacturing.

 

Regulatory, IP and other support costs

 

Regulatory activities and submissions in the USA and Canada

 

US$222,949

 

Q4, 2024-Q4, 2026

 

These are continuous activities for patents maintenance, licensing, regulatory filings for market access among others. Milestones will be based on each activity undertaken, and success of regulatory reviews. 

 

Marketing and related activities

 

Medical education, pre-launch, and partnership activities

 

US$1,486,326

 

Q4, 2025-Q4, 2026

 

As the clinical studies commence, marketing, outreach and partnership activities will be undertaken; the time frame is based on the clinical studies scheduling above, and the anticipated prior work for late-stage marketing and potential pre-launch for the products.

 

 

 

 

Sub-total

 

US$10,998,810

 

 

 

 

 

 

Operations

 

Team members salaries, benefits, external consultants, and key opinion leaders

 

US$4,087,396

 

Q4, 2024-Q4, 2026

 

These costs include additional personnel will be required for all planned clinical drug development, toxicology, project management and regulatory affairs, for all programs. 

 

Information technology, legal, telecommunications, facilities infrastructure, travel, shipping/logistics

 

US$2,229,489

 

Q4, 2024-Q4, 2026

 

Planned programs will incur indirect costs in order to support the R&D and clinical activities.

 

Sub-total

 

US$6,316,885

 

 

Notes: 

(1)

There may be circumstances where, for sound business reasons, the Company’s reallocates the funds or determines not to proceed with a milestone.

(2)

Subject to receipt of all necessary approvals, including any approvals required by the academic and scientific organizations with which the Company is working.

(3)

The total expenditure may be incurred by the Company after the relevant quarter that is indicated as the target timeframe for completion.

(4)

Based on a calendar year end.

 

The materials factors or assumptions used to develop the estimated costs disclosed above are included in the “Cautionary Note Regarding Forward-Looking Statements” section above. The actual amount that the Company spends in connection with each of the intended milestones will depend on several factors, including those listed under “Item 3. Key information - D. Risk Factors” in or incorporated by reference in this Annual Report or unforeseen events. While the Company believes it has the skills and resources necessary to accomplish these business objectives, there is no guarantee that the Company will be able to do so within the timeframes indicated above, or at all. The Company will rely on third-party opinions evaluating novelty and patentability of its drug compounds, as well as data generated by tests performed by third parties indicating there is preclinical evidence of improved efficacy or safety profiles compared to currently known treatments for challenging neurodegenerative, inflammatory, and metabolic disorders based on scientifically sound preclinical studies. These tests are ongoing. While the Company believes its approach mitigates many risks associated with the challenges of obtaining regulatory approval for certain difficult to treat indications, the development of potential drugs for treatment of challenging neurodegenerative, inflammatory, and metabolic disorders involves a high degree of risk and uncertainty. The Company is committed to funding research it believes is essential for advancing the study of drugs to treat these conditions.

 

Research and Development

 

As at the date of this Annual Report, the Corporation has not generated any revenue from the sale of pharmaceutical drugs or other products. The Corporation is focused on development of pharmaceutical drugs and other products, through the research and development of novel chemical compounds and delivery mechanisms and the study of such compounds in preclinical studies. The Corporation’s preclinical studies are conducted via the various CROs and contract manufacturers it has engaged, including Ingenu CRO (a Cannvalate Pty Ltd Company) (“Ingenu”), BioPharma Services Inc. (“BioPharma”), and Vibrant Pharma Inc. (“Vibrant Pharma”). Each of Ingenu, BioPharma, and Vibrant Pharma are CROs that, in the ordinary course of the Corporation’s business, have entered into service agreements with the Corporation to provide services related to the Corporation’s preclinical studies and/or the manufacture of its various chemical compounds. The Corporation is not dependent on third party contracts. Although each of the CROs will be involved in the synthesis, or testing thereof, for the Corporation, none of these agreements allows for the various CROs to utilize any of the Corporation’s intellectual property, including its patents, formulae, trade secrets, or processes, for their own purposes. The pharmaceutical industry is a competitive and, in the event that one, or all, of these contractual relationships become unsatisfactory, the Corporation does not anticipate having difficulty retaining other services providers to perform similar services. The Corporation does not anticipate generating any revenue from any of these, or any other, service agreements.

 

 
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The Corporation anticipates growing its pipeline of pharmaceutical drugs and other products through its research, development, proprietary discovery programs, mergers and acquisitions, joint ventures and collaborative development agreements. The Corporation has sought protection for the intellectual property rights generated by its research and development activities through patent applications and as trade secrets. The Corporation anticipates that as these programs mature it will file additional patent applications and details about these programs will be disclosed at such time. The Corporation further anticipates that existing patent applications will result in successful patent grants by the respective intellectual property regulators of each jurisdiction in which the Corporation has submitted such applications.

 

The Corporation’s research and development activities (including such activities conducted by third party contractors) are conducted in strict compliance with the regulations of federal, state, local and regulatory agencies in Canada, Australia and the United States. These regulatory authorities regulate, among other things, the research, manufacture, promotion and distribution of drugs in specific jurisdictions under applicable laws and regulations.

 

See “Item 4. Information on the Company. – B. Business Overview - Milestones for Future Development” for further information on the Corporation’s objectives and milestones.

 

Intellectual Property

 

The following tables set forth the status for each patent applicable to the Company’s current and anticipated business for Lucid-MS and Celly Nu’s activities:

 

Title

Jurisdiction of Filing

Application Number

Filing Date/Patent Date/Priority Date

Status

Program

Inhibitors of Peptidyl Arginine Deiminase (PAD) Enzymes and Uses Thereof

United States Patent and Trademark Office

Appl. No.: 15/753,208

Patent No.: US10,716,791 B2

Filing Date: 2016-08-15

Patent Date: 2020-07-21

Exclusive license from University Health Network (Toronto)

Lucid-MS

Inhibitors of Peptidyl Arginine Deiminase (PAD) Enzymes and Uses Thereof

European Patent Office

Appl. No.: 22187901.8

Filing Date: 2016-08-15

Priority Date: 2016-08-15

Exclusive license from University Health Network (Toronto)

Lucid-MS

Methods and Compositions Comprising a 5-HT Receptor Antagonist

United States Patent and Trademark Office

Appl. No.: 63/454,587

Filing Date: 2023-03-24

Provisional patent application (PAT 114860P-2)

Lucid-PSYCH(1)

An Ingestible Formulation and Uses Thereof

United States Patent and Trademark Office

Appl. No.: 63/497,772

Filing Date: 2023-04-24

Provisional patent application (PAT 114119P-2)

Licensed to Celly Nu

Note: 

(1)

The Company has put any future work programs relating to Lucid-PSYCH on hold.

 

 
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The Company’s wholly owned subsidiary, Lucid, has filed pending applications for the trademarks set forth in the table below with the Innovation, Science and Economic Development Canada – CIPO:

 

 Applicant

Filing Date

Reference Number

File Number

Trademark Details

Trademark Type

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150984-1

2243755

REKVRY

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150985-1

2243758

DETOXIQ

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150986-1

2243760

RESOBER

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150958-1

2243743

ALCOHOLDEATH(1)

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150987-1

2243761

Unbuzzd(1)

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150959-1

2243741

DRUNQUELL

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150957-1

2243742

FRESHKA

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150956-1

2243736

FRESHA

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150955-1

224374

ALKACLEAR

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150954-1

224379

LOWBAC

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150953-1

2243740

SOBRY

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150952-1

2243744

BACLEAR

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 15951-1

2243737

READY IN 1

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150950-1

2243735

QLARITY

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150949-1

2243738

WAKEAID

Standard Characters

Note: 

(1)

Licensed to Celly Nu.

