RISK FACTORS

RISK FACTORS

When used in this Risk Factors section, references to “PsyBio” refer to PsyBio Therapeutics, Inc. or any affiliate thereof and include, upon completion of the proposed reverse take-over transaction (the “Transaction”), the resulting issuer of the Transaction (the “Resulting Issuer”), and where the context requires or permits, also includes affiliates of the foregoing. References herein to “Resulting Issuer Shares” refer to the shares in the capital of the Resulting Issuer (currently anticipated to be subordinate voting shares), after giving effect to the Transaction.

The following are certain factors relating to the business of the Resulting Issuer. These risks and uncertainties are not the only ones facing the Resulting Issuer. Additional risks and uncertainties not presently known to PsyBio or currently deemed immaterial by PsyBio, may also impair the operations of PsyBio and the Resulting Issuer. If any such risks actually occur, shareholders of the Resulting Issuer could lose all or part of their investment and the business, financial condition, liquidity, results of operations and prospects of the Resulting Issuer could be materially adversely affected and the ability of the Resulting Issuer to implement its growth plans could be adversely affected. The acquisition of any of the securities of PsyBio and the Resulting Issuer is speculative, involving a high degree of risk and should be undertaken only by persons whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the securities of PsyBio and the Resulting Issuer should not constitute a major portion of an individual’s investment portfolio and should only be made by persons who can afford a total loss of their investment. Investors should evaluate carefully the following risk factors associated with the Resulting Issuer’s securities, along with the risk factors described elsewhere in this presentation.

 

Business and Industry Risks

Novel Coronavirus “COVID-19”

The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, including the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of PsyBio and its operating subsidiaries in future periods. However, depending on the length and severity of the pandemic, COVID-19 could impact PsyBio’s operations, could cause delays relating to approval from Health Canada, the US FDA and equivalent organizations in other countries, could postpone research activities, and could impair PsyBio’s ability to raise funds depending on COVID-19s effect on capital markets. To the knowledge of PsyBio’s management as of the date hereof, COVID-19 does not present, at this time, any specific known impacts to PsyBio in relation to PsyBio’s plan of distribution and use of proceeds related to the Offering, nor to the timelines, business objectives or disclosed milestones related thereto.

PsyBio relies on third parties to conduct and monitor its pre-clinical studies and clinical trials. However, to the knowledge of PsyBio’s management, the ability of these third parties to conduct and monitor pre-clinical studies and clinical trials has not been and is not anticipated to be impacted by COVID-19. PsyBio is not currently aware of any changes in laws, regulations or guidelines, including tax and accounting requirements, arising from COVID-19 which would be reasonably anticipated to materially affect PsyBio’s business.

Limited Operating History

PsyBio has a limited operating history upon which its business and future prospects may be evaluated. PsyBio will be subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that it will not achieve its operating goals. In order for PsyBio to meet future operating and debt service requirements, it will need to be successful in its growth, marketing and sales efforts. Additionally, where PsyBio experiences increased production and future sales, its current operational infrastructure may require changes to scale its business efficiently and effectively to keep pace with demand, and achieve long-term profitability. If PsyBio’s products and services are not accepted by new customers, PsyBio’s operating results may be materially and adversely affected.

Since formation, PsyBio has invested most of its resources in developing a portfolio of psychoactive compounds targeted for the treatment of mental health challenges and other disorders, building its intellectual property portfolio, conducting business planning, raising capital and providing administrative support for these operations. PsyBio has not yet demonstrated an ability to conduct later-stage clinical trials, obtain regulatory approvals, manufacture a commercial-scale product, conduct sales and marketing activities necessary for successful product commercialization.

PsyBio may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving its business objectives. PsyBio will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. PsyBio may not be successful in such a transition.

Regulatory Risks and Uncertainties

Psilocybin is a controlled substance in many jurisdictions, including in Canada under Schedule III of the Controlled Drugs and Substances Act (the “CDSA”) and in the Unites States under the Controlled Substances Act (the “CSA”).

In Canada, medical and recreational use of certain psychedelic drugs is illegal under Canadian federal laws. While PsyBio is focused on programs using psychedelic inspired compounds, PsyBio does not have any direct or indirect involvement with the illegal selling, production or distribution of any substances in the jurisdictions in which it operates and does not intend to have any such involvement. However, a violation of any Canadian federal laws and regulations 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 PsyBio operates, or private citizens or criminal charges.

In the United States, psilocybin and its active metabolite, psilocin, are listed by the United States Drug Enforcement Administration (“DEA”) as controlled substances or scheduled substances, under the CSA specifically as a Schedule I substance. The DEA regulates chemical compounds as Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, have no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription and may have a black box warning. Further, most, if not all, state laws in the United States classify psilocybin and psilocin as Schedule I controlled substances. For any product containing psilocybin to be available for commercial marketing in the United States, psilocybin and psilocin must be rescheduled, or the product itself must be scheduled, by the DEA to Schedule II, III, IV or V. Commercial marketing in the United States will also require scheduling-related legislative or administrative action.

Scheduling determinations by the DEA are dependent on US Food and Drug Administration (“US FDA”) approval of a substance or a specific formulation of a substance. Therefore, while psilocybin and psilocin are Schedule I controlled substances, products approved by the US FDA for medical use in the United States that contain psilocybin or psilocin should be placed in Schedules II-V, since approval by the US FDA satisfies the “accepted medical use” requirement.  In addition, the scheduling process may take significantly longer than the 90-day deadline set forth in the CSA, thereby delaying the launch of PsyBio’s future psilocybin based therapies in the United States. Furthermore, the FDA, DEA, or any foreign regulatory authority could require PsyBio to generate more clinical or other data than PsyBio currently anticipates to establish whether or to what extent the substance has an abuse potential, which could increase the cost and/or delay the launch of PsyBio’s future therapeutic candidates containing controlled substances.

There is no guarantee that any of PsyBio’s investigational therapeutic compounds will be approved for use by Health Canada or the US FDA. The failure to obtain necessary licenses and permits for Schedule I drugs could have an adverse effect on PsyBio’s operations.

If any of PsyBio’s therapeutic investigational compounds are approved by the US FDA, they will be subject to further DEA regulations relating to manufacturing, storage, distribution and physician prescription procedures, including:

  • DEA registration and inspection of facilities. Facilities conducting research, manufacturing, distributing, importing or exporting, or dispensing controlled substances must be registered (licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to prevent drug loss and diversion. All these facilities must renew their registrations annually, except dispensing facilities, which must renew every three years. The DEA conducts periodic inspections of certain registered establishments that handle controlled substances. Obtaining and maintaining the necessary registrations may result in delay of the importation, manufacturing or distribution of PsyBio’s future therapeutic compounds. Furthermore, failure to maintain compliance with the CSA, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on PsyBio’s business, financial condition and results of operations. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

  • State - controlled substances laws. Individual U.S. states have also established controlled substance laws and regulations. Though state - controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule any future therapeutic compound from PsyBio. While some states automatically schedule a drug based on federal action, other states schedule drugs through rule making or a legislative action. State scheduling may delay commercial sale of any product for which PsyBio obtains federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product. PsyBio or PsyBio’s partners must also obtain separate state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions by the states in addition to those from the DEA or otherwise arising under federal law.

  • Clinical trials. Prior to approval, each of PsyBio’s research sites must submit a research protocol to the DEA and obtain and maintain a DEA researcher registration that will allow those sites to handle and dispense any future psilocybin based product and to obtain the product from PsyBio’s importer. If the DEA delays or denies the grant of a researcher registration to one or more research sites, the clinical trial could be significantly delayed, and PsyBio could lose clinical trial sites. The importer for the clinical trials must also obtain a Schedule I importer registration and an import permit for each import.

  • Importation. If a future PsyBio therapeutic compound  is approved and classified as a Schedule II, III or IV substance, an importer can import it for commercial purposes if it obtains an importer registration and files an application for an import permit for each import. The DEA provides annual assessments/estimates to the International Narcotics Control Board, which guides the DEA in the amounts of controlled substances that the DEA authorizes to be imported. The failure to identify an importer or obtain the necessary import authority, including specific quantities, could affect the availability of PsyBio’s future products and have a material adverse effect on PsyBio’s business, results of operations and financial condition. In addition, an application for a Schedule II importer registration must be published in the Federal Register, and there is a waiting period for third-party comments to be submitted. It is always possible that adverse comments may delay the grant of an importer registration. If a PsyBio therapeutic compound is approved and classified as a Schedule II controlled substance, federal law may prohibit the import of the substance for commercial purposes. If a PsyBio therapeutic compound is listed as a Schedule II substance, PsyBio will not be allowed to import the drug for commercial purposes unless the DEA determines that domestic supplies are inadequate or there is inadequate domestic competition among domestic manufacturers for the substance as defined by the DEA. Moreover, Schedule I controlled substances, including psilocybin and psilocin, have never been registered with the DEA for importation for commercial purposes, only for scientific and research needs. Therefore, if  PsyBio’s future therapeutic compounds could not be imported, PsyBio’s products would have to be wholly manufactured in the United States, and PsyBio would need to secure a manufacturer that would be required to obtain and maintain a separate DEA registration for that activity.

  • Manufacture in the United States. If, because of a Schedule II classification or voluntarily, PsyBio were to conduct manufacturing or repackaging/relabeling in the United States, PsyBio’s contract manufacturers would be subject to the DEA’s annual manufacturing and procurement quota requirements. Additionally, regardless of the scheduling of any future  therapeutic compound, the active ingredient in the final dosage form is currently a Schedule I controlled substance and would be subject to such quotas as this substance could remain listed on Schedule I. The annual quota allocated to PsyBio or PsyBio’s contract manufacturers for the active ingredient in a therapeutic compound may not be sufficient to complete clinical trials or meet commercial demand. Consequently, any delay or refusal by the DEA in establishing our, or PsyBio’s contract manufacturers’, procurement and/or production quota for controlled substances could delay or stop PsyBio’s clinical trials or product launches, which could have a material adverse effect on PsyBio’s business, financial position and results of operations.

  • Distribution in the United States. If a future PsyBio therapeutic compound is scheduled as Schedule II, III or IV, PsyBio would also need to identify wholesale distributors with the appropriate DEA registrations and authority to distribute any future therapeutic candidates. These distributors would need to obtain Schedule II, III or IV distribution registrations. This limitation in the ability to distribute more broadly may limit commercial uptake and could negatively impact PsyBio’s prospects. The failure to obtain, or delay in obtaining, or the loss of any of those registrations could result in increased costs to PsyBio. If future PsyBio therapeutic compounds are labelled Schedule II drugs, participants in PsyBio’s supply chain may have to maintain enhanced security with alarms and monitoring systems and they may be required to adhere to recordkeeping and inventory requirements. This may discourage some pharmacies from carrying the product.

Early Stage of the Industry

The psychedelic drug industry is a fairly new industry and PsyBio cannot predict the impact of the ever-evolving compliance regime in respect of this industry. Similarly, PsyBio cannot predict the time required to secure all appropriate regulatory approvals for future products, or the extent of testing and documentation that may, from time to time, be required by governmental authorities. The impact of compliance regimes, any delays in obtaining, or failure to obtain regulatory approvals may significantly delay or impact the development of markets, its business and products, and sales initiatives and could have a material adverse effect on the business, financial condition and operating results of PsyBio.

 

The success of PsyBio’s business is dependent on the reform of controlled substances laws pertaining to psilocybin. If controlled substances laws are not favourably reformed in Canada, the United States, and other global jurisdictions, the commercial opportunity that PsyBio is pursuing may be highly limited.

 

If psilocybin and/or psilocin, other than the FDA-approved formulation, is rescheduled under the CSA as a Schedule II or lower controlled substance (i.e., Schedule III, IV or V), the ability to conduct research on psilocybin and psilocin would most likely be improved. However, rescheduling psilocybin and psilocin may materially alter enforcement policies across many federal agencies, primarily the FDA and DEA. The FDA is responsible for ensuring public health and safety through regulation of food, drugs, supplements, and cosmetics, among other products, through its enforcement authority pursuant to the Federal Food, Drug, and Cosmetic Act, or the FDCA. The FDA’s responsibilities include regulating the ingredients as well as the marketing and labeling of drugs sold in interstate commerce. Because it is currently illegal under federal law to produce and sell psilocybin and psilocin, and because there are no federally recognized medical uses, the FDA has historically deferred enforcement related to psilocybin and psilocin to the DEA. If psilocybin and psilocin were to be rescheduled to a federally controlled, yet legal, substance, the FDA would likely play a more active regulatory role. The DEA would continue to be active in regulating manufacturing, distribution and dispensing of such substances. The potential for multi-agency enforcement post-rescheduling could threaten or have a materially adverse effect on PsyBio’s business.

 

Early Stage of Product Development

PsyBio currently has no therapies that are approved for commercial sale and may never be able to develop marketable therapies. Given the early stage of its product development, PsyBio can make no assurance that its research and development programs will result in regulatory approval or commercially viable products. To achieve profitable operations, PsyBio, alone or with others, must successfully develop, gain regulatory approval for, and market its future products. PsyBio currently has no products that have been approved by Health Canada, the US FDA or any similar regulatory authority. To obtain regulatory approvals for its product candidates being developed and to achieve commercial success, clinical trials must demonstrate that the product candidates are safe for human use and that they demonstrate efficacy.

 

Many product candidates never reach the stage of clinical testing and even those that do have only a small chance of successfully completing clinical development and gaining regulatory approval. Product candidates can fail for a number of reasons, including, but not limited to, being unsafe for human use or due to the failure to provide therapeutic benefits equal to or better than the standard of treatment at the time of testing. Unsatisfactory results obtained from a particular study relating to a research and development program may cause PsyBio or its collaborators to abandon commitments to that program. Positive results of early preclinical research may not be indicative of the results that will be obtained in later stages of preclinical or clinical research. Similarly, positive results from early-stage clinical trials may not be indicative of favourable outcomes in later-stage clinical trials, and PsyBio can make no assurance that any future studies, if undertaken, will yield favourable results. The results of these studies or trials, when published, may have a significant effect on the market for the biopharmaceutical product that is the subject of the study.

 

The early stage of PsyBio’s product development makes it particularly uncertain whether any of its product development efforts will prove to be successful and meet applicable regulatory requirements, and whether any of its product candidates will receive the requisite regulatory approvals, be capable of being manufactured at a reasonable cost or be successfully marketed. If PsyBio is successful in developing its current and future product candidates into approved products, it will still experience many potential obstacles, which would affect its ability to successfully market and commercialize such approved products, such as the need to develop or obtain manufacturing, marketing and distribution capabilities, price pressures from third-party payors, or proposed changes in health care systems. If PsyBio is unable to successfully market and commercialize any of its products, its financial condition and results of operations may be materially and adversely affected.

 

PsyBio can make no assurance that any future studies, if undertaken, will yield favorable results. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials after achieving positive results in early-stage development, and PsyBio cannot be certain that it will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain Health Canada or US FDA approval. If PsyBio fails to produce positive results in its future clinical trials and other programs, the development timeline and regulatory approval and commercialization prospects for PsyBio’s leading product candidates, and, correspondingly, its business and financial prospects, would be materially adversely affected. The publication of negative results of studies or clinical trials or adverse safety events related to PsyBio’s product candidates, or the therapeutic areas in which PsyBio’s product candidates compete, could adversely affect its share price and PsyBio’s ability to finance future development of its product candidates, and its business and financial results could be materially and adversely affected.

 

Preclinical testing and clinical trials for PsyBio’s products may not achieve the desired results. The results of preclinical testing and clinical trials are uncertain. Product approvals are subject to a number of contingencies and may not be obtained in the time expected or at all. PsyBio’s products may not attract a following among patients, retailers and/or providers. PsyBio expects to face an inherent risk of exposure to product liability claims, regulatory action and litigation if the products it plans to distribute are alleged to have caused loss or injury. There can be no assurance that PsyBio will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities.

 

PsyBio’s business relies on its ability to access, develop, and sell psilocybin. Psilocybin is a controlled substance in many jurisdictions, including in Canada under Schedule III of the CDSA and in the Unites States under the CSA. PsyBio may face difficulty accessing psilocybin and the public capital markets in Canada as a result of the response of regulators, stock exchanges, and other market participants to PsyBio’s development and sale of a controlled substance. PsyBio may also have limited access to traditional banking services, as well as limited access to debt financing from traditional institutional lenders. The medical efficacy of psilocybin has not been confirmed and requires further study and scientific rigour.

Limited Products

PsyBio will be heavily reliant on the production and distribution of psychedelics and related products. If they do not achieve sufficient market acceptance, it will be difficult for PsyBio to achieve profitability.

PsyBio expects that its psychedelic based products will account for substantially all of its revenue for the foreseeable future. If the psychedelic market declines or psychedelics fail to achieve substantially greater market acceptance than it currently enjoys, PsyBio will not be able to grow its revenues sufficiently for it to achieve consistent profitability.

Even if products to be distributed by PsyBio conform to international safety and quality standards, sales could be adversely affected if consumers in target markets lose confidence in the safety, efficacy, and quality of psychedelic based products. Adverse publicity about psychedelic based products that PsyBio sells may discourage consumers from buying products distributed by PsyBio.

Limited Marketing and Sales Capabilities

PsyBio will, for the immediate future, have limited marketing and sales capabilities, and there can be no assurance that it will be able to develop or acquire these capabilities at the level needed to produce and deliver for sale, through industry partners, its products in sufficient commercial quantities. Further, there can be no assurance that PsyBio, either on its own or through arrangements with other industry participants, will be able to develop or acquire such capabilities on a cost-effective basis, or at all. Finally, there can be no assurance that PsyBio’s industry partners will be able to market or sell PsyBio’s products in compliance with requisite regulatory protocols or on a cost-effective basis. PsyBio’s dependence upon third parties for the production, and marketing or sale, as applicable, of PsyBio’s products could have a material adverse effect on PsyBio’s business, financial condition and results of operations.

 

No Assurance of Commercial Success

The successful commercialization of PsyBio’s products will depend on many factors, including, PsyBio’s ability to establish and maintain working partnerships with industry participants in order to market its products, PsyBio’s ability to supply a sufficient amount of its products to meet market demand, and the number of competitors within each jurisdiction within which PsyBio may from time to time be engaged. There can be no assurance that PsyBio or its industry partners will be successful in their respective efforts to develop and implement, or assist PsyBio in developing and implementing, a commercialization strategy for PsyBio’s products.

 

No Profits or Significant Revenues

PsyBio has no history upon which to evaluate its performance and future prospects. PsyBio’s proposed operations are subject to all the business risks associated with new enterprises. These include likely fluctuations in operating results as PsyBio makes significant investments in research, development and product opportunities, and reacts to developments in its market, including purchasing patterns of customers, and the entry of competitors into the market. PsyBio will only be able to pay dividends on any shares once its directors determine that it is financially able to do so. PsyBio cannot make any assurance that it will be profitable in the next three (3) years or generate sufficient revenues to pay dividends to the holders of Resulting Issuer Shares.

 

Reliance on Third Parties for Clinical Development Activities

 

PsyBio relies and will continue to rely on third parties to conduct a significant portion of its preclinical and clinical development activities. For example, clinical development activities include trial design, regulatory submissions, clinical patient recruitment, clinical trial monitoring, clinical data management and analysis, safety monitoring and project management. If there is any dispute or disruption in its relationship with third parties, or if it is unable to provide quality services in a timely manner and at a feasible cost, PsyBio’s active development programs will face delays. Further, if any of these third parties fails to perform as PsyBio expects or if their work fails to meet regulatory requirements, PsyBio’s testing could be delayed, cancelled or rendered ineffective.

 

Risks Related to Third Party Relationships

PsyBio intends to enter into strategic alliances with third parties that PsyBio believes will complement or augment its proposed business or will have a beneficial impact on PsyBio. Strategic alliances could present unforeseen integration obstacles or costs, may not enhance PsyBio’s business, and may involve risks that could adversely affect PsyBio, including significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances. Future strategic alliances could result in the incurrence of additional debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will achieve, or that PsyBio’s existing strategic alliances will continue to achieve, the expected benefits to PsyBio’s business or that PsyBio will be able to consummate future strategic alliances on satisfactory terms, or at all. Any of the foregoing could have a material adverse effect on PsyBio’s business, financial condition and results of operations.

 

In addition to the foregoing, the success of PsyBio’s business will depend, in large part, on PsyBio’s ability to enter into, and maintain collaborative arrangements with various participants in the psychedelic industry. There can be no assurance that PsyBio will be able to enter into collaborative arrangements in the future on acceptable terms, if at all. There can be no assurance that such arrangements will be successful, that the parties with which PsyBio has or may establish arrangements will adequately or successfully perform their obligations under such arrangements, that potential partners will not compete with PsyBio by seeking or prioritizing alternate, competitor products. The termination or cancellation of any such collaborative arrangement or the failure of PsyBio and/or the other parties to these arrangements to fulfill their obligations could have a material adverse effect on PsyBio’s business, financial condition and results of operations. In addition, disagreements between PsyBio and any of its industry partners could lead to delays or time consuming and expensive legal proceedings, which could have a material adverse effect on PsyBio’s business, financial condition and results of operations.

 

Reliance on Contract Manufacturers

 

PsyBio has limited manufacturing experience. Once it is ready to manufacture a commercial quality drug supply, it will rely on contract manufacturing organizations (“CMOs”) to manufacture its product candidates for preclinical studies and clinical trials. PsyBio will rely on CMOs for manufacturing, filling, packaging, storing and shipping of drug product in compliance with current Good Manufacturing Practices (“cGMP”) regulations applicable to its products. Health Canada ensures the quality of drug products by carefully monitoring drug manufacturers’ compliance with cGMP regulations. The cGMP regulations for drugs contain minimum requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product. There can be no assurances that CMOs will be able to meet PsyBio’s timetable and requirements. If PsyBio is unable to arrange for third-party manufacturing sources on commercially reasonable terms or in a timely manner, PsyBio may be delayed in the development of its product candidates. Further, CMOs must operate in compliance with cGMP and failure to do so could result in, among other things, the disruption of product supplies. PsyBio’s dependence upon third parties for the manufacture of its products may adversely affect its profit margins and its ability to develop and deliver products on a timely and competitive basis.

 

Commercial Scale Product Manufacturing

 

PsyBio’s products have been manufactured in small quantities for preclinical studies and clinical trials by third party manufacturers. In order to commercialize its product, PsyBio needs to manufacture commercial quality drug supply for use in registration clinical trials. Most, if not all, of the clinical material used in phase 3/pivotal/registration studies must be derived from the defined commercial process including scale, manufacturing site, process controls and batch size. If PsyBio has not scaled up and validated the commercial production of its product prior to the commencement of pivotal clinical trials, it may have to employ a bridging strategy during the trial to demonstrate equivalency of early stage material to commercial drug product, or potentially delay the initiation or completion of the trial until drug supply is available. The manufacturing of commercial quality product may have long lead times, may be very expensive and requires significant efforts including, but not limited to, scale-up of production to anticipated commercial scale, process characterization and validation, analytical method validation, identification of critical process parameters and product quality attributes, and multiple process performance and validation runs. If PsyBio does not have commercial drug supply available when needed for pivotal clinical trials, PsyBio’s regulatory and commercial progress may be delayed, and it may incur increased product development costs. This may have a material adverse effect on PsyBio’s business, financial condition and prospects, and may delay marketing of the product.

 

Safety and Efficacy of Products

 

Before obtaining marketing approval from regulatory authorities for the sale of PsyBio’s product candidates, PsyBio must conduct preclinical studies in animals and extensive clinical trials in humans to demonstrate the safety and efficacy of the product candidates. Clinical testing is expensive and difficult to design and implement, can take many years to complete and has uncertain outcomes. The outcome of preclinical studies and early clinical trials may not predict the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in earlier trials. PsyBio does not know whether the clinical trials it may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market any of its product candidates in any jurisdiction. A product candidate may fail for safety or efficacy reasons at any stage of the testing process. A major risk PsyBio faces is the possibility that none of its product candidates under development will successfully gain market approval from Health Canada, the US FDA or other regulatory authorities, resulting in PsyBio being unable to derive any commercial revenue from them after investing significant amounts of capital in their development.

 

Clinical Testing and Commercializing Product Candidates

 

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and PsyBio’s future clinical trial results may not be successful.

PsyBio cannot predict whether any clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. PsyBio’s product development costs will increase if it experiences delays in clinical testing. Significant clinical trial delays could shorten any periods during which PsyBio may have the exclusive right to commercialize its product candidates or allow its competitors to bring products to market before PsyBio, which would impair PsyBio’s ability to successfully commercialize its product candidates and may harm its financial condition, results of operations and prospects.

 

The commencement and completion of clinical trials for PsyBio’s products may be delayed for a number of reasons, including but not limited, to:

  • failure by regulatory authorities to grant permission to proceed or placing clinical trials on hold;

  • suspension or termination of clinical trials by regulators for many reasons, including concerns about patient safety or failure of PsyBio’s CMOs to comply with cGMP requirements;

  • any changes to PsyBio’s manufacturing process that may be necessary or desired, delays or failure to obtain clinical supply from CMOs of PsyBio’s products necessary to conduct clinical trials;

  • product candidates demonstrating a lack of safety or efficacy during clinical trials, reports of clinical testing on similar technologies and products raising safety or efficacy concerns;

  • clinical investigators not performing PsyBio’s clinical trials on their anticipated schedule, dropping out of a trial, or employing methods not consistent with the clinical trial protocol, regulatory requirements or other third parties not performing data collection and analysis in a timely or accurate manner;

  • failure of PsyBio’s contract research organizations to satisfy their contractual duties or meet expected deadlines;

  • inspections of clinical trial sites by regulatory authorities;

  • regulatory authorities or ethics committees finding regulatory violations that require PsyBio to undertake corrective action, resulting in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study;

  • delays in or failure to recruit a sufficient number of suitable patients to participate in a trial;

  • availability of adequately trained therapists and appropriate third-party clinical trial sites for the conduct of the therapy sessions, including preparation, dosing and integration of the therapeutic experience;

  • sufficiency of any supporting digital services that may form part of the preparation, integration or long-term follow-up relating to any therapy we develop;

  • failure to have patients complete a trial or return for post-treatment follow-up

  • one or more regulatory authorities or ethics committees rejecting, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial;

  • failure to reach agreement on acceptable terms with prospective clinical trial sites; or

  • business interruptions resulting from geo-political actions, including war and terrorism, natural disasters including earthquakes, typhoons, floods and fires, pandemics, or failures or significant downtime of PsyBio’s information technology systems resulting from cyber-attacks on such systems or otherwise.

 

PsyBio’s product development costs will increase if it experiences delays in testing or approval or if PsyBio needs to perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur, and PsyBio may need to amend study protocols to reflect these changes. Amendments may require PsyBio to resubmit its study protocols to regulatory authorities or ethics committees for re-examination, which may impact the cost, timing or successful completion of that trial. Delays or increased product development costs may have a material adverse effect on PsyBio’s business, financial condition and prospects.

 

PsyBio cannot be certain that any other future clinical trials will be successful. Clinical trials that PsyBio conducts may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market PsyBio’s  future product candidates. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same therapeutic candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. If the results of PsyBio’s future clinical trials are inconclusive, if PsyBio does not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with therapeutic candidates, PsyBio may be delayed in obtaining marketing approval, or may never obtain marketing approval.

 

Even if PsyBio’s clinical trials are successfully completed, preclinical and clinical data are often susceptible to varying interpretations and analyses and PsyBio cannot guarantee that the FDA, Health Canada or comparable foreign regulatory authorities will interpret the results as PsyBio does. Accordingly, more trials could be required before PsyBio can submit a future therapeutic candidate for approval. To the extent that the results of the trials are not satisfactory to the FDA, Health Canada or comparable foreign regulatory authorities for support of a marketing application, approval of future therapeutic candidates may be significantly delayed, or PsyBio may be required to expend significant resources, which may not be available, to conduct additional trials. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other jurisdiction. Due to the inherent risk in the development of therapeutic substances, there is a significant likelihood that any future therapeutic candidates will not successfully complete development and receive approval. Many other companies that believed their therapeutic candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for the marketing of their therapy. If PsyBio does not receive regulatory approvals for  future therapeutic candidates, PsyBio may not be able to continue operating. Even if regulatory approval is secured for any future therapeutic candidate, the terms of such approval may limit the scope and use of a specific therapeutic candidate, which may also limit its commercial potential.