 

The Company’s wholly owned subsidiary, Lucid, has filed pending trademark applications for the marks in the table below with the Innovation, Science and Economic Development Canada – CIPO:

 

Applicant

Filing Date

Reference Number

File Number

Trademark Details

Trademark Type

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150940-1

2243726

EVERYONE MAY NEED A LITTLE IN THEIR LIFE

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Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150825-1

2243752

THE RITUAL AFTER THE LAST CALL

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150824-1

2243750

THE PROTOCOL AFTER THE LAST CALL

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150823-1

2243749

HELPS REDUCE BUZZ

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150822-1

2243733

A RESPONSIBLE AFTER DRINK

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150821-1

2243732

THROUGH SCIENCE FIND

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150820-1

2243730

THROUGH SCIENCE, FIND CLARITY

Standard Characters

Lucid PsycheCeuticals Inc.

March 7, 2023

TM 150819-1

2243729

EVERYONE MAY NEED A LITTLE

Standard Characters

 

As the Company generates new data it will continue to file or acquire additional patent applications through the Company’s development program.  

 

Regulatory Environment

 

The Corporation is currently focused on obtaining regulatory approvals in the United States, Canada and Australia for the drug candidates it is developing through FSD BioSciences, Lucid and FSD Pharma Australia. In the future, the Corporation may consider seeking approvals for these drug candidates in other countries. The following is a summary of the FDA, Health Canada and the Australian Therapeutics Goods Administration (“TGA”) approval process that the Corporation and/or its related entities are undertaking with each of the Product Candidates in the United States, Canada and Australia. Assuming the Corporation is successful in obtaining the requisite approvals from the FDA, TGA or Health Canada (together the “Regulatory Approvals”) pursuant to the process set out below, it may decide to seek comparable approvals in other countries, which would be subject to different and additional regulatory requirements. Obtaining Regulatory Approval often takes several years, involves the expenditure of substantial resources, and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials.

 

 
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The Corporation will be subject to extensive regulations while it focuses on gaining Regulatory Approvals for treatments it is developing with each of the Product Candidates. The United States Food, Drug and Cosmetic Act of 1938, as amended, Public Health Service Act (United States), Therapeutic Goods Act 1989 (Cth) (Australia), and other federal, provincial and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labelling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical product candidates for their respective jurisdictions. Failure to comply with applicable regulatory requirements may subject the Corporation to a variety of administrative or judicial sanctions, such as application refusals, warning or untitled letters, product candidate recalls, product candidate seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

 

Pharmaceutical product candidate development in the United States, Canada and Australia typically involves preclinical laboratory and animal tests, followed by a submission to commence clinical testing to, as applicable:

 

 

(a)

the FDA for the United States (an IND);

 

(b)

Health Canada for Canada (a CTA)); or

 

(c)

in Australia, (i) where the Clinical Trial Notification (“CTN”) process is utilized, to a Human Research Ethics Committee, or (ii) where the Australian CTA process is utilized, to the TGA.

 

If:

 

 

(a)

there are no comments from the FDA within 30 days after the submission of the application in the United States;

 

(b)

a “no objection letter” is received from Health Canada; or

 

(c)

in Australia, (i) where the CTN process is utilized, the applicable Human Research Ethics Committee provides its approval and the TGA is notified by way of the due submission of a CTN, or (ii) where the Australian CTA process is utilized, the TGA provides its approval,

 

then clinical trials for the drug may commence in the respective jurisdiction assuming all other requirements are met (such as institution review board approval, informed consents and any additional approvals related to the use of controlled substances). The satisfaction of pre-market approval requirements typically takes many years. The actual time required may vary substantially based upon the type, complexity and novelty of the product candidate or the diseases a product candidate targets.

 

Before testing any compound in human patients in the U.S., Canada or Australia, a company must generate extensive preclinical data. Preclinical testing generally includes laboratory evaluation of product chemistry and formulation, as well as toxicological and pharmacological studies in several animal species to assess the toxicity and dosing of the product candidate and its potential safety and efficacy. The conduct of the preclinical tests must comply with government regulations and requirements, including good laboratory practices. For example, in the U.S., certain animal studies must be performed in compliance with the FDA’s Good Laboratory Practice regulations and the U.S. Department of Agriculture’s Animal Welfare Act.

 

A Regulatory Approval must be in effect before human clinical trials may commence in the U.S., Canada or Australia, respectively. The results of preclinical testing and any previous human experience with the investigational drug are submitted to the FDA, Health Canada or TGA as part of the Regulatory Approval process in each jurisdiction, along with other information, including information about product candidate chemistry, manufacturing and controls, information about the study investigator, and a proposed clinical trial protocol.

 

There can be regulatory barriers to obtaining an effective Regulatory Approval based on FDA’s, Health Canada’s or TGA’s respective review of the investigative drug and, where applicable, its classification as a known controlled substance.

 

Clinical trials involve the administration of the product candidate that is the subject of the Regulatory Approval to healthy volunteers or study participants with the disease or condition being studied under the supervision of a qualified investigator. Clinical trials to support a NDA for marketing approval are typically conducted in three sequential phases, but the phases may overlap.

 

There is a process under which clinical trials may begin and involve the administration of the product candidate that is the subject of the Regulatory Approval to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with applicable government regulations, (ii) in compliance with Good Clinical Practice, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on patients and subsequent protocol amendments must be submitted to the FDA, Health Canada and/or TGA as part of the Regulatory Approval process, as applicable.

 

The FDA, Health Canada or TGA 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 applicable regulatory requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board (“IRB”) for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or may impose other conditions.

 

If the trials for any of its Product Candidates are successful, the Corporation may pursue additional trials as required and may ultimately pursue a NDA, which may involve applying for additional Regulatory Approvals required to market the Corporation’s synthetic treatments in the United States or in other jurisdictions. There is no assurance that the Corporation will be successful in receiving the required approvals, and the clinical trials are subject to numerous risks.

 

See “Caution Regarding Forward-Looking Statements” and Item 3. Key information - D. Risk Factorsin this Annual Report.

 

 
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New Drug Application and New Drug Submission Process

 

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a NDA requesting approval to market the product for one or more indications. The application must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology and chemistry, manufacture, and controls. Under the Prescription Drug User Fee Act, a substantial application user fee is required for most NDAs, and the applicant under an approved NDA is also subject to an annual program fee for each prescription product.

 

After evaluating the NDA, the FDA issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission. Substantial additional testing or information may be required in order for the FDA to reconsider the application.  If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. Additionally, as a condition of approval, the FDA may impose restrictions that could affect the commercial success of a drug or require post-approval commitments, including the completion within a specified time period of additional clinical studies, which often are referred to as “Phase 4” or “post-marketing” studies.  For example, as a condition of approval, the FDA may require a risk evaluation and mitigation strategy (“REMS”) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, such as special training or certification for prescribing or dispensing. Moreover, 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. Once an NDA is approved, a product will be subject to certain post-approval requirements, including, among other things, requirements related to record-keeping, providing the FDA with updated safety information, product sampling and distribution, and promotion and advertising.  Post-approval modifications to the drug, such as changes in indications, labeling, or manufacturing processes or facilities, may require a sponsor to develop additional data or conduct additional preclinical studies or clinical trials, to be submitted in a new or supplemental NDA, which would require FDA approval.

 

Similarly, Health Canada (in Canada) and the TGA (in Australia) regulates, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approval monitoring, marketing and import and export of pharmaceutical products. Drug approval laws require licensing of manufacturing facilities, carefully controlled research and testing of products, and government review and approval of experimental results prior to giving approval to sell drug products.

 

The process required by the applicable regulatory authorities before prescription drug product candidates can be marketed in Canada or Australia requires:

 

 

(a)

in the case of Canada, the submission of a new drug submission (“NDS”) to Health Canada; or

 

 

 

 

(b)

in the case of Australia, an application for registration in the Australian Register of Therapeutic Goods (“ARTG”), the NDS, and application for registration on the ARTG collectively referred to as “New Drug Application”.

 

Health Canada and/or TGA, as the case may be, must review and approve the relevant “New Drug Application”. Health Canada must also and issue a notice of compliance and both Health Canada and TGA must issue a drug identification number prior to any commercial marketing, sale, or shipment of the drug.

 

Even if Health Canada approves a NDS or TGA registers the drug on the ARTG, the relevant regulatory authority may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms.