Reliance on Third-party Clinical Investigators and Academic Collaborators

PsyBio have relied upon and plan to continue to rely upon third parties, including independent clinical investigators, academic collaborators and third-party CROs, to conduct PsyBio’s preclinical studies and clinical trials and to monitor and manage data for PsyBio’s ongoing preclinical and clinical programs. PsyBio rely on these parties for execution of PsyBio’s preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, PsyBio are responsible for ensuring that each of PsyBio’s studies and trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and PsyBio’s reliance on these third parties does not relieve PsyBio of regulatory responsibilities. PsyBio and PsyBio’s third-party contractors and CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the US FDA, Health Canada and comparable foreign regulatory authorities for all of PsyBio’s therapies in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we, PsyBio’s investigators, academic collaborators or any of PsyBio’s CROs fail to comply with applicable GCPs, the clinical data generated in PsyBio’s clinical trials may be deemed unreliable and the US FDA, Health Canada, or other comparable regulatory authorities  may require PsyBio to perform additional clinical trials before approving PsyBio’s marketing applications. PsyBio cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of PsyBio’s clinical trials comply with GCP regulations. In addition, PsyBio’s clinical trials must be conducted with product produced under cGMP regulations. PsyBio’s failure, or the failure of PsyBio’s third-party contractors and CROs, to comply with these regulations may require PsyBio to repeat clinical trials, which would delay the regulatory approval process and could also subject PsyBio to enforcement action up to and including civil and criminal penalties.

 

Further, these investigators, academic collaborators and CROs are not PsyBio’s employees and PsyBio will not be able to control, other than by contract, the amount of resources, including time, which they devote to PsyBio’s therapeutic candidates or any future therapeutic candidates and clinical trials. If independent investigators, academic collaborators or CROs fail to devote sufficient resources to the development of PsyBio’s therapeutic candidates or any future therapeutic candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of PsyBio’s therapeutic candidates or any future therapeutic candidates that PsyBio develop. In addition, the use of third-party service providers requires PsyBio to disclose PsyBio’s proprietary information to these parties, which could increase the risk that this information will be misappropriated. In addition, investigators, academic collaborators and CROs may have difficulty staffing, undergo changes in priorities or become financially distressed or form relationships with other entities, some of which may be PsyBio’s competitors, any of which materially adversely affect PsyBio’s business.

 

PsyBio’s CROs have the right to terminate their agreements with PsyBio in the event of an uncured material breach. In addition, some of PsyBio’s CROs have an ability to terminate their respective agreements with PsyBio if it can be reasonably demonstrated that the safety of the subjects participating in PsyBio’s clinical trials warrants such termination, if PsyBio make a general assignment for the benefit of PsyBio’s creditors or if PsyBio are liquidated.

 

There is a limited number of third-party service providers that specialize in or have the expertise required to achieve PsyBio’s business objectives. If any of PsyBio’s relationships with these third-party CROs or clinical investigators terminate, PsyBio may not be able to enter into arrangements with alternative CROs, academic collaborators or investigators on commercially reasonable terms or at all. If CROs, academic collaborators or clinical investigators do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to PsyBio’s clinical protocols, regulatory requirements or for other reasons, PsyBio’s clinical trials may be extended, delayed or terminated and PsyBio may not be able to obtain regulatory approval for or successfully commercialize PsyBio’s therapeutic candidates or any future therapeutic candidates. As a result, PsyBio’s results of operations and the commercial prospects for PsyBio’s therapeutic candidates or any future therapeutic candidates would be harmed, PsyBio’s costs could increase and PsyBio’s ability to generate revenue could be delayed.

 

Switching or adding additional CROs (or investigators) involves additional cost and requires management time and focus. In addition, delays occur during the natural transition period when a new CRO commences work, which can materially impact PsyBio’s ability to meet  desired development timelines. Though PsyBio carefully manage PsyBio’s relationships with PsyBio’s CROs, there can be no assurance that PsyBio will not encounter similar challenges or delays in the future, or that these delays or challenges will not have a material adverse impact on PsyBio’s business or financial condition and prospects.

Clinical Trial Publications

 

From time to time, PsyBio may publish interim, top-line or preliminary data from PsyBio’s clinical trials. PsyBio may decide to conduct an interim analysis of the data after a certain number or percentage of subjects have been enrolled, but before completion of the trial. Similarly, PsyBio may report top-line or preliminary results of primary and key secondary endpoints before the final trial results are completed. Interim, top-line and preliminary data from PsyBio’s clinical trials may change as more patient data or analyses become available. Preliminary, top-line or interim data from PsyBio’s clinical trials are not necessarily predictive of final results. Interim, top-line and preliminary data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, more patient data become available and PsyBio issue PsyBio’s final clinical trial report. Interim, top-line and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data PsyBio previously published. As a result, interim, top-line and preliminary data should be viewed with caution until the final data are available. Material adverse changes in the final data compared to the interim data could significantly harm PsyBio’s business prospects.

 

Further, others, including regulatory agencies, may not accept or agree with PsyBio’s assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular therapeutic candidate and PsyBio’s company in general, and regulatory agencies may request further data from us. In addition, you or others may not agree with what PsyBio determine is the material or otherwise appropriate information to include in PsyBio’s disclosure, and any information PsyBio determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular therapeutic candidate. If the top-line data that PsyBio report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, PsyBio’s ability to obtain approval for, and commercialize any future product candidate, PsyBio’s business, operating results, prospects or financial condition may be harmed.

 

Later Stage Clinical Trials Failure

 

Therapeutic candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Furthermore, there can be no assurance that any of PsyBio’s clinical trials will ultimately be successful or support further clinical development of any future therapeutic candidates. There is a high failure rate for drugs proceeding through clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in clinical development even after achieving promising results in earlier studies.

 

Research and development of drugs targeting the central nervous system is particularly difficult, which makes it difficult to predict and understand why the drug has a positive effect on some patients but not others.

 

Discovery and development of new drugs targeting central nervous system, or CNS, disorders are particularly difficult and time-consuming, evidenced by the higher failure rate for new drugs for CNS disorders compared with most other areas of drug discovery. For example, in 2019, both Rapastinel and SAGE-217, two new drugs targeting MDD, failed to meet their primary endpoints in Phase III trials. ALKS 5461, another new drug targeting MDD, was rejected by US FDA in 2019 after its Phase III trials as US FDA required additional clinical data to provide substantial evidence of effectiveness. Any such setbacks in PsyBio’s clinical development could have a material adverse effect on PsyBio’s business and operating results. In addition, PsyBio’s later stage clinical trials may present challenges related to conducting adequate and well-controlled clinical trials, including designing an appropriate comparator arm in trials given the potential difficulties related to maintaining the blinding during the trial or placebo or nocebo effects.

 

Due to the complexity of the human brain and the central nervous system, it can be difficult to predict and understand why a drug may have a positive effect on some patients but not others and why some individuals may react to the drug differently from others.

 

Completion of Clinical Trials

 

As PsyBio’s product candidates advance from preclinical testing to clinical testing, and then through progressively larger and more complex clinical trials, PsyBio will need to enroll an increasing number of patients that meet its eligibility criteria. There is significant competition for recruiting patients in clinical trials, and PsyBio may be unable to enroll the patients it needs to complete clinical trials on a timely basis or at all. The factors that affect PsyBio’s ability to enroll patients are largely uncontrollable and include:

  • the size of the patient population required for analysis of the trial’s primary endpoints and the process for identifying patients;

  • identifying and enrolling eligible patients, including those willing to discontinue use of their existing medications;

  • the design of the clinical protocol and the patient eligibility and exclusion criteria for the trial;

  • safety profile, to date, of the therapeutic candidate under study;

  • the willingness or availability of patients to participate in PsyBio’s trials, including due to the perceived risks and benefits, stigma or other side effects of use of a controlled substance;

  • the willingness or availability of patients to participate in PsyBio’s trials, including due to impacts of the COVID-19 pandemic;

  • perceived risks and benefits of PsyBio’s approach to treatment of indication;

  • the proximity of patients to clinical sites;

  • PsyBio’s ability to recruit clinical trial investigators with the appropriate competencies and experience;

  • the availability of competing clinical trials;

  • the availability of new drugs approved for the indication the clinical trial is investigating;

  • clinicians’ and patients’ perceptions of the potential advantages of the drug being studied in relation to other available therapies, including any new therapies that may be approved for the indications PsyBio are investigating; and

  • PsyBio’s ability to obtain and maintain patient informed consents.

Even once enrolled, PsyBio may be unable to retain a sufficient number of patients to complete any of PsyBio’s trials.

 

In addition, any negative results PsyBio may report in clinical trials of any future therapeutic candidates may make it difficult or impossible to recruit and retain patients in other clinical trials of that same therapeutic candidate. Delays in the enrollment for any clinical trial of any future therapeutic candidates will likely increase PsyBio’s costs, slow down the approval process and delay or potentially jeopardize PsyBio’s ability to commence sales of future products. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of future therapeutic candidates.

Further, timely enrollment in clinical trials is reliant on clinical trial sites which may be adversely affected by global health matters, including, among other things, pandemics. For example, PsyBio’s clinical trial sites may be located in regions  affected by the COVID-19 pandemic or which may in the future be impacted by this or other pandemics. Some factors from the COVID-19 pandemic that PsyBio believe may adversely affect enrollment in PsyBio’s trials include:

  • the diversion of healthcare resources away from the conduct of clinical trial matters to focus on pandemic concerns, including the attention of infectious disease physicians serving as PsyBio’s clinical trial investigators, hospitals serving as PsyBio’s clinical trial sites and hospital staff supporting the conduct of PsyBio’s clinical trials;

  • the limitation of available participants for PsyBio’s trials;

  • the inability of patients, therapists or physicians to come to hospitals and universities to participate in PsyBio’s trials, leading to delays and increased costs;

  • limitations on travel that interrupt key trial activities, such as clinical trial site initiations and monitoring and patient preparation and integration sessions;

  • interruption in global shipping affecting the transport of clinical trial materials, such as investigational drug product and comparator drugs used in PsyBio’s trials; and

  • employee furlough days that delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with the virus or could continue to spread to additional countries, each of which may further adversely impact PsyBio’s clinical trials. The global outbreak of COVID-19 continues to evolve and the conduct of PsyBio’s trials may continue to be adversely affected, despite efforts to mitigate this impact.

 

Lack of Commercialization Experience

 

While PsyBio plans to assemble a sales and marketing infrastructure, PsyBio have limited organizational experience in the sale or marketing of therapeutic candidates. To achieve commercial success for any approved therapy, PsyBio must develop or acquire a sales and marketing organization, outsource these functions to third parties or enter into partnerships.

 

If a PsyBio product is approved for commercial sale, PsyBio will establish its own market access and commercialization capabilities in primary markets in North America. In select geographies, PsyBio might also consider relying on the support of a Contract Sales Organization, or CSO, or enter into commercialization arrangements with companies with relevant commercialization capabilities. There are risks involved in establishing PsyBio’s own sales and marketing capabilities, as well as with entering into arrangements with third parties to perform these services. Even if PsyBio establish sales and marketing capabilities, PsyBio may fail to launch PsyBio’s therapies effectively or to market PsyBio’s therapies effectively since PsyBio have limited organizational experience in the sales and marketing of therapeutic substances. In addition, recruiting and training a sales force is expensive and time-consuming, and could delay any therapeutic launch. In the event that any such launch is delayed or does not occur for any reason, PsyBio would have prematurely or unnecessarily incurred these commercialization expenses, and PsyBio’s investment would be lost if PsyBio cannot retain or reposition PsyBio’s sales and marketing personnel. Factors that may inhibit PsyBio’s efforts to commercialize PsyBio’s therapies on PsyBio’s own include:

  • PsyBio’s inability to train an adequate number of therapists to meet the demand for psilocybin therapy;

  • the ability of PsyBio’s therapists to perform their roles consistently with PsyBio’s training and PsyBio’s guidelines for the administration of PsyBio’s future therapeutic products;

  • PsyBio’s inability to recruit, train and retain effective market access and commercial personnel;

  • the inability of commercial personnel to obtain access to or educate adequate numbers of physicians on the benefits of prescribing any future therapies;

  • PsyBio’s inability to identify a sufficient number of treatment centers in third-party therapy sites to meet the demands of PsyBio’s therapies;

  • the lack of complementary therapies to be offered by PsyBio’s commercial personnel, which may put PsyBio at a competitive disadvantage relative to companies with more extensive therapeutic lines;

  • unforeseen costs and expenses associated with creating an independent market access and commercial organization; and

  • costs of market access and commercialization above those anticipated by PsyBio.

If PsyBio enter into arrangements with third parties to perform market access and commercial services for any approved therapies, the revenue or the profitability of these revenue toPsyBio could be lower than if PsyBio were to commercialize any therapies that PsyBio develop ourselves. Such collaborative arrangements may place the commercialization of any approved therapies outside of PsyBio’s control and would makePsyBio subject to a number of risks including that PsyBio may not be able to control the amount or timing of resources that PsyBio’s collaborative partner devotes to PsyBio’s therapies or that PsyBio’s collaborator’s willingness or ability to complete its obligations, and PsyBio’s obligations under PsyBio’s arrangements may be adversely affected by business combinations or significant changes in PsyBio’s collaborator’s business strategy. PsyBio may not be successful in entering into arrangements with third parties to commercialize PsyBio’s therapies or may be unable to do so on terms that are favorable to PsyBio. Acceptable third parties may fail to devote the necessary resources and attention to commercialize PsyBio’s therapies effectively, to set up sufficient number of treatment centers in third-party therapy sites, or to recruit, train and retain adequate number of therapists to administer PsyBio’s therapies. In addition, PsyBio are exploring ways in which PsyBio can use digital technology to improve the patient experience and therapeutic outcomes of PsyBio’s therapies. Commercialization partners may lack incentives to promote PsyBio’s digital technology and PsyBio may face difficulties in implementing PsyBio’s digital technologies in third-party therapy sites through such third parties.