 

The regulatory review process of a drug application in each of the U.S., Canada and Australia includes the satisfactory completion of an inspection of the manufacturing facility or facilities where the product is produced (or other evidence acceptable to the regulator) to ensure that the facilities are in compliance with current GMP (“cGMP”) requirements and are adequate to assure consistent production of the product within required specifications. 

 

The FDA, Health Canada and TGA also conduct regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. Failure to comply with applicable cGMP requirements and other conditions of product approval may lead the regulatory authority to take enforcement action or seek sanctions, including fines, issuance of warning letters, civil penalties, injunctions, suspension of manufacturing operations, operating restrictions, withdrawal of approval, seizure or recall of products, and criminal prosecution.

 

Controlled Substances - United States

 

In June 2023, the Company decided to stop any development efforts for Lucid-PSYCH, which is considered a controlled-substance in the United States, Canada, and Australia.  If and when the Company continues with the development of Lucid- PSYCH for psycho functions, it will need to comply with the controlled substances laws in various jurisdictions.

 

Drugs and other substances that are determined to have a potential for abuse are also regulated under the United States Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended, also known as the Controlled Substances Act (the "CSA") and its implementing regulations, as "controlled substances."  The CSA establishes a closed chain of distribution for entities handling controlled substances, which include researchers, manufacturers, distributors, pharmacies and physicians, importers, and exporters. The CSA and regulations enforced by the DEA impose registration, security, quotas inventory, recordkeeping, reporting, storage, manufacturing, distribution, importation, exportation, and other requirements on entities handling controlled substances. Practitioners such as pharmacies and physicians, as well as other types of entities that handle controlled substances, such as researchers and analytical laboratories, are also subject to DEA registration and other requirements related to controlled substances.

 

 
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The CSA categorizes controlled substances into one of five schedules - Schedule I, II, III, IV, or V - depending on the potential for abuse and physical or psychological dependence. Schedule I substances by definition have a high potential for abuse, have no currently accepted medical use in treatment in the United States, and lack accepted safety for use under medical supervision. They may not be marketed or sold for dispensing to patients in the United States. Certain "hallucinogens" or psychedelic drugs are currently regulated as Schedule I controlled substances, as is any substance that includes any of a Schedule I substance's salts, isomers (e.g., optical, position, and geometric isomers), or salts of isomers, whenever the existence of such salts, isomers, and salts of isomers is possible within the specific chemical. Pharmaceutical products having a currently accepted medical use and that are otherwise approved for marketing may be listed as Schedule II, III, IV, or V substances, with Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential for abuse and dependence.

 

Whether a new drug or substance is ultimately controlled or not is a fact specific determination that the DEA makes based on the input of the Department of Health and Human Services (including the FDA), which provides scientific and medical findings and recommendations to the DEA. During the FDA approval process, the FDA will generally conduct an abuse potential evaluation of any substance that could have an effect on the central nervous system. If FDA finds that a new drug or substance may have an abuse potential that would require the drug to be controlled, FDA notifies the DEA and provides information/recommendation to the DEA on its scheduling. The DEA must conduct notice and comment rulemaking to propose scheduling of a new substance. If a drug being approved contains a substance already controlled under the CSA, that drug will generally be controlled in the same schedule absent findings or recommendations that it should be placed in another schedule.

 

Lucid-PSYCH is a Schedule I listed substance under the CSA. Its use in the United States is highly restricted under Federal law, even though there have been a few state and local laws seeking to loosen restrictions. A facility that seeks to manufacture, distribute, import, or export any Schedule I controlled substance must register with the DEA. The DEA registration is specific to the particular location, activity, and controlled substance. A DEA registered facility must maintain records documenting all activities, including the manufacture, receipt, and distribution, of controlled substances. The import or export of a Schedule I substance requires a permit and may need to comply with international drug control treaties as well as DEA requirements.

 

Any Schedule I drug or substance approved by the FDA must be rescheduled (or descheduled) to another schedule before it can be commercially marketed in the United States. Rescheduling or descheduling a Schedule I substance to another schedule is dependent on FDA approval and FDA recommendation as to the appropriate schedule. Any rescheduling or descheduling action requires the DEA to conduct notice and comment rulemaking. Such action will be subject to public comment and requests for hearing which could affect the scheduling of these substances.

 

Controlled Substances – Canada

 

A controlled substance is a type of drug that the Government of Canada has categorized as having a higher-than-average potential for abuse or addiction and is listed in one of the schedules (I to V) of the CDSA. Lucid-PSYCH is a controlled substance in Canada. The possession, sale or distribution of controlled substances is prohibited unless specifically permitted by the government.

 

Under section 56 of the CDSA the Minister of Health may exempt a person or a class of persons or any controlled substance or class thereof from the application of all or any provision of the CDSA or regulations if necessary for a medical or a scientific purpose or is otherwise in the public interest. Researchers requiring a controlled substance for research, including clinical trials, must receive an exemption under the CDSA, which can permit the importation, possession and/or use of a specified quantity of the controlled substance for a specified purpose. The Minister of Health can impose any terms and conditions that the Minister considers necessary in respect of the exemption. Through agreements with third parties, the Company has access to facilities that have experience and licenses required to handle Controlled Substances listed under the CDSA. Similar to the United States, in Canada certain scheduled substances would require reclassification to a different schedule in order to permit commercial marketing.

 

Controlled Substances – Australia

 

Like in the United States and Canada, a controlled drug is a type of drug that the Australian Government has categorized as having a higher-than-average potential for abuse or addiction and is listed in one of the schedules (1 to 10) of the Poisons Standard.

 

Substances with therapeutic uses are generally contained in Schedules 2, 3, 4 and 8 with progression through these Schedules signifying increasingly restrictive regulatory controls. Schedule 9 details substances that should be available only for teaching, training, medical or scientific research including clinical trials conducted with the approval of Commonwealth and/or State and Territory health authorities.

 

Lucid-PSYCH is currently a prohibited drug in Australia, meaning its supply is largely limited to clinical trials.

 

FSD Strategic Investments

 

The Company’s Strategic Investment segment generates interest income earned on a portfolio of finance receivables, which represent loans secured by residential or commercial property, with FSD Strategic Investments having a first collateral mortgage on the secured property for a sum equal to the interest payments plus the principal amount. FSD Strategic Investments earns interest through fixed rate lending arrangements, which includes faith-based loans, that have an average term to maturity of two years from the date of issuance.

 

 
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Strategic Investments has historically not incurred any significant operating expenditures as the loans are arranged through a third-party financing intermediary, with the borrower being responsible for covering all administrative related costs.

 

The Board has developed criteria for making investments decisions, as follows: i) the maximum loan-to-value ratio is 55%; ii) the maximum dollar value for any given secured loan is not to exceed C$1,200,000; and iii) the residential property must be located in the Greater Toronto Area. Before issuing a secured loan, the Company undertakes extensive due diligence to ensure that adequate care is exercised in the funding of mortgage or loan transactions, including checking personal identification, verifying title documents, attending the property, or conducting an on-site appraisal to satisfy as to the value of the property, and reviewing application and supporting documentation with legal counsel.

 

As at December 31, 2023, the Company has a finance receivable balance of $8,095,354 and minimum contractual payments receivable at the end of the loan terms totaling $8,527,569. The loans will begin to mature in the second quarter of fiscal 2024.  

 

Other Significant Operations and Principal Activities – Fiscal 2021 and 2022

 

2021 and 2022 At-The-Market Financings

 

Between July 2020 and February 2021, the Company issued and sold Class B Shares for gross proceeds of approximately US$20,000,000 under an equity distribution agreement dated July 10, 2020 entered into with A.G.P./Alliance Global Partners (the “Sales Agent”), reaching the maximum amount allowed under such agreement. On February 11, 2021, the Company entered into a new equity distribution agreement (the “2021 Equity Distribution Agreement”) with the Sales Agent and issued and sold Class B Shares for gross proceeds of US$18,167,511 between February 11, 2021 and March 12, 2021. Sales of Class B Shares under the equity distribution agreements were made through "at-the-market" offerings as defined in Rule 415(a)(4) promulgated under the Securities Act including sales made directly on or through the Nasdaq. As a result, prices may varied as between purchasers and during the period of distribution.  No offers or sales of Class B Shares were made in Canada on the CSE or other trading markets in Canada.

 

Licensing Agreement with University Health Network

 

Prior to its acquisition by the Company, Lucid entered into a licensing agreement dated May 19, 2021 (the “UHN License Agreement”) with the UHN. Under the terms of the UHN License Agreement, the Company pays an annual license maintenance fee of C$100,000 to UHN until the first commercial sale of a product utilizing the intellectual property licensed to the Company under the UHN License Agreement, including Lucid-MS, is made. In addition, the Company is committed to making milestone payments totaling up to C$12,500,000 to UHN if all product development and regulatory milestones are met. Furthermore, the Company will also pay revenue milestone payments and royalties if revenue milestones from commercial sales are achieved as well as a percentage of sublicensing revenue received by the Company under any sublicense. Milestones can be extended by mutual agreement. Unless otherwise terminated in accordance with its terms, the UHN License Agreement will remain in force until the expiration of the last valid claim under the last licensed patent covering the products licensed from UHN.

 

Lucid Acquisition

 

On August 25, 2021, the Company entered into a definitive agreement (the “Master Agreement”) to acquire 100% of the issued and outstanding shares of Lucid, an early-stage Canadian-based specialty biotechnology company focused on the development of therapies to treat critical neurodegenerative diseases, for total consideration of 4,502,392 Class B Shares, 161,091 Options and 112,162 warrants to purchase Class B Shares (the “Lucid Acquisition”). 304,880 Class B Shares and all of the warrants issued as part of the consideration for the Lucid Acquisition were issued to First Republic Capital Corporation, a company controlled by Anthony Durkacz, (“First Republic”) the CEO of the Company, in exchange for securities of Lucid held by First Republic prior to the completion of the Lucid Acquisition.

 

On September 13, 2021, shareholder approval for the Lucid Acquisition was obtained at a special meeting of Lucid shareholders. On September 21, 2021, the transaction was completed by way of a three-cornered amalgamation between Lucid, the Company and a wholly owned subsidiary of the Company pursuant to an amalgamation agreement dated September 20, 2021, entered into among the Company, Lucid and a wholly owned subsidiary of the Company in respect of the Lucid Acquisition. The Lucid Acquisition involved the issuance of approximately 4.5 million Class B Shares as the acquisition consideration, at a deemed price of approximately US$1.56 per Class B Share. Additionally, all of the outstanding Lucid stock options and warrants became exercisable into Class B Shares, with the number and exercise price of such securities adjusted in accordance with the transaction’s exchange ratio. In connection with the closing of the Lucid Acquisition, Dr. Lakshmi Kotra, maintained his position as Lucid’s CEO.

 

Covar Agreement

 

On October 1, 2021, the Company  entered into an agreement with Covar Pharmaceuticals Inc. (“Covar”), a contract development and manufacturing services organization, to commence work on providing research quantities of the Company’s drug candidate, Lucid-PSYCH, on an exclusive basis for further clinical evaluation (the “Covar Agreement”). Lucid-PSYCH is a psychoactive compound that is being researched by the Company through Lucid in connection with the treatment of major depressive disorder. Covar’s research and development facility is licensed to handle psychoactive compounds such as Lucid-PSYCH, which are “controlled substances” listed under the Controlled Drugs and Substances Act (Canada).

 

 
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2022 Normal Course Issuer Bid

 

On December 21, 2021, the Board authorized a normal course issuer bid pursuant to which the Company was able to repurchase for cancellation up to 2,000,000 Class B Shares, being approximately 5% of the Company’s issued and outstanding Class B Shares as of December 21, 2021, over a 12-month period (the “2022 NCIB”). The 2022 NCIB commenced on January 4, 2022, and was terminated on December 21, 2022. Under the 2022 NCIB, the Company repurchased for cancellation 1,999,800 Class B Shares at an average price of approximately C$1.20 per Class B Shares. All Class B Shares were repurchased through the facilities of the CSE at the prevailing market price on the CSE at the time of repurchase.

 

Sale of FV Pharma’s Facility

 

On May 6, 2022, the Company decided to focus its efforts and resources on the pharmaceutical business and initiated the process to exit the medical cannabis industry. In connection with that decision, the Company sold FV Pharma’s facility located at 520 William Street, Cobourg, Ontario, K9A 3A5 (and the 64-acre property on which the facility was located for total consideration of $12,730,942 (C$16,400,000).

 

Specialized Knowledge and Personnel

 

The Board and executive officers of the Company, led by Zeeshan Saeed, as CEO and Co-Chairman, Anthony Durkacz, Co-Chairman, and Dr. Lakshmi P. Kotra, as CEO of Lucid, have a wide combination of the skills, knowledge and experience that are necessary for the successful advancement of the Company’s business plan. Our future growth and success depend on our ability to recruit, retain, manage, and motivate our qualified employees. The inability to hire or retain experienced personnel in the pharmaceutical field could adversely affect our ability to execute our business plan and harm our operating results. Due to the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

  

Competitive Conditions

 

The pharmaceutical industry market for MS drugs is highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing number of competitors and potential competitors enter the market. There are few approved therapies for progressive multiple sclerosis such as ocrelizumab by Roche and siponimod by Novartis), all of which are immunomodulatory drugs. Bruton's Tyrosine Kinase Inhibitors are also being investigated as therapies for progressive MS in Phase 3 clinical trials; for example fenebrutinib by Roche (NCT04544449) and tolebrutinib by Sanofi (NCT04458051. Kyverna Therapeutics recently announced their Phase-2 clinical trial on the cell-based therapy candidate KYV-101, in people with treatment-resistant progressive multiple sclerosis (MS). Immunic Therapeutics is developing vidofludimus as a potential treatment for all MS types; the Phase 2 CALLIPER clinical trial (NCT05054140) is testing it against a placebo specifically in people with progressive forms of the disease. Tiziana Life Sciences is developing an antibody, foralumab that is designed to reduce inflammation in the brain and spinal cord by blocking CD3, a protein found on the surface of T-cells. This type of immune cells is involved in MS progression. All known drugs and those under development are immunomodulatory, several are biologics and do not directly address demyelination, which is the hallmark feature in MS, to the best of our knowledge. Even if Lucid-MS is approved, it will compete with product offerings from large and well-established companies that have greater marketing and sales experience and capabilities than we have or our third-party research collaborators. Other companies with greater resources than us may announce similar plans in the future. 

   

However, we believe that Lucid-MS will be superior to the other MS products for individuals with progressive because based on our current clinical work, it appears to restore myeline growth and prevents degration. 

 

Environmental Matters

 

The Company expects the financial and operational effects of environmental protection requirements on its capital expenditures, profit, and competitive position in the current and future financial years to be minimal.

 

Employees

 

As at December 31, 2023, the Company directly employed eight full-time employees and one part-time employee.   All of these employees are based in the Toronto, Ontario area. The Company believes its relationship with its employees, consultants and contractors is good. None of the Company’s employees are represented by a labour union or subject to a collective bargaining agreement.

 

Reorganizations

 

The Company has not completed any material reorganization within the three most recently completed financial years, except for the reorganization that occurred pursuant to the Plan of Arrangement.

 

C. Organizational Structure

 

As at the date of this Annual Report, the Company has seven subsidiaries, Lucid, FSD BioSciences, Prismic, FSD Strategic Investments, FSD Australia, FV Pharma and Celly Nu. The corporate chart of the Company including the Company’s subsidiaries, together with the jurisdiction of incorporation of the Company and its subsidiary and the percentage of voting securities beneficially owned, controlled, or directed, directly or indirectly, by the Company is as follows:

 

 
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 fsd_20fimg13.jpg

 

 

The Company has 4 active subsidiaries, which are:

 

Lucid

 

Lucid is a focused on the development of therapies to treat critical neurodegenerative diseases.  Lucid is currently focused on research and development of Lucid-MS, which is a molecular compound identified for potential treatment of MS.  Lucid conducted research on LUCID-Psych, which was being considered as a treatment for major depressive orders, which research is currently on hold due to funding concerns.