 

If PsyBio do not establish commercial capabilities successfully, either on PsyBio’s own or in collaboration with third parties, PsyBio may not be successful in commercializing PsyBio’s therapies, which in turn would have a material adverse effect on PsyBio’s business, prospects, financial condition and results of operations.

 

Nature of Regulatory Approvals

PsyBio’s development and commercialization activities and product candidates are significantly regulated by a number of governmental entities, including Health Canada and the US FDA. Regulatory approvals are required prior to each clinical trial and PsyBio may fail to obtain the necessary approvals to commence or continue clinical testing. PsyBio must comply with regulations concerning the manufacture, testing, safety, effectiveness, labeling, documentation, advertising, and sale of products and product candidates and ultimately must obtain regulatory approval before it can commercialize a product candidate. The time required to obtain approval by such regulatory authorities is unpredictable but typically takes many years following the commencement of preclinical studies and clinical trials. Any analysis of data from clinical activities PsyBio performs is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Even if PsyBio believes results from its clinical trials are favorable to support the marketing of its product candidates, Health Canada, the US FDA or other regulatory authorities may disagree. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions.

 

PsyBio has not obtained regulatory approval for any product candidate and it is possible that none of its existing product candidates or any future product candidates will ever obtain regulatory approval. PsyBio could fail to receive regulatory approval for its product candidates for many reasons, including:

  • the US FDA, Health Canada, or other comparable regulatory authorities may disagree with, question or request changes in the design or implementation of PsyBio’s clinical trials;

  • the US FDA, Health Canada, or other comparable regulatory authorities may determine that any future therapeutic candidates are not safe and effective, only moderately effective, or have undesirable or unintended side effects, toxicities, or other characteristics that preclude PsyBio’s obtaining marketing approval or prevent or limit commercial use;

  • the results of clinical trials may not meet the level of statistical significance required by the US FDA, Health Canada, or other comparable regulatory authorities  for approval;

  • PsyBio may be unable to demonstrate that PsyBio’s therapeutic candidate’s clinical and other benefits outweigh its safety risks;

  • the US FDA, Health Canada, or other comparable regulatory authorities  may disagree with PsyBio’s interpretation of data from preclinical studies or clinical trials;

  • the data collected from clinical trials of PsyBio’s product candidates may not be sufficient to support the submission of an NDA or other submission, or to obtain regulatory approval in the United States or elsewhere;

  • the US FDA, Health Canada, or other comparable regulatory authorities  may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which PsyBio contract for clinical and commercial supplies;

  • the approval policies or regulations of the US FDA, Health Canada, or other comparable regulatory authorities  may significantly change in a manner rendering PsyBio’s clinical data insufficient for approval; and

  • the potential risk of PsyBio’s novel therapy and delivery method, including the use of third-party clinical trial sites and therapists.

 

A regulatory authority may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and PsyBio’s commercialization plans, or PsyBio may decide to abandon the development program. If PsyBio were to obtain approval, regulatory authorities may approve any of its product candidates for fewer or more limited indications than PsyBio request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Moreover, depending on any safety issues associated with PsyBio’s product candidates that garner approval, Health Canada, the US FDA or other regulatory authorities may impose a risk evaluation and mitigation strategy, thereby imposing certain restrictions on the sale and marketability of such products.

 

In addition, even if PsyBio were to obtain approval, regulatory or pricing authorities may approve any future product candidates for fewer or more limited indications than PsyBio request, may not approve the price PsyBio intend to charge for PsyBio’s therapies, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a therapeutic candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that therapeutic candidate.

 

Continued Regulatory Review and Obligations

 

If the US FDA, Health Canada, or any other comparable regulatory authority approves any PsyBio therapeutic candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the therapy and underlying therapeutic substance will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMPs, and with good clinical practices, or GCPs, for any clinical trials that PsyBio conduct post-approval, all of which may result in significant expense and limit PsyBio’s ability to commercialize such therapies. Later discovery of previously unknown problems with any approved therapeutic candidate, including adverse events of unanticipated severity or frequency, or with PsyBio’s third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

  • restrictions on the labeling, distribution, marketing or manufacturing of any future therapeutic candidates, withdrawal of the product from the market, or product recalls;

  • untitled and warning letters, or holds on clinical trials;

  • refusal by the US FDA, Health Canada, other foreign regulatory body to approve pending applications or supplements to approved applications PsyBio filed or suspension or revocation of license approvals;

  • requirements to conduct post-marketing studies or clinical trials;

  • restrictions on coverage by third-party payors;

  • fines, restitution or disgorgement of profits or revenue;

  • suspension or withdrawal of marketing approvals;

  • product seizure or detention, or refusal to permit the import or export of the product; and

  • injunctions or the imposition of civil or criminal penalties.

In addition, any regulatory approvals that PsyBio receive for any future therapeutic candidates may also be subject to limitations on the approved indicated uses for which the therapy may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of such therapeutic candidates.

 

If there are changes in the application of legislation, regulations or regulatory policies, or if problems are discovered with PsyBio’s future products or PsyBio’s manufacture of an underlying therapeutic substance, or if PsyBio or one of PsyBio’s distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include imposing fines on us, imposing restrictions on the therapeutic or its manufacture and requiring PsyBio to recall or remove the therapeutic from the market. The regulators could also suspend or withdraw PsyBio’s marketing authorizations, requiring PsyBio to conduct additional clinical trials, change PsyBio’s therapeutic labeling or submit additional applications for marketing authorization. If any of these events occurs, PsyBio’s ability to sell such therapy may be impaired, and PsyBio may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect PsyBio’s business, financial condition and results of operations.

 

Achieving Publicly Announced Milestones

 

From time to time, PsyBio may announce the timing of certain events it expects to occur, such as the anticipated timing of results from its clinical trials. These statements are forward-looking and are based on the best estimates of management at the time relating to the occurrence of such events. However, the actual timing of such events may differ from what has been publicly disclosed. The timing of events such as initiation or completion of a clinical trial, filing of an application to obtain regulatory approval, or announcement of additional clinical trials for a product candidate may ultimately vary from what is publicly disclosed.

 

PsyBio undertakes no obligation to update or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, except as otherwise required by-law. Any variation in the timing of previously announced milestones could have a material adverse effect on PsyBio’s business plan, financial condition or operating results and the trading price of Resulting Issuer Shares.

 

Market Access and Acceptance

 

PsyBio may never have a therapy that is commercially successful. To date, PsyBio has no therapy authorized for marketing. PsyBio’s future therapeutic products requires further clinical investigation, regulatory review, significant market access and marketing efforts and substantial investment before it can produce any revenue. Furthermore, if approved, PsyBio’s therapy may not achieve an adequate level of acceptance by payors, health technology assessment bodies, healthcare professionals, patients and the medical community at large, and PsyBio may not become profitable. The level of acceptance PsyBio ultimately achieve may be affected by negative public perceptions and historic media coverage of psychedelic substances, including psilocybin. Because of this history, efforts to educate the medical community and third-party payors and health technologies assessment bodies on the benefits of PsyBio’s therapeutic compounds may require significant resources and may never be successful, which would prevent PsyBio from generating significant revenue or becoming profitable. Market acceptance of PsyBio’s future therapies by healthcare professionals, patients, healthcare payors and health technology assessment bodies will depend on a number of factors, many of which are beyond PsyBio’s control, including, but not limited to, the following:

  • acceptance by healthcare professionals, patients and healthcare payors of each therapy as safe, effective and cost-effective;

  • changes in the standard of care for the targeted indications for any therapeutic candidate;

  • the strength of sales, marketing and distribution support;

  • potential product liability claims;

  • the therapeutic candidate’s relative convenience, ease of use, ease of administration and other perceived advantages over alternative therapies;

  • the prevalence and severity of adverse events or publicity;

  • limitations, precautions or warnings listed in the summary of therapeutic characteristics, patient information leaflet, package labeling or instructions for use;

  • the cost of treatment with PsyBio’s therapy in relation to alternative treatments;

  • the steps that prescribers and dispensers must take, as well as the perceived risks based upon its controlled substance status;

  • the ability to manufacture PsyBio’s product in sufficient quantities and yields;

  • the availability and amount of coverage and reimbursement from healthcare payors, and the willingness of patients to pay out of pocket in the absence of healthcare payor coverage or adequate reimbursement;

  • the willingness of the target patient population to try, and of healthcare professionals to prescribe, the therapy;

  • any potential unfavorable publicity, including negative publicity associated with recreational use or abuse of psilocybin;

  • any restrictions on the use, sale or distribution of PsyBio’s future therapeutic candidates, including through REMS;

  • the extent to which therapies are approved for inclusion and reimbursed on formularies of hospitals and managed care organizations; and

  • whether PsyBio’s therapies are designated under physician treatment guidelines or under reimbursement guidelines as a first-line, second-line, third-line or last-line therapy.

If PsyBio’s future therapeutic candidates fail to gain market access and acceptance, this will have a material adverse impact on PsyBio’s ability to generate revenue to provide a satisfactory, or any, return on PsyBio’s investments. Even if some therapies achieve market access and acceptance, the market may prove not to be large enough to allow PsyBio to generate significant revenue.

Reliance on Third-party Therapy Sites

If PsyBio are able to commercialize PsyBio’s future therapies, PsyBio’s success will be dependent upon PsyBio’s ability to identify, qualify, prepare, certify and support third-party therapy sites that offer and administer PsyBio’s therapies. PsyBio’s commercial model of delivering PsyBio’s therapeutic products will also involve third-party therapists before, during and after the psilocybin dosing session, which will be hosted in one of the third-party therapy sites. PsyBio intend to commercialize any future therapeutic candidates by building close relationships with qualified third-party therapy sites where these therapists will administer PsyBio’s future therapeutic products. Because PsyBio intend to work only with third party sites and providers who agree to adhere strictly to PsyBio’s treatment protocols, PsyBio may face limitations on the number of sites available to administer PsyBio’s future therapeutic candidate. Any such limitations could make it impracticable or impossible for some potential patients to access PsyBio’s future therapeutic candidate, if approved, which could limit the overall size of PsyBio’s potential patient population and harm PsyBio’s future results of operations. Although PsyBio plan to develop Centers of Excellence to train and certify such third-party therapy sites, conduct further research on and continuously improve PsyBio’s treatment protocol, PsyBio expect this to involve significant costs, time and resources, and PsyBio’s efforts may not be successful.

 

If PsyBio are unable to establish a sufficient network of third-party therapy sites certified under applicable standards, including regional, national, state or other applicable standards as needed to render psilocybin therapeutic services, including the certifications that such third-party therapy sites may require, it would have a material adverse effect on PsyBio’s business and ability to grow and would adversely affect PsyBio’s results of operations and commercialization efforts. PsyBio expect the therapists to be employed by the third-party therapy sites where the therapists administer PsyBio’s therapies. Third-party therapy sites could, for a number of reasons, demand higher payments for PsyBio’s therapies or take other actions to increase their income from selling PsyBio’s therapies, which could result in higher costs for payors and for PsyBio’s patients to get access to PsyBio’s therapies. For example, legal regimes may have higher levels of licensure which forcePsyBio to contract with third-party therapy sites that demand higher payment rates to provide psilocybin therapeutic services. In addition, third-party therapy sites may have difficulty meeting regulatory or accreditation requirements.

 

Given the novel nature of PsyBio’s treatment, third-party therapy sites may face additional financial and administrative burdens in order to deliver any approved therapy, including adhering to a REMS plan in the United States. The process for a third-party therapy site to obtain a certificate under a REMS plan can be very costly and time-consuming, which could delay a third-party therapy site’s ability to provide PsyBio’s therapies and materially adversely affect PsyBio’s commercialization trajectory. Furthermore, third-party therapy sites will need to ensure that they have the necessary infrastructure and equipment in order to deliver PsyBio’s future therapeutic candidate, such as adequate audio-visual equipment, ancillary equipment and sufficient treatment rooms. This may deter third-party therapy sites from providing PsyBio’s therapeutic candidate and reduce PsyBio’s ability to expand PsyBio’s network and generate revenue. PsyBio’s ability to develop and maintain satisfactory relationships with third-party therapy sites may otherwise be negatively impacted by other factors not associated with PsyBio’s operations and, in some instances, outside of PsyBio’s direct or indirect control, such as negative perceptions regarding the therapeutic use of psilocybin, changes in Medicare and/or Medicaid or commercial payors reimbursement levels and other pressures on healthcare providers and consolidation activity among hospitals, physician groups and the providers. Reimbursement levels may be inadequate to cover third-party therapy sites’ costs of delivering PsyBio’s future therapeutic candidate. The failure to maintain or to secure new cost-effective contracts with third-party therapy sites may result in a loss of or inability to grow PsyBio’s network of third-party therapy sites, patient base, higher costs to PsyBio’s patients and us, healthcare provider network disruptions and/or difficulty in meeting regulatory or accreditation requirements, any of which could have a material adverse effect on PsyBio’s business, financial condition and results of operations.

Reliance on Third Party Suppliers and Manufacturers

 

PsyBio do not currently have, nor do PsyBio plan to acquire, the infrastructure or capability necessary to manufacture therapeutic candidates, including the psilocybin and psilocin incorporated into such therapeutic candidates. PsyBio rely on, and expect to continue to rely on, contract manufacturing organizations, or CMOs, for the development, manufacture and production of the psilocybin and psilocin used in PsyBio’s investigational therapies administered in PsyBio’s clinical trials and will continue to rely on such CMOs for the development, manufacture and production of any commercial supply, if PsyBio’s investigational therapies are approved. Currently, PsyBio engage with multiple different CMOs for all activities relating to the development, manufacture and production of all components. Reliance on third-party providers, such as CMOs, exposes PsyBio to more risk than if PsyBio were to manufacture therapeutic compounds, or any future therapeutic candidates. PsyBio do not control the manufacturing processes of the CMOs PsyBio contract with and are dependent on those third parties for the production of any future therapeutic candidates in accordance with relevant regulations (such as the US FDA’s good laboratory practices, or GLP, cGMPs or similar regulatory requirements outside the US) for the manufacture of drug substances, which includes, among other things, quality control, quality assurance and the maintenance of records and documentation. Some of the suppliers currently engaged in the production process of COMP360, including PsyBio’s current supplier of API, have not in the past been subject to inspection by the US FDA and/ or EMA and there can be no assurance that it is in compliance with all applicable regulations. PsyBio’s failure, or the failure of third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on PsyBio, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of COMP360 or any future therapeutic candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of any future therapeutic candidates and harm PsyBio’s business and results of operations.