 

Celly Nu

 

Celly Nu. Is focused on the commercialization of Unbuzzd™. The Company has entered into the Celly Nu IP License with Celly Nu in June 2023. 

 

FSD Strategic Investments

 

FSD Strategic Investments was incorporated in Ontario on May 13, 2022. During Fiscal 2022, the Company invested approximately C$7 million dollars in loans secured by real property primarily located in the Greater Toronto Area. These loans are considered to be highly collateralized as they are issued up to 55% of the appraised value of the secured property. FSD Strategic Investments is focused on generating returns and cashflow through the issuance of loans secured by residential or commercial property.

 

FSD Australia

 

On November 24, 2022, the Company incorporated a new Australian subsidiary, FSD Australia, to facilitate its development of Lucid-PSYCH and other assets. The registered and head office of FSD Australia is Level 7 330 Collins Street, Melbourne VIC, 3000. FSD Australia was established to facilitate the Company’s development of Lucid-PSYCH by running Australian clinical trials in respect of Lucid-PSYCH, and potentially other assets. Subject to satisfaction of relevant eligibility criteria, FSD Australia may be entitled to claim the Australian research and development tax incentive for eligible expenditure it incurs on eligible research and development activities.

 

Inactive Subsidiaries

 

FV Pharma

 

The Company suspended all activities by FV Pharma Inc, which had engaged in the cannabis business, as of September 2020 and in May 2022, substantially all of the assets of FV Pharma were sold. FV Pharma has accumulated historic tax losses and continues to exist as an entity wholly owned by the Company. Upon termination of FSD-PEA, Prismic did not have any assets or remaining liabilities other than outstanding notes payable which were assumed on the acquisition of Prismic and are classified as current liabilities of the Company. Prismic has accumulated historic tax losses and continues to exist as an entity wholly owned by the Company. For more information, please see “Item 4. Information on the Company. - A. History and Development of the Company - Other Significant Operations and Principal Activities – Fiscal 2021 and 2022”.

 

FSD BioSciences

 

FSD BioSciences was focused on the research and development of FSD-PEA (also known as FSD-201), an ultra-micronized PEA.  On June 2, 2023, the Company terminated any further clinical development of FSD-PEA formulation for the treatment of inflammatory diseases.

 

Prismic

 

The Company does not operate through Prismic; however, Prismic holds the right to receive certain payments based on net sales of certain products under an amended and restated licensing agreement between Epitech Group SpA dated dated January 8, 2020, as amended,  (the “Epitech License Agreement”) and the Company pursuant to an assignment agreement between Prismic and the Company (the “Prismic Assignment Agreement”). On June 2, 2023, the Company terminated any further clinical development of FSD-PEA formulation for the treatment of inflammatory diseases.

 

 
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Property, Plants and Equipment

 

The Company’s current operating plan does not include building infrastructure. The Company operates from its head office located in Toronto, Ontario, Canada. The Toronto office space costs approximately C$163,093 per annum (excluding operating costs and taxes) and is rented on a fixed term, ending on August 31, 2024.  The Company believes that its current facilities are adequate to meet its ongoing needs and that, if the Company requires additional space, it will be able to obtain additional facilities on commercially reasonable terms.

 

Item 4A. Unresolved Staff Comments.

 

Not applicable.

 

Item 5.  Operating and Financial Review and Prospects

 

A. Operating Results

 

See the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended and fiscal years ended December 31, 2023 and 2022 (the “2023 Annual MD&A”) attached hereto as Exhibit 15.1.

 

B. Liquidity and Capital Resources

 

See the 2023 Annual MD&A attached hereto as Exhibit 15.1.

 

C. Research and Development, Patents and Licenses, etc.

 

For a discussion of our research and development activities, see “Item 4. Information on the Company. – B, Business Overview - Products and Sales” and the 2023 Annual MD&A attached hereto as Exhibit 15.1.

 

D. Trend Information

 

Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments, or events for the period from January 1, 2023 to December 31, 2023 that are reasonably likely to have a material adverse effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operating results or financial condition. For a discussion of trends, see “Item 4.B.-Business Overview” and the 20223 Annual MD&A attached hereto as Exhibit 15.1.

 

E. Critical Accounting Estimates

 

See Notes 2 and 3 to our 2023 Annual Financial Statements in Item 18.

 

Item 6. Directors, Senior Management and Employees

 

A. Directors and Senior Management.

 

The following table sets forth certain information with respect to our executive officers and directors as of March 28, 2024:

 

Name

 

Age

 

Position(s) with the Company

 

Other Directorships

 

Date of Initial Appointment

Anthony Durkacz

 

48

 

Co-Executive Chairman and Director

 

Stock Trend Capital Inc.

 

May 18, 2018

Zeeshan Saeed

 

54

 

CEO, President, Co-Executive Chairman and Director

 

Celly Nu

 

May 24, 2018(1)

Nathan Coyle

 

43

 

Chief Financial Officer (“CFO”)

 

N/A

 

May 5, 2021

Donal Carroll

 

48

 

Chief Operating Officer (“COO”)

 

Bird River Resources Inc.; The Hast Corporation (formerly, Senternet Phi Gamma Inc.)

 

May 18, 2018(3)

Dr. Lakshmi P. Kotra

 

53

 

Director, CEO of Lucid, President of FSD Biosciences and CEO of FSD Australia

 

Celly Nu

 

November 25, 2023

Adnan Bashir

 

54

 

Director

 

N/A

 

June 1, 2021

Dr. Eric Hoskins

 

63

 

Director

 

Celly Nu; Cybin Inc.; Think Research Corporation (formerly, AIM4 Ventures Inc.)

 

June 29, 2023

Dr. Sanjiv Chopra (2)

 

74

 

Director

 

N/A

 

January 29, 2024

Michael (Zappy) Zapolin

 

57

 

Director

 

N/A

 

June 29, 2023

 

 
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Notes:

 

(1)

Mr. Saeed departed from his position as President and director of the Company effective January 25, 2021 but was re-elected as a director of the Company on May 14, 2021 and re-appointed as President of the Company on July 27, 2021.

(2)

Dr. Sanjiv Chopra replaced Nitin Kaushal on the Board effective January 29, 2024.

(3)

Mr. Carroll was initially appointed to the Board on May 18, 2018 until August 2018. On July 27, 2018, he was appointed interim CFO and on January 2, 2020, he became the permanent CFO until May 4, 2021. On May 14, 2021, he once again was a Board member until January 29, 2024. In August 2021, he became COO.

  

Term of Office

 

Each director is to serve until his or her successor is elected and qualified or until his death, resignation, or removal. Our Board appoints our officers and each officer is to serve until his successor is appointed and qualified or until his or her death, resignation, or removal.

 

Executive Officers

 

Anthony Durkacz

 

Mr. Durkacz served as the Company’s interim CEO from July 2021 to July 2023, and has served as its Executive Co-Chairman since May 2021 and has served as a member of the Board since June 2018. Mr. Durkacz is also a director and the Executive Vice-President of First Republic and has served in those roles since 2014. In addition, Mr. Durkacz is the Chairman of World Class Extractions Inc. (CSE: PUMP; OTCQB: WCEXF) and has served in that role since 2018. Prior to co-founding the Company, from January 2013 to December 2013, Mr. Durkacz was President of Capital Ideas Investor Relations. He previously served as the CFO and a director of Snipp Interactive Inc. (TSXV: SPN.V), a global marketing solutions company that provides a modular software-as-a-service technology suite from January 2011 to January 2013.  Mr. Durkacz was instrumental in the financing and public listing of Snipp Interactive Inc. with operations in Canada, the United States, Mexico, and India. From 2006 to 2009, he served as COO and CFO of MKU Canada Inc. and engaged in mergers and acquisitions of companies around the world. From 2002 to 2006, Mr. Durkacz served as the CFO and a director of Astris Energi Inc., a dual-listed public company in the United States and Canada which was acquired by an international conglomerate. Mr. Durkacz began his career at TD Securities on the capital markets trading floor. He holds an Honours Bachelor of Business Administration degree from Brock University with a major in both Accounting and Finance.