 

If PsyBio were to experience an unexpected loss of supply of or if any supplier were unable to meet PsyBio’s demand for any future therapeutic candidates, PsyBio could experience delays in PsyBio’s research or planned clinical studies or commercialization. In addition, quality issues may arise during scale-up activities. PsyBio could be unable to find alternative suppliers of acceptable quality, in the appropriate volumes and at an acceptable cost. For example, the extent to which the COVID-19 pandemic impacts PsyBio’s ability to procure sufficient supplies for the development of PsyBio’s therapeutic candidates or any future therapeutic candidates will depend on the severity and duration of the spread of the virPsyBio, and the actions undertaken to contain COVID-19 or treat its effects. Moreover, PsyBio’s suppliers are often subject to strict manufacturing requirements and rigorous testing requirements, which could limit or delay production. The long transition periods necessary to switch manufacturers and suppliers approved, which would materially adversely affect PsyBio’s business, prospects, financial condition and results of operations.

 

In complying with the manufacturing regulations of the US FDA, the DEA, Health Canada and other comparable foreign authorities, PsyBio and PsyBio’s third-party suppliers must spend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that the therapies meet applicable specifications and other regulatory requirements. The failure to comply with these requirements could result in an enforcement action against PsyBio, including the seizure of therapies and shutting down of production, any of which could materially adversely affect PsyBio’s business, prospects, financial condition and results of operations. PsyBio and any of these third-party suppliers may also be subject to audits by the US FDA, the DEA, Health Canada or other comparable foreign authorities. If any of PsyBio’s third-party suppliers fails to comply with cGMP or other applicable manufacturing regulations, PsyBio’s ability to develop and commercialize the therapies could suffer significant interruptions. PsyBio face risks inherent in relying on a limited number of CMOs, as any disruption, such as a fire, natural hazards or vandalism at the CMO could significantly interrupt PsyBio’s manufacturing capability. PsyBio currently do not have disaster recovery facilities available. In case of a disruption, PsyBio will have to establish alternative manufacturing sources. This would require substantial capital on PsyBio’s part, which PsyBio may not be able to obtain on commercially acceptable terms or at all, and PsyBio would likely experience months of manufacturing delays as PsyBio build or locate replacement facilities and seek and obtain necessary regulatory approvals. If this occurs, PsyBio will be unable to satisfy manufacturing needs on a timely basis or at all. In addition, operating any new facilities may be more expensive than operating PsyBio’s current facility, and business interruption insurance may not adequately compensate PsyBio for any losses that may occur, in which case PsyBio would have to bear the additional cost of any disruption. For these reasons, a significant disruptive event of the manufacturing facility could have a material adverse effect on PsyBio’s business, including placing PsyBio’s financial stability at risk.

 

Changes in Methods of Manufacturing

 

As therapeutic candidates are developed through preclinical studies to late-stage clinical trials towards potential approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, may be altered along the way in an effort to optimize processes and results. Any of these changes could cause PsyBio’s future therapeutic candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the materials manufactured using altered processes. Such changes may also require additional testing, US FDA notification or US FDA approval. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of any future therapeutic candidates and jeopardize PsyBio’s ability to commence product sales and generate revenue.

 

Receiving Regulatory Designations May not be Productive

 

For drugs that have been designated as breakthrough therapies, interaction and communication between the US FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the US FDA may also be eligible for accelerated approval.

 

Designation as a breakthrough therapy is within the discretion of the US FDA. Accordingly, even if PsyBio believe any future therapeutic candidates meets the criteria for designation as a breakthrough therapy, the US FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for product candidates and any future therapeutic candidates may not result in a faster development process, review or approval compared to drugs considered for approval under non-expedited US FDA review procedures and does not assure ultimate approval by the US FDA. In addition, even if PsyBio’s therapies are eventually designated as a breakthrough therapy, the US FDA may later decide that it, or any future therapeutic candidates that are designated by US FDA as breakthrough therapies, no longer meet the conditions for qualification.

 

PsyBio may seek Fast Track designation for any future therapeutic candidates. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for Fast Track designation. The US FDA has broad discretion whether or not to grant this designation, so even if PsyBio believes a particular therapeutic candidate is eligible for this designation, PsyBio cannot assure you that the US FDA would decide to grant it. Even if PsyBio receive Fast Track designation for any future therapeutic candidates, PsyBio may not experience a faster development process, review or approval compared to non-expedited US FDA review procedures. In addition, the US FDA may withdraw Fast Track designation for any therapeutic candidate that is granted Fast Track designation if it believes that the designation is no longer supported by data from PsyBio’s clinical development program.

 

Failure to Enter Into Profitable Relationships

 

PsyBio may enter into collaborations with pharmaceutical companies or others for the discovery, development and/or commercialization of future therapeutic candidates or research programs. If PsyBio fail to enter into or maintain collaborations on reasonable terms, PsyBio’s ability to discover and develop future therapeutic candidates and research programs could be delayed or become more costly. Any future collaborations may subject PsyBio to a number of risks, including the following:

  • the inability to control the amount and timing of resources that PsyBio’s collaboration partner devotes to PsyBio’s future research programs and therapeutic candidates;

  • for collaboration agreements where PsyBio may be solely or partially responsible for funding development expenses through a defined milestone event, PsyBio may never recoup the costs of these investments if the therapeutic candidate fails to achieve regulatory approval or commercial success;

  • PsyBio may rely on the information and data received from third parties regarding their research programs and therapeutic candidates without independent verification;

  • PsyBio may not have control of the process conducted by the third party in gathering and composing data regarding their research programs and therapeutic candidates and PsyBio may not have formal or appropriate guarantees with respect to the quality and the completeness of such data;

  • PsyBio may not have sufficient funds to satisfy any milestone, royalty or other payments PsyBio may oPsyBio to any third party collaborator;

  • PsyBio’s collaboration agreements may contain non-competition provisions which place restrictions on PsyBio’s business operations and the therapeutic candidates and/or indications PsyBio may pursue;

  • a collaborative partner may develop or commercialize a competing therapeutic candidate either by itself or in collaboration with others, including one or more of PsyBio’s competitors;

  • PsyBio’s collaborative partners’ willingness or ability to complete their obligations under PsyBio’s collaboration arrangements may be adversely affected by business combinations or significant changes in a collaborative partner’s strategy;

  • PsyBio’s collaborative partners may experience delays in, or increases in the costs of, the discovery and development of PsyBio’s future therapeutic candidates and research programs and PsyBio may be required to pay for any cost increases;

  • PsyBio may have disagreements with collaborative partners, including disagreements over proprietary rights, selection of lead therapeutic candidates, contract interpretation or the preferred course of development that might cause delays or termination of the research, development or commercialization of therapeutic candidates, might lead to additional responsibilities forPsyBio with respect to therapeutic candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

  • PsyBio’s collaborative partners may not properly obtain, maintain, defend or enforce intellectual property rights; and

  • PsyBio’s collaborative partners may infringe, misappropriate or otherwise violate the intellectual property rights of third parties, which may expose PsyBio to litigation and potential liability.

PsyBio may face significant competition in seeking appropriate collaborative partners. PsyBio’s ability to reach a definitive agreement for a collaborative partnership depends, among other things, upon PsyBio’s assessment of a potential collaborator’s resources and expertise, the terms and conditions of the proposed partnership and the potential collaborator’s evaluation of a number of factors. Proposing, negotiating, and implementing collaborations, licensing arrangements, joint ventures, strategic alliances, or partnerships may be a lengthy and complex process. PsyBio have limited institutional knowledge and experience with respect to such activities and PsyBio may also not realize the anticipated benefits of any such transaction or arrangement.

Should any of the foregoing risks materialize, any collaborations PsyBio enter into could fail to result in the development of commercially viable therapeutic candidates or the generation of future revenue, which could have a material adverse effect on PsyBio’s business.

 

Unfavourable Publicity or Consumer Perception

 

PsyBio believes the psychedelic industry is highly dependent upon consumer perception regarding the safety, efficacy and quality of psychedelic products. Consumer perception of PsyBio’s psychedelic products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of psychedelics. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favourable to the psychedelic industry or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favourable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for PsyBio’s psychedelic products and the business, results of operations, financial condition and cash flows of PsyBio. PsyBio’s dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on PsyBio, the demand for PsyBio’s psychedelic products, and the business, results of operations, financial condition and cash flows of PsyBio. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of psychedelic products in general, or PsyBio’s psychedelic products and services specifically, or associating the consumption of truffles with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products legally, appropriately or as directed.

 

The psilocybin industry is highly dependent upon consumer perception regarding the medical benefits, safety, efficacy and quality of the psilocybin distributed for medical purposes to such consumers. There can be no assurance that future scientific research or findings on the medical benefits, viability, safety, efficacy and dosing of psilocybin or isolated constituents, regulatory proceedings, litigation, media attention or other research findings or publicity will be favourable to the industry or PsyBio or any particular product, or consistent with earlier publicity.

Biotechnology and Pharmaceutical Market Competition

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. PsyBio’s competitors include large, well-established pharmaceutical companies, biotechnology companies, and academic and research institutions developing therapeutics for the same indications PsyBio is targeting and competitors with existing marketed therapies. Many other companies are developing or commercializing therapies to treat the same diseases or indications for which PsyBio’s product candidates may be useful. Although there are no approved therapies that specifically target opioid addiction, some competitors use therapeutic approaches that may compete directly with PsyBio’s product candidates.

Many of PsyBio’s competitors have substantially greater financial, technical and human resources than PsyBio does and have significantly greater experience than PsyBio in conducting preclinical testing and human clinical trials of product candidates, scaling up manufacturing operations and obtaining regulatory approvals of products. Accordingly, PsyBio’s competitors may succeed in obtaining regulatory approval for products more rapidly than PsyBio does. PsyBio’s ability to compete successfully will largely depend on:

  • the efficacy and safety profile of its product candidates relative to marketed products and other product candidates in development;

  • PsyBio’s ability to develop and maintain a competitive position in the product categories and technologies on which it focuses;

  • the time it takes for PsyBio’s product candidates to complete clinical development and receive marketing approval;

  • PsyBio’s ability to obtain required regulatory approvals;

  • PsyBio’s ability to commercialize any of its product candidates that receive regulatory approval;

  • PsyBio’s ability to establish, maintain and protect intellectual property rights related to its product candidates; and

  • acceptance of any of PsyBio’s product candidates that receive regulatory approval by physicians and other healthcare providers and payers.

Competitors have developed and may develop technologies that could be the basis for products that challenge the discovery research capabilities of products PsyBio is developing. Some of those products may have an entirely different approach or means of accomplishing the desired therapeutic effect than PsyBio’s product candidates and may be more effective or less costly than its product candidates. The success of PsyBio’s competitors and their products and technologies relative to PsyBio’s technological capabilities and competitiveness could have a material adverse effect on the future preclinical studies and clinical trials of PsyBio’s product candidates, including its ability to obtain the necessary regulatory approvals for the conduct of such clinical trials. This may further negatively impact PsyBio’s ability to generate future product development programs using psychedelic inspired compounds.

 

If PsyBio is not able to compete effectively against its current and future competitors, PsyBio’s business will not grow, and its financial condition and operations will substantially suffer.

 

Further, there can be no assurance that potential competitors of PsyBio, which may have greater financial, cultivation, production, sales and marketing experience, and personnel and resources than PsyBio, are not currently developing, or will not in the future develop, products and strategies that are equally or more effective and/or economical as any products or strategies developed by PsyBio or which would otherwise render PsyBio’s business, products and strategies, as applicable, ineffective, or obsolete. Increased competition by larger and better financed competitors could materially and adversely affect the business, financial condition and results of operations of PsyBio.

 

Reliance on Key Executives and Scientists

 

The loss of key members of PsyBio’s staff, could harm PsyBio. PsyBio does not have employment agreements with all members of its staff, although such employment agreements do not guarantee their retention. PsyBio also depends on its scientific and clinical collaborators and advisors, all of whom have outside commitments that may limit their availability to PsyBio. In addition, PsyBio believes that its future success will depend in large part upon its ability to attract and retain highly skilled scientific, managerial, medical, manufacturing, clinical and regulatory personnel, particularly as PsyBio expands its activities and seeks regulatory approvals for clinical trials. PsyBio enters into agreements with its scientific and clinical collaborators and advisors, key opinion leaders and academic partners in the ordinary course of its business. PsyBio also enters into agreements with physicians and institutions who will recruit patients into PsyBio’s clinical trials on its behalf in the ordinary course of its business. Notwithstanding these arrangements, PsyBio faces significant competition for these types of personnel from other companies, research and academic institutions, government entities and other organizations. PsyBio cannot predict its success in hiring or retaining the personnel it requires for continued growth. The loss of the services of any of PsyBio’s executive officers or other key personnel could potentially harm its business, operating results or financial condition.

 

Employee Misconduct

 

PsyBio is exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include failures to comply with Health Canada and the US FDA regulations, provide accurate information to Health Canada and the US FDA, comply with manufacturing standards PsyBio has established, comply with federal and provincial healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to PsyBio. Failure to comply with health and safety laws and regulations may result in additional costs for corrective measures, penalties or in restrictions on PsyBio’s manufacturing operations. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.

 

PsyBio is exposed to the risk that its employees, independent contractors, consultants, service providers and licensors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional undertakings of unauthorized activities, or reckless or negligent undertakings of authorized activities, in each case on PsyBio’s behalf or in its service that violate (i) various laws and regulations, including healthcare laws and regulations, (ii) laws that require the true, complete and accurate reporting of financial information or data, (iii) the terms of PsyBio’s agreements with third parties. Such misconduct could expose PsyBio to, among other things, class actions and other litigation, increased regulatory inspections and related sanctions, and lost sales and revenue or reputational damage.

 

The precautions taken by PsyBio to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting PsyBio from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Such misconduct may result in legal action, significant fines or other sanctions and could result in loss of any regulatory license held by PsyBio at such time. PsyBio may be subject to security breaches at its facilities or in respect of electronic document or data storage, which could lead to breaches of applicable privacy laws and associated sanctions or civil or criminal penalties; events, including those beyond the control of PsyBio. In addition, these events may negatively affect customers’ demand for PsyBio’s products.

 

Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to PsyBio’s reputation. If any such actions are instituted against PsyBio, and PsyBio is not successful in defending itself or asserting its rights, those actions could have a substantial impact on PsyBio’s business and results of operations, including the imposition of substantial fines or other sanctions.

 

Business Expansion and Growth

 

PsyBio intends to grow rapidly and significantly expand its operations within the next twelve (12) to twenty four (24) months. This growth will place a significant strain on PsyBio’s management systems and resources. PsyBio will not be able to implement its business strategy in a rapidly evolving market, without an effective planning and management process. In particular, PsyBio may be required to manage multiple relationships with various strategic industry participants and other third parties, which relationships could be strained in the event of rapid growth. Similarly, a large increase in the number of third party relationships PsyBio has, may lead to management of PsyBio being unable to manage growth effectively. The occurrence of such events may result in PsyBio being unable to successfully identify, manage and exploit existing and potential market opportunities.

PsyBio may in the future seek to expand its pipeline and capabilities by acquiring one or more companies or businesses, entering into collaborations, or in-licensing one or more product candidates. Acquisitions, collaborations and in-licenses involve numerous risks, including, but not limited to substantial cash expenditures, technology development risks, potentially dilutive issuances of equity securities, incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition, difficulties in assimilating the operations of the acquired companies, entering markets in which PsyBio has limited or no direct experience, and potential loss of PsyBio’s key employees or key employees of the acquired companies or businesses.

PsyBio cannot provide assurance that any acquisition, collaboration or in-license will result in short-term or long-term benefits to it. PsyBio may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, PsyBio’s future success would depend in part on its ability to manage the rapid growth associated with some of these acquisitions, collaborations and in-licenses. PsyBio cannot provide assurance that it would be able to successfully combine its business with that of acquired businesses, manage a collaboration or integrate in-licensed product candidates. Furthermore, the development or expansion of PsyBio’s business may require a substantial capital investment by PsyBio.

Product Side Effects

Although existing evidence supports the safety and low toxicity of psilocybin, undesirable side effects that may be caused by any future therapeutic candidates could cause PsyBio or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label, a requirement that PsyBio implement a REMS plan to ensure that the benefits of the therapy outweigh its risks, or the delay or denial of regulatory approval by the US FDA, Health Canada or other comparable foreign authorities. PsyBio or regulatory authorities may also learn of and take similar actions based on side effects related any future therapeutic candidates in studies not conducted by PsyBio, including in investigator-initiated studies or studies conducted by other sponsors, from spontaneous reports of use of psilocybin outside of the clinical trial setting or from safety reports in literature.

 

The results of future clinical studies may show that PsyBio’s therapeutic candidates could cause undesirable or unacceptable side effects or even death. There can be no assurance that deaths or serious side effects will not occur, even in a clinical setting. In the event serious side effects occur, PsyBio’s trials could be suspended or terminated and the US FDA, Health Canada, or other comparable regulatory authorities  could order PsyBio to cease further development of or deny approval of any future therapeutic candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Further, because of the high variability in how different individuals react to psilocybin, certain patients may have negative experiences with the treatment that could subject PsyBio to liability or, if publicized, reputational harm. Any of these occurrences may harm PsyBio’s business, financial condition and prospects significantly.

Clinical trials are conducted in representative samples of the potential patient population which may have significant variability. Even if PsyBio receive regulatory approval for any future therapeutic candidates, PsyBio will have tested them in only a limited number of patients during PsyBio’s clinical trials. Clinical trials are by design based on a limited number of subjects and of limited duration for exposure to the therapy used to determine whether, on a potentially statistically significant basis, the planned safety and efficacy of any such therapeutic candidate can be achieved. As with the results of any statistical sampling, PsyBio cannot be sure that all side effects of any future therapeutic candidates may be uncovered, and it may be the case that only with a significantly larger number of patients exposed to such therapeutic candidate for a longer duration, may a more complete safety profile be identified. Further, even larger clinical trials may not identify rare serious adverse effects or the duration of such studies may not be sufficient to identify when those events may occur

 

There have been other products and therapies that have been approved by the regulatory authorities but for which safety concerns have been uncovered following approval. Such safety concerns have led to labelling changes or withdrawal of therapies from the market, and PsyBio’s therapeutic candidates may be subject to similar risks. PsyBio might have to withdraw or recall future therapeutic candidates from the marketplace. PsyBio may also experience a significant drop in the potential future sales of PsyBio’s any future therapeutic candidates if and when regulatory approvals for such therapy are obtained, experience harm to PsyBio’s reputation in the marketplace or become subject to lawsuits, including class actions. Any of these results could decrease or prevent any sales of PsyBio’s approved therapeutic candidates, if any, or substantially increase the costs and expenses of commercializing and marketing future PsyBio therapeutic candidates.

 

Additionally, if any future PsyBio therapeutic candidates receive marketing approval and PsyBio or others later identify undesirable or unacceptable side effects caused by such therapeutic candidates, a number of potentially significant negative consequences could result, including the following:

  • regulatory authorities may withdraw approvals of such therapies and require PsyBio to take PsyBio’s approved therapeutic candidates, if any, off the market;

  • regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

  • regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that PsyBio implement a REMS plan to ensure that the benefits of the therapeutic candidate outweigh its risks;

  • PsyBio may be required to change the way the therapy is administered, conduct additional clinical trials or change the labeling of the therapeutic candidate;

  • PsyBio may be subject to limitations on how PsyBio may promote the therapeutic candidate;

  • sales of the therapy may decrease significantly;

  • PsyBio may be subject to litigation or product liability claims; and

  • PsyBio’s reputation may suffer.

  • Any of these events could prevent PsyBio or PsyBio’s potential future collaborators from achieving or maintaining market acceptance of the affected therapeutic candidate or could substantially increase commercialization costs and expenses, which in turn could delay or prevent PsyBio from generating significant revenue from the sale of future PsyBio therapeutic candidates.

Product Liability

PsyBio currently does not carry any product liability insurance coverage. Even though PsyBio is not aware of any product liability claims at this time, its business exposes itself to potential product liability, recalls and other liability risks that are inherent in the sale of food products. PsyBio can provide no assurance that such potential claims will not be asserted against it. A successful liability claim or series of claims brought against PsyBio could have a material adverse effect on its business, financial condition and results of operations.

Regardless of the merits or eventual outcome, liability claims may cause, among other things, the following:

  • decreased demand for PsyBio’s therapies due to negative public perception;

  • injury to PsyBio’s reputation;

  • withdrawal of clinical trial participants or difficulties in recruiting new trial participants;

  • initiation of investigations by regulators;

  • costs to defend or settle the related litigation;

  • a diversion of management’s time and PsyBio’s resources;

  • substantial monetary awards to trial participants or patients;

  • recalls, withdrawals or labeling, marketing or promotional restrictions;

  • loss of revenue from therapeutic sales; and

  • the inability to commercialize PsyBio’s therapeutic candidates or any future therapeutic candidates, if approved.

 

Although PsyBio intends to obtain adequate product liability insurance, it cannot provide any assurances that it will be able to obtain or maintain adequate product liability insurance of on acceptable terms, if at all, or that such insurance will provide adequate coverage against potential liabilities. Claims or losses in excess of any product liability cover that may be obtained by PsyBio could have a material adverse effect on its business, financial conditional and results of operations. If a successful product liability claim or series of claims is brought against PsyBio for uninsured liabilities or in excess of insured liabilities, PsyBio’s assets may not be sufficient to cover such claims and PsyBio’s business, financial condition and results of operations could be materially adversely affected.

 

Some of PsyBio’s agreements with third parties might require it to maintain product liability insurance. If PsyBio cannot obtain acceptable amounts of coverage on commercially reasonable terms in accordance with the terms set forth in these agreements, the corresponding agreements would be subject to termination, which could have a material adverse impact on its operations.

 

Although PsyBio intends to obtain adequate product liability insurance, it cannot provide any assurances that it will be able to obtain or maintain adequate product liability insurance on acceptable terms, if at all, or that such insurance will provide adequate coverage against potential liabilities. Claims or losses in excess of any product liability coverage that may be obtained by PsyBio could have a material adverse effect on its business, financial conditional and results of operations.

 

Some of PsyBio’s agreements with third parties might require it to maintain product liability insurance. If PsyBio cannot obtain acceptable amounts of coverage on commercially reasonable terms in accordance with the terms set forth in these agreements, the corresponding agreements would be subject to termination, which could have a material adverse impact on its operations.

Product Recalls

 

Manufacturers, producers 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 labelling disclosure. If any of PsyBio’s products are recalled due to an alleged product defect or for any other reason, PsyBio could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. PsyBio may lose a significant amount of sales 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.

 

If PsyBio’s psychedelic products are not perceived to have the effects intended by the end user, PsyBio’s business may suffer. In general, psychedelic products have minimal long-term data with respect to efficacy, unknown side effects and/or interaction with individual human biochemistry or other supplements or medications. As a result, PsyBio’s psychedelic products could have certain side effects if not used as directed or if taken by an end user that has certain known or unknown medical conditions.

 

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 PsyBio is subject to recall, the image of PsyBio could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for PsyBio’s products and could have a material adverse effect on the results of operations and financial condition of PsyBio. Additionally, product recalls may lead to increased scrutiny of PsyBio’s operations by regulatory agencies, requiring further management attention, potential loss of applicable licenses and potential legal fees and other expenses.

 

Distribution and Supply Chain Interruption

 

PsyBio is susceptible to risks relating to distributor and supply chain interruptions. Distribution in Canada is largely accomplished through independent contractors, therefore, an interruption (e.g., a labour strike) for any length of time affecting such independent contractors may have a significant impact on PsyBio’s ability to sell its products. Supply chain interruptions, including a production or inventory disruption, could impact product quality and availability. Inherent to producing products is a potential for shortages or surpluses in future years if demand and supply are materially different from long-term forecasts.

 

Difficulty to forecast

PsyBio must rely largely on its own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the psychedelic industry. Factors which may change the forecasted demand of PsyBio’s products include, but are not limited to: competition; technological change; non-performance by third party contractors; increases in materials or labour costs; breakdown or failure of equipment; failure of quality control processes; contractor or operator errors; and major incidents and/or catastrophic events such as fires, explosions, earthquakes or storms. As a result, these factors could have a material adverse effect on the business, results of operations and financial condition of PsyBio, and there is a risk that PsyBio may not have the capacity to meet customer demand or to meet future demand when it arises.

 

Promoting the Brand

 

Promoting PsyBio’s brand will be critical to creating and expanding a customer base. Promoting the brand will depend largely on PsyBio’s ability to provide psychedelic products to the market. Further, PsyBio may, in the future, introduce new products or services that its customers do not like, which may negatively affect the brand and reputation. If PsyBio fails to successfully promote its brand or if it incurs excessive expenses in this effort, its business and financial results from operations could be materially adversely affected. The regulatory framework may change at any time creating challenges around branding restrictions for PsyBio.

 

Success of Quality Control Systems

 

The quality and safety of PsyBio’s products are critical to the success of its business and operations. As such, it is imperative that PsyBio (and its service providers’) quality control systems operate effectively and successfully. Quality control systems can be negatively impacted by the design of the quality control systems, the quality of training programs and adherence by employees to quality control guidelines. Any significant failure or deterioration of such quality control systems could have a material adverse effect on PsyBio’s business and operating results.

 

Reliance on key inputs

PsyBio’s business is expected to be dependent on a number of key inputs and their related costs including raw materials and supplies. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of PsyBio. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of PsyBio.

 

Operating Risk and Insurance Coverage

PsyBio does not have insurance to protect its assets, operations and employees. While PsyBio may, in the future obtain insurance coverage to address all material risks to which it is exposed and is adequate and customary in its proposed state of operations, such insurance will be subject to coverage limits and exclusions and may not be available for the risks and hazards to which PsyBio is expected to be exposed. In addition, no assurance can be given that such insurance will be adequate to cover PsyBio’s liabilities or will be generally available in the future, or if available, that premiums will be commercially justifiable. If PsyBio were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if PsyBio were to incur such liability at a time when it is not able to obtain liability insurance, its business, results of operations and financial condition could be materially adversely affected.

 

Costs of Operating as Public Company

 

Assuming the completion of the Transaction, PsyBio will become a public company and incur significant legal, accounting and other expenses. As a public company, PsyBio will be subject to various securities rules and regulations, which impose various requirements on PsyBio, including the requirement to establish and maintain effective disclosure and financial controls and corporate governance practices. PsyBio’s management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase PsyBio’s legal and financial compliance costs and make some activities more time-consuming and costly.

 

Foreign Regulatory Requirements

 

In order to market any products outside of the United States and Canada, PsyBio must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and effectiveness. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional or different administrative review periods from those in the United States and Canada, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a therapeutic candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that PsyBio intend to charge for PsyBio’s products is also subject to approval.

Seeking foreign regulatory approval could result in difficulties and costs and require additional nonclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of therapeutic candidates in those countries. The foreign regulatory approval process may include all of the risks associated with obtaining US FDA or Health Canada approval. PsyBio do not have any therapeutic candidates approved for sale in any jurisdiction, including international markets, and PsyBio do not have experience in obtaining regulatory approval in international markets. If PsyBio 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, PsyBio’s target market will be reduced and PsyBio’s ability to realize the full market potential of PsyBio’s therapeutic candidates will be harmed.