 

Zeeshan Saeed

 

Mr. Saeed, a co-founder of the Company, has served as the Company’s President and Executive Co-Chairman since May 2021. He became the Company’s CEO on July 4, 2023. Previously, he served as President of the Company from May 2019 to January 2021 and as a director from May 2018 to January 2021. From December 2017 to May 2019, Mr. Saeed served as Executive Vice President of FV Pharma, a subsidiary of the Company and a former licensed producer of cannabis in Canada under the Cannabis Act (Canada). From October 2013 to December 2017, he provided consulting services to FV Pharma from April 2003 to December 2017, Mr. Saeed served as President of ZZ Telecommunications Inc., a long-distance telecommunications common carrier. Mr. Saeed was the founder and CEO of Platinum Telecommunications Inc. from 2011 to 2013. He has a Bachelor of Science in Mechanical Engineering from the University of Engineering and Technology Lahore.

 

Nathan Coyle

 

Nathan Coyle has served as the Company’s CFO since May 2021.  He previously served as the Company’s Corporate Controller from January 2020 to May 2021 and as Controller of Chem-Ecol Ltd. from July 2013 to January 2020. From July 2013 to January 2020, Mr. Coyle worked with Turtle Holdings Limited, a family investment company, implementing corporate strategies to maximize growth. From 2005 to 2013, Mr. Coyle was with Illinois Tool Works, where he was a key player in restructuring the organization, shaping the growth, and streamlining businesses within his industrial packaging segment. Mr. Coyle’s involvement in multiple mergers and acquisitions and integrating those organizations was key to company growth. Mr. Coyle holds a Bachelor of Business Administration with honours from Brock University and is a Chartered Professional Accountant.

 

Dr. Lakshmi P. Kotra

 

Dr. Lakshmi P. Kotra has served as CEO of Lucid since September 2020, which he co-founded in 2020 and has served as a director on the Board since November 2022. Dr. Kotra received his Ph.D. in Pharmacy (Medicinal Chemistry) from the University of Georgia under Prof. David Chu’s supervision, and completed postdoctoral training at Wayne State University under Prof. Shahriar Mobashery’s supervision. He joined the Faculty of Pharmacy, University of Toronto in 2000, and University Health Network in 2006, where he led a research group and drug discovery program with multiple portfolios. An academic entrepreneur, Dr. Kotra has contributed to a number of important drug discovery and development projects, including metabolic disorders, neurodegenerative and immunological disorders, anti-HIV drugs, antibacterials, and antimalarials. He has authored/co-authored over 130 publications and delivered over 140 scientific talks internationally. Dr. Kotra is the recipient of several awards for his accomplishments, including the Julia Levy Award in 2021 from the Society of Chemical Industry (SCI) Canada in recognition of his substantial contribution to the successful commercialization of innovation in Canada in the field of biomedical science and engineering. In addition to Lucid, he co-founded WinSanTor Biosciences, a San Diego, CA-based company developing treatments for peripheral neuropathies, and CannScience Innovations focused on medical cannabis and cannabinoids. Dr. Kotra has been serving the Company as Chief Executive Officer of its wholly owned subsidiary, Lucid, since the completion of the Company’s acquisition of Lucid in September 2021.

 

 
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Donal Carroll

 

Mr. Carroll joined the Company as interim CFO in 2018 and was appointed to the position on a permanent basis in December 2019, where he served until May 2021. Mr. Carroll was appointed as COO of the Company on August 15, 2021.  Mr. Carroll has also served as a director on the Company’s Board from May 2018 to July 2018 and from May 2021 to January 2024. Mr. Carroll has 20 years of corporate finance leadership and public company experience, as well as experience in syndicate investing both in equity and debt securities. From June 2005 to January 2008, he served as an Accounting Supervisor with Alberto Culver (now Unilever (NYSE:UL)), from February 2008 to October 2013, Mr. Carroll has served as Controller with Videojet Technologies, and from October 2013 to July 2017, he served as a Corporate Controller with Cardinal Meats, where he was instrumental in major restructuring activities, mergers and acquisitions and the implementations of new internal controls and ERP systems. Mr. Carroll has been a Director of Bird River Resources Inc. since August 2019 and was a Director of Climb Credit Inc. He holds a CPA-CMA designation as well as a Bachelor of Commerce degree from University College Dublin.

 

Non-Employee Directors

 

Adnan Bashir

 

Mr. Bashir has over 14 years of experience in strategic management and operations. He is the founder and President of 58Northwest Inc., a management consulting and marketing services company, and has held the role since 2018. From 2005-2018, Mr. Bashir was General Manager for Al Batha Group, a diversified business conglomerate based in Dubai, UAE. Mr. Bashir was responsible for overseeing the management and operations of 4 companies within the group and was instrumental in acquiring and developing new businesses and partners from Europe, the US and China. During his tenure at Al Batha Group, Mr. Bashir gathered extensive experience in executing turnaround strategies, transforming weak businesses into sustainable and profitable ones and implementing new technologies. Mr. Bashir holds a Bachelor of Science Degree in Mechanical Engineering from University of Engineering and Technology Lahore and has completed extensive executive education, including in strategic management, audit, sales management, and technical management.

 

Dr. Eric Hoskins

 

Dr. Eric Hoskins is a medical doctor and public health expert with more than 30 years’ experience in healthcare, public policy, economic development, and international trade. Dr. Hoskins recently served as the Chair of the Federal Advisory Council on the Implementation of National Pharmacare.

 

He previously served as president of War Child Canada and was awarded the Order of Canada in 2007 for his humanitarian work. During Dr. Hoskins’ nearly 10 years as a member of provincial parliament in Ontario, he held several cabinet positions including Minister of Health and Long-Term Care; Economic Development, Trade and Employment; Children and Youth Services; as well as Citizenship and Immigration. As a tireless health advocate, Dr. Hoskins has many years of experience creating and delivering health programs in Africa and the Middle East.

 

Dr. Sanjiv Chopra

 

Sanjiv Chopra, MD, is Professor of Medicine and served as Faculty Dean for Continuing Medical Education at Harvard Medical School for 12 years. He serves as a Marshall Wolf Distinguished Clinician Educator Brigham and Women’s Hospital.

 

Dr. Chopra has more than 170 publications and ten books to his credit. Dr. Chopra is Editor-in-Chief of the Hepatology Section of UpToDate, the most widely used electronic textbook in the world subscribed to by more than 1.5 million physicians in 195 countries.

 

He is a sought after inspirational speaker across the United States and abroad, addressing diverse audiences on topics related to medicine, leadership, happiness, and living with purpose.

 

Michael (Zappy) Zapolin

 

Zappy Zapolin is a well-known futurist, psychedelic concierge to the stars, and award-winning filmmaker who is dedicated to expanding human consciousness.

 

As the youngest Vice President in the history of investment bank Bear Stearns, Zappy is a frequent commentator on investment opportunities in the biotech and emerging psychedelic industry.

 

 
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Certain Proceedings involving Directors

 

Mr. Durkacz has been serving as director of FSD since June 18, 2018. On March 5, 2021, FSD was subject to a court order with respect to the 2021 Annual and Special Meeting which, among other things, prohibited the Company’s then CEO and directors, other than Mr. Durkacz, from voting certain of their shares at the 2021 Annual and Special Meeting. On April 9, 2021, the Court ordered an injunction restraining the Company’s then CEO and former directors, other than Mr. Durkacz, from authorizing or undertaking any transaction by FSD other than in the ordinary course of business, issuing any Class B Shares or authorizing the payment of any form of compensation to such former CEO and directors prior to the 2021 Annual and Special Meeting.

 

Family Relationships

 

There are no family relationships among any of our executive officers or directors.