 

Risk Related to Regulatory Compliance

 

Change in Substance Laws or Breach in Compliance of Substance Laws

 

Psilocybin and psilocin are categorized as Schedule I controlled substances under the CSA and are similarly categorized by most states and foreign governments. Even assuming that any future therapeutic candidates containing psilocybin or psilocin are approved and scheduled by regulatory authorities to allow their commercial marketing, the ingredients in such therapeutic candidates would likely continue to be Schedule I, or the state or foreign equivalent. Violations of any federal, state or foreign laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges and penalties, including, but not limited to, disgorgement of profits, cessation of business activities, divestiture, or prison time. This could have a material adverse effect on PsyBio, including on PsyBio’s reputation and ability to conduct business, PsyBio’s financial position, operating results, profitability. In addition, it is difficult for PsyBio to estimate the time or resources that would be needed for the investigation or defense of any such matters or PsyBio’s final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial. It is also illegal to aid or abet such activities or to conspire or attempt to engage in such activities. An investor’s contribution to and involvement in such activities may result in federal civil and/or criminal prosecution, including, but not limited to, forfeiture of his, her or its entire investment, fines and/or imprisonment.

 

Various federal, state, provincial and local laws govern PsyBio’s business in the jurisdictions in which PsyBio operate or currently plan to operate, and to which PsyBio export or currently plan to export PsyBio’s products, including laws relating to health and safety, the conduct of PsyBio’s operations, and the production, storage, sale and distribution of PsyBio’s products. Complying with these laws requires that PsyBio comply concurrently with complex federal, state, provincial and/or local laws. These laws change frequently and may be difficult to interpret and apply. To ensure PsyBio’s compliance with these laws, PsyBio will need to invest significant financial and managerial resources. It is impossible forPsyBio to predict the cost of such laws or the effect they may have on PsyBio’s future operations. A failure to comply with these laws could negatively affect PsyBio’s business and harm PsyBio’s reputation. Changes to these laws could negatively affect PsyBio’s competitive position and the markets in which PsyBio operate, and there is no assurance that various levels of government in the jurisdictions in which PsyBio operate will not pass legislation or regulation that adversely impacts PsyBio’s business.

 

In addition, even if PsyBio or third parties were to conduct activities in compliance with U.S. state or local laws or the laws of other countries and regions in which PsyBio conduct activities, potential enforcement proceedings could involve significant restrictions being imposed upon PsyBio or third parties, while diverting the attention of key executives. Such proceedings could have a material adverse effect on PsyBio’s business, revenue, operating results and financial condition as well as on PsyBio’s reputation and prospects, even if such proceedings conclude successfully in PsyBio’s favor. In the extreme case, such proceedings could ultimately involve the criminal prosecution of PsyBio’s key executives, the seizure of corporate assets, and consequently, PsyBio’s inability to continue business operations. Strict compliance with state and local laws with respect to psilocybin and psilocin does not absolve PsyBio of potential liability under U.S. federal law or Canadian law, nor provide a defense to any proceeding which may be brought against PsyBio. Any such proceedings brought against PsyBio may adversely affect PsyBio’s operations and financial performance.

 

Despite the current status of psilocybin and psilocin as Schedule I controlled substances in the United States, there may be changes in the status of psilocybin or psilocin under the laws of certain U.S. cities or states. For instance, the city of Denver voted to decriminalize the possession of psilocybin in 2019 and there is currently a campaign in Oregon to pass a bill in November 2020 for the legal medical use of “psilocybin products,” including magic mushrooms, to treat mental health conditions in licensed facilities with registered therapists. The legalization of psilocybin without regulatory oversight may lead to the setup of clinics without proper therapeutic infrastructure or adequate clinical research, which could put patients at risk and bring reputational and regulatory risk to the entire industry, making it harder for PsyBio to achieve regulatory approval. Furthermore, the legalization of psilocybin could also impact PsyBio’s commercial sales if PsyBio receive regulatory approval as it would reduce the barrier to entry and could increase competition.

Anti-corruption Laws

PsyBio’s operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where PsyBio do business and may do business in the future. The FCPA and these other laws generally prohibit PsyBio, PsyBio’s officers, and PsyBio’s employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage.

 

The FCPA and these other laws generally prohibit PsyBio and PsyBio’s employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, a financial or other advantage to government officials or other persons to induce them to improperly perform a relevant function or activity (or reward them for such behavior).

 

Compliance with the FCPA, in particular, is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

 

PsyBio may in the future operate in jurisdictions that pose a high risk of potential FCPA violations, and PsyBio may participate in collaborations and relationships with third parties whose actions could potentially subject PsyBio to liability under the FCPA or local anti-corruption laws. In addition, PsyBio cannot predict the nature, scope or effect of future regulatory requirements to which PsyBio’s international operations might be subject or the manner in which existing laws might be administered or interpreted. If PsyBio expand PsyBio’s operations, PsyBio will need to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which PsyBio plan to operate.

 

PsyBio are also subject to other laws and regulations governing PsyBio’s international operations, including regulations administered by the governments of  the U.S. and Canada, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws. In addition, various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If PsyBio’s presence outside of the U.S. is expanded, it will require PsyBio to dedicate additional resources to comply with these laws, and these laws may preclude PsyBio from manufacturing therapeutic products and developing and selling PsyBio’s such products or any future therapeutic candidates outside of the United States, which could limit PsyBio’s growth potential and increase PsyBio’s development costs.

 

There is no assurance that PsyBio will be completely effective in ensuring PsyBio’s compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, including Trade Control laws. If PsyBio are not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, PsyBio may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on PsyBio’s business, financial condition, results of operations and liquidity. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Any investigation of any potential violations of the FCPA, other anti-corruption laws or Trade Control laws by the U.S. or other authorities could also have an adverse impact on PsyBio’s reputation, PsyBio’s business, results of operations and financial condition.

 

U.S. Federal and State Forfeiture Laws

Violations of any U.S. federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, seizure of assets, disgorgement of profits, cessation of business activities or divestiture. As an entity that conducts business involving psilocybin and psilocin, PsyBio are potentially subject to federal and state forfeiture laws (criminal and civil) that permit the government to seize the proceeds of criminal activity. Civil forfeiture laws could provide an alternative for the federal government or any state (or local police force) that wants to discourage residents from conducting transactions with psilocybin- and psilocin-related businesses but believes criminal liability is too difficult to prove beyond a reasonable doubt. Also, an individual can be required to forfeit property considered to be the proceeds of a crime even if the individual is not convicted of the crime, and the standard of proof in a civil forfeiture matter is lower than the standard in a criminal matter. Depending on the applicable law, whether federal or state, rather than having to establish liability beyond a reasonable doubt, the federal government or the state, as applicable, may be required to prove that the money or property at issue is proceeds of a crime only by either clear and convincing evidence or a mere preponderance of the evidence.

 

Investors located in jurisdictions where psilocybin and psilocin remains illegal may be at risk of prosecution under conspiracy, aiding and abetting, and money laundering statutes, and be at further risk of losing their investments or proceeds under forfeiture statutes. Many jurisdictions remain fully able to take action to prevent the proceeds of psilocybin and psilocin businesses from entering their state. PsyBio’s investors and prospective investors should be aware of these potentially relevant laws in considering whether to invest in PsyBio.

Certain Tax Risks and Treatments

 

Section 280E of the Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the CSA). The U.S. Internal Revenue Service, or IRS, has invoked Section 280E in tax audits against various businesses in the United States that are permitted under applicable state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E favorable to psilocybin and psilocin businesses.

 

Changes in Global Tax Systems

 

PsyBio conduct business globally and file income tax returns in multiple jurisdictions. PsyBio’s consolidated effective income tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof; tax policy initiatives and reforms under consideration (such as those related to the Organisation for Economic Co-Operation and Development’s, or OECD, Base Erosion and Profit Shifting, or BEPS, Project, the European Commission’s state aid investigations and other initiatives); the practices of tax authorities in jurisdictions in which PsyBio operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid.

 

PsyBio are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on PsyBio’s business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which PsyBio operate, could increase the estimated tax liability that PsyBio have expensed to date and paid or accrued on PsyBio’s balance sheets, and otherwise affect PsyBio’s financial position, future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where PsyBio have operations, reduce post-tax returns to PsyBio’s shareholders and increase the complexity, burden and cost of tax compliance.

 

Disagreement with Tax Authorities

 

A tax authority may disagree with tax positions that PsyBio have taken, which could result in increased tax liabilities. Tax authorities could assert that PsyBio are subject to tax in a jurisdiction where PsyBio believe PsyBio have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase PsyBio’s expected tax liability in one or more jurisdictions.

 

A tax authority may take the position that material income tax liabilities, interest and penalties are payable by PsyBio, for example where there has been a technical violation of contradictory laws and regulations that are relatively new and have not been subject to extensive review or interpretation, in which case PsyBio expect that PsyBio might contest such assessment. High-profile companies can be particularly vulnerable to aggressive application of unclear requirements. Many companies must negotiate their tax bills with tax inspectors who may demand higher taxes than applicable law appears to provide. Contesting such an assessment may be lengthy and costly and if PsyBio were unsuccessful in disputing the assessment, the implications could increase PsyBio’s anticipated effective tax rate, where applicable.

Enacted and Future Healthcare Legislation

 

In the United States and other foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could affect PsyBio’s future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. biopharmaceutical industry.

 

Among the provisions of the ACA of importance to PsyBio’s potential therapeutic candidates are the following:

  • an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs, apportioned among these entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications;

  • expansion of eligibility criteria for Medicaid programs, a Federal and state program which extends healthcare to low income individuals and other groups, by, among other things, allowing states to offer Medicaid coverage to certain individuals and adding new eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

  • expansion of manufacturers’ rebate liability under the Medicaid Drug Rebate Program, which requires that drug manufacturers provide rebates to states in exchange for state Medicaid coverage for most of the manufacturers’ drugs by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicare Advantage plans (i.e., a type of Medicare healthcare plan offered by private companies);

  • a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for products that are inhaled, infused, instilled, implanted or injected;

  • expansion of the types of entities eligible for the 340B drug discount program, which requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices;

  • establishment of the Medicare Part D coverage gap discount program, which requires manufacturers to provide a 50% point-of-sale-discount (increased to 70% pursuant to the Bipartisan Budget Act of 2018, or BBA, effective as of January 1, 2019) off the negotiated price of applicable products to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ outpatient products to be covered under Medicare Part D;

  • creation of a new non-profit, nongovernmental institute, called the Patient-Centered Outcomes Research Institute, to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research; and

  • establishment of the Center for Medicare and Medicaid Innovation within Centers for Medicare & Medicaid, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription product spending.

 

Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and PsyBio expect there will be additional challenges and amendments to the ACA in the future. Various portions of the ACA are currently undergoing legal and constitutional challenges in the U.S. Supreme Court; the Trump Administration has issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices; and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. PsyBio cannot predict what affect further changes to the ACA would have on PsyBio’s business.

 

Other legislative changes have been proposed and adopted since the ACA was enacted. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on PsyBio’s customers and accordingly, PsyBio’s financial operations. For example, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. The Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2030 unless additional Congressional action is taken. However, these Medicare sequester reductions have been suspended from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In addition, the BBA amended the ACA, effective January 1, 2019, by increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”.

 

New laws and additional health reform measures may result in additional reductions in Medicare and other healthcare funding, which may adversely affect customer demand and affordability for PsyBio’s future therapeutic candidate and any future therapeutic candidates and, accordingly, the results of PsyBio’s financial operations.

Healthcare Fraud Laws, False Claims, and  Health Information Privacy and Security Laws

Although PsyBio do not currently have any therapies on the market, PsyBio’s current and future operations may be directly, or indirectly through PsyBio’s relationships with investigators, health care professionals, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute or the federal Anti-Kickback Statute. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any therapies for which PsyBio obtain marketing approval. These laws impact, among other things, PsyBio’s research activities and proposed sales, marketing and education programs and constrain PsyBio’s business and financial arrangements and relationships with third-party payors, healthcare professionals who participate in PsyBio’s clinical research program, healthcare professionals and others who recommend, purchase, or provide PsyBio’s approved therapies, and other parties through which PsyBio market, sell and distribute PsyBio’s therapies for which PsyBio obtain marketing approval. In addition, PsyBio may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which PsyBio conduct PsyBio’s business, along with foreign regulators (including European data protection authorities). Finally, PsyBio’s current and future operations are subject to additional healthcare-related statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which PsyBio conduct PsyBio’s business. These laws include, but are not limited to, the following:

  • the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Violations are subject to significant civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act, or the FCA. The definition of the “remuneration” under the federal Anti-Kickback Statute has been interpreted to include anything of value. Further, courts have found that if “one purpose” of remuneration is to induce referrals, the federal Anti-Kickback Statute is violated. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution; but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection;

  • the federal civil and criminal false claims laws, such as the FCA, which prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the U.S. federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. When an entity is determined to have violated the FCA, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

  • the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies;

  • the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (i.e., public or private), and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements, in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;

  • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, and as amended again by the Final HIPAA Omnibus Rule, published in January 2013, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

  • the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

  • the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made during the previous year to certain non-physician providers such as physician assistants and nurse practitioners;

  • analogous state laws and regulations, including the following: state anti-kickback and false claims laws, which may be broader in scope than their federal equivalents, and which may apply to PsyBio’s business practices, including research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical sales representatives and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

  • the Canadian and other foreign law equivalents of each of these laws, including reporting requirements detailing interactions with and payments to healthcare providers, and privacy-related requirements in Canada and other jurisdictions.

 

The distribution of pharmaceutical products is subject to additional requirements and regulations, including licensing, extensive record-keeping, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

 

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Even if precautions are taken, it is possible that governmental authorities will conclude that PsyBio’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If PsyBio’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to PsyBio, PsyBio may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if PsyBio become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm and the curtailment or restructuring of PsyBio’s operations. If any of the physicians or other healthcare providers or entities with whom PsyBio expect to do business is found not to be in compliance with applicable laws, that person or entity may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way.