 

Special Arrangements

 

Not applicable.

 

B. Compensation.

 

Executive Compensation

 

The purpose of this Compensation Discussion and Analysis is to provide information about the Company’s philosophy, objectives, and processes regarding executive compensation. This disclosure is intended to communicate compensation provided to: (i) the CEO; (ii) the CFO; (iii) each of the three most highly compensated executive officers of the Company, including any of its subsidiaries, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, as at the end of the most recently completed financial year whose total compensation was, individually, more than C$150,000; and (iv) each individual who would be a NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company or its subsidiaries, nor acting in a similar capacity, as at December 31, 2023, (collectively, the “NEOs”) and (v) the directors of the Company.

 

During the year ended December 31, 2023, the NEOs of the Company were as follows:

 

 

1)

Zeeshan Saeed, CEO and Co-Executive Chairman, and Director of the Company;

 

2)

Anthony Durkacz, Co-Executive Chairman, and Director of the Company;

 

3)

Nathan Coyle, CFO of the Company;

 

4)

Donal Carroll, COO of the Company; and

 

5)

Dr. Lakshmi Kotra, Director of the Company, CEO of Lucid, President of FSD Biosiences, and CEO FSD Australia.

 

The description of the Company’s compensation philosophy and objectives and the elements of such compensation for the year ended December 31, 2023 is set forth below:

 

Compensation Philosophy and Objectives

 

The executive compensation program adopted by the Company and applied to its executive officers is designed to attract and retain qualified and experienced executives who will contribute to the success of the Company. The executive compensation program attempts to ensure that the compensation of the senior executive officers provides a competitive base compensation package and a strong link between corporate performance and compensation. Senior executive officers are motivated through the program to enhance long-term shareholder value and rewarded for their yearly individual contribution in the context of overall annual corporate performance.

 

Elements of Compensation

 

The executive compensation program during the year, ended December 31, 2023 consisted of three principal components: (i) base compensation; (ii) potential annual incentive award; (iii) Options to Class B Shares (“Options”); (iv) restricted share units (“RSUs”); and (v) performance share units (“PSUs”). Options, RSUs, and PSUs are granted pursuant to the Company’s equity incentive plan (the “Equity Incentive Plan”) which replaced the Company’s rolling stock option plan (the “Stock Option Plan”). For the year ended December 31, 2023, all executive compensation was determined and administered by the Board based on recommendations by the compensation, nominating and governance committee of the Company (“Compensation, Nominating and Governance Committee”).

 

Compensation Governance

 

The Compensation, Nominating and Governance Committee is currently comprised of three directors, Zeeshan Saeed (Chair), Michael (Zappy) Zapolin, and Adnan Bashir. Zeeshan Saeed is not an independent director, and Michael (Zappy) Zapolin, and Adnan Bashir are independent directors.

 

The primary goal of the Company’s executive compensation program is to attract and retain the key executives necessary for the Company’s long term success, to encourage executives to further the development of the Company and its operations, and to motivate top quality and experienced executives.

 

 
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The Compensation, Nominating and Governance Committee has been tasked with establishing an executive compensation program, which, prior to May 16, 2022, included equity compensation by way of share awards and Options granted under the Stock Option Plan. As of May 16, 2022, the executive compensation program includes equity compensation by way of share awards, RSUs, PSUs and Options granted under the Equity Incentive Plan.

 

The Compensation, Nominating and Governance Committee reviews the adequacy of remuneration for the executive officers by evaluating their performance in light of the Company’s goals and objectives, the bonus opportunities contained in their employment agreements, and by comparing the performance of the Company with other reporting issuers of similar size in the same industry.

 

The Board is of the view that all elements of the total program should be considered, rather than any single element. As such, the Company does not use fixed criteria in determining the mix of compensation and instead determines compensation based on a contextual analysis of the Company. While the Company does not have a formally established peer group in determining compensation, the Compensation, Nominating and Governance Committee will on occasion reference other comparable publicly traded Canadian companies to align its compensation practices with market practice.

 

The terms of any proposed compensation for the directors of the Company who are not also officers of the Company (including any Options, RSUs and PSUs to be granted) will be determined by the Compensation, Nominating and Governance Committee. The compensation program is designed to provide income certainty, to attract and retain executives and to provide incentives for the achievement of both short-term and long-term objectives of the Company.

 

Compensation Process

 

The Compensation, Nominating and Governance Committee, through discussion without any formal objectives, criteria, or analysis, determines the compensation of the Company’s executive officers. The Compensation, Nominating and Governance Committee has no formal criteria or goals tied to total compensation or any significant element of total compensation. The Board, through the Compensation, Nominating and Governance Committee, is responsible for determining all forms of compensation, including share-based compensation and long-term incentives in the form of Options, RSUs and PSUs to be granted to the Company’s executive officers and directors, and for reviewing the recommendations respecting compensation of other officers of the Company from time-to-time, to ensure such arrangements reflect the responsibilities and risks associated with each position. The Compensation, Nominating and Governance Committee determines compensation by considering: (i) recruiting and retaining executives critical to the Company’s success and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing the interests of management and the Shareholders; and (iv) rewarding performance, both on an individual basis and with respect to the Company’s operations in general.

 

Annual Incentive Awards

 

Annual incentive awards are designed to motivate NEOs to achieve the Company’s short-term corporate goals, and rewards individual and overall performance. Annual incentives are based on objective, identifiable measures set at the beginning of each financial year at the discretion of the Compensation, Nominating and Governance Committee, which may vary from year to year and incentive payments are expected to be determined by the Board on the recommendation of the Compensation, Nominating and Governance Committee.

 

Option Awards

 

Long-term incentives in the form of Options are intended to align the interests of the Company’s directors and its executive officers with those of its Shareholders, to provide a long-term incentive that rewards these individuals for their contribution to the creation of Shareholder value, and to reduce the cash compensation the Company would otherwise pay. The Equity Incentive Plan is administered by the Board. While the Company does not have a formally established peer group in determining compensation, in considering the number of Options to be granted to the NEOs, reference is made to the number of Options granted to officers of other comparable publicly traded Canadian companies. The Compensation, Nominating and Governance Committee also considers previous grants of equity incentives and the overall number of equity incentives that are outstanding relative to the number of outstanding Shares in determining whether to make any new grants of Options and the size and terms of any such grants, as well as the level of effort, time, responsibility, ability, experience, and level of commitment of the executive officer in determining the level of Option compensation.

 

Share Unit Awards

 

The Equity Incentive Plan provides that Eligible Persons (as defined in the Equity Incentive Plan) may be allocated share units in the form of RSUs or PSUs (collectively, “Share Units”), which represent the right to receive an equivalent number of Class B Shares or the Market Price (as defined in the Equity Incentive Plan) in cash on the vesting date. The issuance of Class B Shares may be subject to vesting requirements similar to those described above with respect to the exercise of Options, including such time- or performance-based conditions as may be determined from time to time by the Board in its discretion.

 

The Equity Incentive Plan provides for the express designation of Share Units as either RSUs, which have time-based vesting conditions, or PSUs, which have performance-based vesting conditions over a specified period. The Equity Incentive Plan provides that if Share Units are scheduled to settle during a blackout period, such settlement shall be postponed until the trading day following the date on which the blackout period ends (or as soon as practicable thereafter, and in any event, within 10 business days following the end of the blackout period), and the Market Price of any RSUs or PSUs settled in cash will be determined as of the trading day immediately prior to the settlement date.

 

 
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The Compensation, Nominating and Governance Committee also considers previous grants of equity incentives and the overall number of equity incentives that are outstanding relative to the number of outstanding Shares in determining whether to make any new grants of Share Units and the size and terms of any such grants, as well as the level of effort, time, responsibility, ability, experience, and level of commitment of the executive officer in determining the level of Share Unit compensation.

 

Insider Trading and Blackout Period Policy  

 

All of the Company’s executives, other employees and directors are subject to the Company’s Insider Trading and Blackout Period Policy, which prohibits trading in the Company’s securities while in possession of material undisclosed information about the Company. Under this policy, such individuals are also prohibited from entering into hedging transactions involving securities of the Company, such as short sales, puts and calls. Furthermore, subject to certain limited exceptions, the Company permits executives, including the NEOs, to trade in the Company’s securities only during prescribed trading windows.

 

Risk Analysis

 

The Board and Compensation, Nominating and Governance Committee considered risks associated with executive compensation and do not believe that the Company’s executive compensation policies and practices encourage its executive officers to take inappropriate or excessive risks. Aside from a fixed base salary, NEOs are compensated through the granting of awards, which are compensation that is both “at risk” and associated with long-term value creation. The value of such compensation is dependent upon Shareholder return over award vesting periods which reduces the incentive for executives to take inappropriate or excessive risks as their long-term compensation is at risk.

 

Performance graph

 

The following performance graph compares the total cumulative return to a Shareholder who invested C$100 in Shares on January 1, 2018, assuming reinvestment of dividends, with the cumulative total return on the S&P/TSX Composite Total Return Index and SPDR S&P Biotech ETF for each year following January 1, 2018. The performance of the Shares as set out in the graph below does not necessarily indicate future performance.

 

fsd_20fimg2.jpg

 

 
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December 31,

2019

(C$)

 

 

December 31,

2020

(C$)

 

 

December 31,

2021

(C$)

 

 

December 31,

2022

(C$)

 

 

December 31,

2023

(C$)

 

FSD Pharma Inc.

 

 

11.85

 

 

 

3.40

 

 

 

2.23

 

 

 

1.72

 

 

 

2.01

 

SPDR S&P

Biotech ETF (NYSEARCA: XBI)

 

 

118.93

 

 

 

123.96

 

 

 

151.55

 

 

 

129.57

 

 

 

143.46

 

S&P/TSX

Composite Total Return Index

 

 

130.54

 

 

 

193.22

 

 

 

153.66

 

 

 

113.92

 

 

 

122.55

 

 

The Company is of the view that compensation levels for the directors and executive officers cannot and should not be directly compared to year-over-year relative market performance. Market performance is impacted by a number of external factors beyond the control of management and an increase or decrease in the market price and thus should not be a determining factor in establishing the annual compensation of the Company’s directors and executive officers. The stock price directly impacts the benefits enjoyed by the directors and executive officers from the Stock Option Plan and Equity Incentive Plan. As a result, the trend shown in the above graph does not necessarily correspond to the Company’s compensation to its directors and executive officers for the same period.

 

The Company’s compensation package is based on competitive compensation trends and the value of the services provided and is designed to attract and retain top quality personnel for the longer term in order to manage and grow the business through both adverse and favorable economic cycles. These factors may not yield immediate results in stock price.

 

Summary Compensation Table

 

 

Name and

Principal Position

Year

Salary

(US$)

Share-Based

Awards(1)

(US$)

Option

Based

Awards(2)

(US$)

Non-Equity

Incentive Plan Compensation

(US$)

Pension

Value

All Other

Compensation(3)

(US$)

Total Compensation

(US$)

 

Annual

incentive plans

 

Long-term

incentive plans

Anthony

Durkacz(4)

Co-Executive Chairman and Director

 

2023

222,625

Nil

377,248

Nil

Nil

Nil

599,873

2022

239,269

316,834(5)

Nil

Nil

Nil

136,710(6)

692,813

2021

103,703

Nil

777,798

Nil

Nil

Nil

881,501

Nathan Coyle(7)

CFO

2023

178,208

Nil

Nil

Nil

Nil

Nil

178,208

2022

191,891

Nil

Nil

Nil

Nil

Nil

191,891

2021

189,186

Nil

46,586

15,734

Nil

Nil

251,506

Zeeshan Saeed(8)

CEO&

Co-Executive

Chairman

2023

222625

Nil

377,248

Nil

Nil

Nil

599,873

2022

239,269

398,010 (5)

Nil

Nil

Nil

136,710 (6)

773,989

2021

225,271

Nil

777,798

Nil

Nil

Nil

1,003,069

Donal Carroll(9)

COO

2023

225,625

Nil

377,248

Nil

Nil

Nil

602,873

2022

239,269

321,543(5)

34,519

Nil

Nil

136,710 (6)

732,041

2021

351,406

Nil.

777,798

78,670

Nil

4,779(6)

1,212,653

Dr. Lakshmi Kotra

Director, CEO of Lucid, President of FSD Biosiences, and CEO FSD Australia

2023

144,724

Nil.

377,248

Nil

Nil

Nil

521,972

2022

331,510(10)

80,212(5)(10)

Nil

Nil

Nil

Nil

411,722

2021

44,430(10)

Nil

172,799

Nil

Nil

Nil

217,228.96

 

 
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Notes:

 

(1)

“Share-based Award” means an award of Class B Shares and includes PSUs and RSUs. The dollar amount disclosed is based on the closing price per Class B Share at the date of each grant.

(2)

“Option-based Award” means an award of Options under the Stock Option Plan or the Equity Incentive Plan. This does not represent cash paid to the NEO. This figure is based on the grant date fair value of such Options. The grant date fair value was determined in accordance with International Financial Reporting Standards. This methodology was chosen in order to be consistent with the accounting fair value used by the Company in its financial statements, and the Black-Scholes option pricing model is a commonly used methodology for valuing options which provides an objective and reasonable estimate of fair value. Calculating the value of stock options using the Black-Scholes option pricing model is very different from a simple “in-the-money” value calculation. Accordingly, caution must be exercised in comparing grant date fair value amounts with cash compensation or an in-the-money option value calculation.

(3)

Includes Company-paid health and life insurance benefits and car allowances for all NEOs.

(4)

Mr. Durkacz has been a director of the Company since June 18, 2018 and was appointed as interim CEO of the Company on July 27, 2021.

(5)

This figure represents PSUs granted under the Equity Incentive Plan. This does not represent cash paid to the NEO. This figure is based on the incremental grant date fair value of such PSUs. The grant date fair value was determined in accordance with International Financial Reporting Standards. The incremental fair value is the difference between the fair value of the PSUs based on the share price on the grant date and the fair value of the share options cancelled as measured on date of modification. This methodology was chosen in order to be consistent with the accounting fair value used by the Company in its financial statements. For further details on the valuation of PSUs, see Note 16 to the 2023 Annual Financial Statements, starting at page F-1.

(6)

These amounts represent cash bonuses paid to the NEO.

(7)

Mr. Coyle was appointed as the CFO of the Company on May 4, 2021, initially on interim and then on a permanent basis.

(8)

Mr. Saeed departed from his position as President and director of the Company effective January 25, 2021 but was re- elected as a director of the Company on May 14, 2021 and re-appointed as President of the Company on July 27, 2021.

(9)

Mr. Carroll resigned as CFO of the Company on May 4, 2021 and was elected as a director of the Company at the 2021 Meeting on May 14, 2021. Mr. Carroll was appointed as COO of the Company on August 15, 2021.

(10)

Dr. Kotra is not paid a salary by the Company, but was paid a consulting fee of $331,510.00 for the year ended December 31, 2022 and $44,430.00 for the year ended December 31, 2022. Dr. Kotra’s PSU awards for the year ended December 31, 2022 includes 51,500 PSUs issued to ILace Therapeutics International Inc., a corporation controlled by Dr. Kotra.

 

Outstanding Option-Based and Share-Based Awards

 

The following table sets forth information with respect to Options, RSUs and PSUs held by the NEOs which were outstanding as of December 31, 2023:

 

 

 

Option-based Awards

 

Share-based Awards

 

Name

 

Number of

securities

underlying

unexercised

options

(#)

(b)

 

 

Option

exercise

price

($)

(c)

 

 

Option

expiration

date

(d)

 

Value of unexercised

in-the-money options

($)

(e)

 

Number

of shares

or units

of shares

that have

not vested

(#)

(f)

 

Market

or payout

value of

share-

based

awards

that have

not vested

($)

(g)

 

 

Market

or payout

value of

vested

share-based