 

Efforts to ensure that PsyBio’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against PsyBio for violation of these laws, even if PsyBio successfully defend against it, could cause PsyBio to incur significant legal expenses and divert PsyBio’s management’s attention from the operation of PsyBio’s business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

Compliance with Data Protection Laws

 

PsyBio and any potential collaborators may be subject to U.S. federal and state data protection laws and regulations, such as laws and regulations that address privacy and data security. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of health-related and other personal information. In addition, PsyBio may obtain health information from third parties, including research institutions from which PsyBio obtain clinical trial data, which are subject to privacy and security requirements under HIPAA, as amended by HITECH. To the extent that PsyBio act as a business associate to a healthcare provider engaging in electronic transactions, PsyBio may also be subject to the privacy and security provisions of HIPAA, as amended by HITECH, which restricts the use and disclosure of patient-identifiable health information, mandates the adoption of standards relating to the privacy and security of patient-identifiable health information, and requires the reporting of certain security breaches to healthcare provider customers with respect to such information. Additionally, many states have enacted similar laws that may impose more stringent requirements on entities like ours. Depending on the facts and circumstances, PsyBio could be subject to significant civil, criminal, and administrative penalties if PsyBio obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

 

Additionally, in June 2018, the State of California enacted the California Consumer Privacy Act of 2018, or CCPA, which came into effect on January 1, 2020 and provides new data privacy rights for consumers (as that term is broadly defined) and new operational requirements for companies, which may increase PsyBio’s compliance costs and potential liability. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. While there is currently an exception for protected health information that is subject to HIPAA and clinical trial regulations, as currently written, the CCPA may impact certain of PsyBio’s business activities. The CCPA could mark the beginning of a trend toward more stringent state privacy legislation in the United States, which could increase PsyBio’s potential liability and adversely affect PsyBio’s business.

Compliance with U.S. and foreign privacy and data protection laws and regulations could require PsyBio to take on more onerous obligations in PsyBio’s contracts, restrict PsyBio’s ability to collect, use and disclose data, or in some cases, impact PsyBio’s ability to operate in certain jurisdictions. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect PsyBio’s operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom PsyBio or PsyBio’s potential collaborators obtain personal information, as well as the providers who share this information with PsyBio, may limit PsyBio’s ability to collect, use and disclose the information. Claims that PsyBio have violated individuals’ privacy rights, failed to comply with data protection laws, or breached PsyBio’s contractual obligations, even if PsyBio are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm PsyBio’s business.

Deficiencies in Regulatory Agencies

 

The ability of the US FDA to review and approve new therapies can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which PsyBio’s operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

 

Disruptions at the US FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect PsyBio’s business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the US FDA and the SEC, have had to furlough critical employees and stop critical activities. Separately, in response to the COVID-19 pandemic, on March 10, 2020 the US FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products through April 2020. On March 18, 2020, the US FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials. As of June 23, 2020, the US FDA announced that it was conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with US FDA quality standards. On July 10, 2020, the US FDA announced its goal to restart domestic on-site inspections during the week of July 20, 2020, but such activities will depend on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments. The US FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic inspections. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. Additionally, as of June 23, 2020, the US FDA noted it was continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic; however, the US FDA may not be able to continue its current pace and review timelines could be extended. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the US FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the US FDA to timely review and process PsyBio’s regulatory submissions, which could have a material adverse effect on PsyBio’s business. Further, upon completion of this offering and in PsyBio’s operations as an English public company listed in the United States, future government shutdowns could impact PsyBio’s ability to access the public markets and obtain necessary capital in order to properly capitalize and continue PsyBio’s operations.

Availability of Government Healthcare Reimbursements

 

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford therapies such as PsyBio’s therapeutic candidates or any future therapeutic candidates, if approved. As Schedule I substances under the CSA, psilocybin and psilocin are deemed to have no accepted medical use and therapies that use psilocybin or psilocin are precluded from reimbursement in the United States. PsyBio’s products must be scheduled as a Schedule II or lower controlled substance (i.e., Schedule III, IV or V) before they can be commercially marketed. PsyBio’s ability to achieve acceptable levels of coverage and reimbursement for therapies by governmental authorities, private health insurers and other organizations will have an effect on PsyBio’s ability to successfully commercialize, and attract additional collaboration partners to invest in the development of PsyBio’s therapeutic candidates or any future therapeutic candidates. Even if PsyBio obtain coverage for a given therapy by third-party payors, the resulting reimbursement payment rates may not be adequate or may require patient out-of-pocket costs that patients may find unacceptably high. PsyBio cannot be sure that coverage and reimbursement in the United States, Canada or elsewhere will be available for any therapy that PsyBio may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

 

PsyBio intends to seek approval to market PsyBio’s therapeutic candidates or future therapeutic candidates in both the United States and in selected foreign jurisdictions. If PsyBio obtain approval in one or more foreign jurisdictions, PsyBio will be subject to rules and regulations in those jurisdictions.

 

In some foreign countries, the pricing of drugs is subject to governmental control and other market regulations which could put pressure on the pricing and usage of PsyBio’s future therapeutic candidate or PsyBio’s future therapeutic candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a therapeutic candidate. In addition, market acceptance and sales of PsyBio’s future therapeutic candidate or future therapeutic candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for PsyBio’s future therapeutic candidate or future therapeutic candidates and may be affected by existing and future healthcare reform measures.

 

Third-party payors are increasingly challenging prices charged for therapeutic substances and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider PsyBio’s therapeutic candidates or any future therapeutic candidates as substitutable and only offer to reimburse patients for the less expensive therapy. Even if PsyBio show improved efficacy or improved convenience of administration with PsyBio’s therapeutic candidates or any future therapeutic candidates, pricing of existing drugs may limit the amount PsyBio will be able to charge. These payors may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed therapies at levels that are too low to enable PsyBio to realize an appropriate return on PsyBio’s investment in product development. If reimbursement is not available or is available only at limited levels, PsyBio may not be able to successfully commercialize PsyBio’s therapeutic candidates or any future therapeutic candidates, and may not be able to obtain a satisfactory financial return on therapeutic candidates that PsyBio may develop.

 

Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

  • a covered benefit under its health plan;

  • safe, effective and medically necessary;

  • appropriate for the specific patient;

  • cost-effective; and

  • neither experimental nor investigational.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved therapies. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse health care providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for PsyBio’s therapeutic candidates or any future therapeutic candidates.

 

Obtaining and maintaining reimbursement status is time-consuming and costly. No uniform policy for coverage and reimbursement for drug therapies exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug therapies can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require PsyBio to provide scientific and clinical support for the use of PsyBio’s therapies to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and PsyBio believe that changes in these rules and regulations are likely.

There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Additionally, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out - of - pocket costs of drugs that contained proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services, or HHS, solicited feedback on some of these measures and has implemented others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. Although a number of these and other measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. In addition, CMS has also continued to research new payment methodologies, such as bundled payment models. The first cohort of participants in testing these models began participation on October 1, 2018. The second cohort began participating January 1, 2020. On July 24, 2020, the Trump administration announced four executive orders related to prescription drug pricing. While some proposed measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

On the state level, local governments have been very aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm PsyBio’s business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for PsyBio’s therapies or put pressure on PsyBio’s therapeutic pricing, which could negatively affect PsyBio’s business, results of operations, financial condition and prospects.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations. In many countries, the prices of medical therapies are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical therapies, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that PsyBio are able to charge for PsyBio’s therapeutic candidates or any future therapeutic candidates. Accordingly, in markets outside the United States, the reimbursement for PsyBio’s therapies may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

Environmental Laws Liability

PsyBio’s operations, including PsyBio’s research, development, testing and manufacturing activities, are subject to numerous foreign, federal, state and local environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the controlled use, manufacture, handling, release and disposal of and the maintenance of a registry for, hazardous materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens.

 

PsyBio may incur significant costs to comply with these current or future environmental and health and safety laws and regulations. Furthermore, if PsyBio fails to comply with such laws and regulations, PsyBio could be subject to fines or other sanctions.

 

As with other companies engaged in activities similar to ours, PsyBio faces a risk of environmental liability inherent in PsyBio’s current and historical activities, including liability relating to releases of or exposure to hazardous materials and, as a result, may incur material liability as a result of such release or exposure. Environmental, health and safety laws and regulations are becoming more stringent. PsyBio may incur substantial expenses in connection with any current or future environmental compliance or remediation activities, in which case, PsyBio’s production and development efforts may be interrupted or delayed and PsyBio’s financial condition and results of operations may be materially adversely affected. In the event of an accident involving such hazardous materials, an injured party may seek to hold PsyBio liable for damages that result.

Difficulty Enforcing Contracts Judicially

Due to the nature of PsyBio’s business and the fact that PsyBio’s contracts involve psilocybin and psilocin, the use of which is not legal under U.S. federal law and in certain other jurisdictions, PsyBio may face difficulties in enforcing PsyBio’s contracts in U.S. federal and state courts. The inability to enforce any of PsyBio’s contracts could have a material adverse effect on PsyBio’s business, operating results, financial condition or prospects.

In order to manage PsyBio’s contracts with contractors, PsyBio ensure that such contractors are appropriately licensed at the state and federal level in the U.S., and at the appropriate level in other territories. Were such contractors to operate outside the terms of these licenses, PsyBio may experience an adverse effect on PsyBio’s business, including the pace of development of PsyBio’s future therapeutic candidate, any future therapeutic candidate.

Risks Related to Intellectual Property

 

Trade Secrets

 

PsyBio relies on third parties to develop its products and as a result, must share trade secrets with them. PsyBio seeks to protect its proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with its collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information, to the extent it is able to in accordance with the rights it has for its licensed intellectual property. These agreements typically restrict the ability of PsyBio’s collaborators, advisors, employees and consultants to publish data potentially relating to its trade secrets. Its academic and clinical collaborators typically have rights to publish data, provided that PsyBio is notified in advance and may delay publication for a specified time in order to secure any intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by PsyBio, although in some cases PsyBio may share these rights with other parties. PsyBio may also conduct joint research and development programs which may require it to share trade secrets under the terms of research and development collaboration or similar agreements. Despite PsyBio’s efforts to protect its trade secrets, PsyBio’s competitors may discover its trade secrets, either through breach of these agreements, independent development or publication of information. A competitor’s discovery of PsyBio’s trade secrets may impair its competitive position and could have a material adverse effect on its business and financial condition.

 

Trade Names

 

PsyBio’s registered or unregistered trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. PsyBio may not be able to protect PsyBio’s rights to these trade names, which PsyBio need to build name recognition by potential partners or customers in PsyBio’s markets of interest. If PsyBio are unable to establish name recognition based on PsyBio’s trade names, then PsyBio may not be able to compete effectively and PsyBio’s business may be adversely affected.

Patent Litigation and Intellectual Property

Patent litigation is becoming widespread in the pharmaceutical industry and PsyBio cannot predict how this will affect its efforts to form strategic alliances, conduct clinical testing, or manufacture and market any of its product candidates that it may successfully develop. If PsyBio becomes involved in any litigation, interference, impeachment or other administrative proceedings relating to its trade names or licensed patents, it will likely incur substantial expenses and the efforts of its technical and management personnel will be significantly diverted. PsyBio cannot make any assurances that it will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. Moreover, if PsyBio’s products infringe patents, trademarks or proprietary rights of others, it could, in certain circumstances, become liable for substantial damages, which also could have a material adverse effect on the business of PsyBio, its financial condition and results of operation. Patent litigation is less likely during development as many jurisdictions contain exemptions from patent infringement for the purpose of obtaining regulatory approval of a product. Where there is any sharing of patent rights either through co-ownership or different licensed “fields of use”, one owner’s actions could lead to the invalidity of the entire patent. If PsyBio is unable to avoid infringing the patent rights of others, PsyBio may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Such results could have a material adverse effect on PsyBio. Regardless of the outcome, patent litigation is costly and time consuming. In some cases, PsyBio may not have sufficient resources to bring these actions to a successful conclusion, and, even if PsyBio is successful in these proceedings, it may incur substantial costs and divert management time and attention in pursuing these proceedings, which could have a material adverse effect on PsyBio.

 

Any infringement or misappropriation of PsyBio’s intellectual property could damage its value and limit its ability to compete. In addition, PsyBio’s ability to enforce and protect its intellectual property rights may be limited in certain countries outside the U.S., which could make it easier for competitors to capture market position in such countries by utilizing technologies that are similar to those developed or licensed by PsyBio. Competitors may also harm PsyBio’s sales by designing products that mirror the capabilities of its products or technology without infringing on its intellectual property rights. If PsyBio does not obtain sufficient protection for its intellectual property, or if it is unable to effectively enforce its intellectual property rights, its competitiveness could be impaired, which would limit its growth and future revenue. PsyBio may also find it necessary to bring infringement or other actions against third parties to seek to protect its intellectual property rights. Litigation of this nature, even if successful, is often expensive and time- consuming to prosecute and there can be no assurance that PsyBio will have the financial or other resources to enforce its rights or be able to enforce its rights or prevent other parties from developing similar technology or designing around its intellectual property.

 

PsyBio is not aware of any infringement by it of any person's or entity's intellectual property rights. In the event that products sold by PsyBio are deemed to infringe upon the patents or proprietary rights of others, PsyBio could be required to modify its products or obtain a license for the manufacture and/or sale of such products or cease selling such products. In such event, there can be no assurance that PsyBio would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon PsyBio’s business. If PsyBio’s products or proposed products are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, PsyBio could be subject to injunctive relief and, under certain circumstances, become liable for damages, which could also have a material adverse effect on PsyBio’s business and its financial condition.

Invalid Patents

 

To protect PsyBio’s competitive position, PsyBio may from time to time need to resort to litigation in order to enforce or defend any patents or other intellectual property rights owned by or licensed to PsyBio from time to time, or to determine or challenge the scope or validity of patents or other intellectual property rights of third parties. Enforcement of intellectual property rights is difficult, unpredictable and expensive, and many of PsyBio’s or PsyBio’s licensors’ or collaboration partners’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than PsyBio or PsyBio’s licensors or collaboration partners can. Accordingly, despite PsyBio’s or PsyBio’s licensors’ or collaboration partners’ efforts, PsyBio or PsyBio’s licensors or collaboration partners may not prevent third parties from infringing upon, misappropriating or otherwise violating intellectual property rights PsyBio own or control, particularly in countries where the laws may not protect those rights as fully as in Canada and the United States. PsyBio may fail in enforcing its rights, in which case PsyBio’s competitors and other third parties may be permitted to use PsyBio’s therapies without payment to PsyBio.

 

In addition, litigation involving PsyBio’s licensed patents carries the risk that one or more of PsyBio’s licensed patents will be

narrowed, held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third parties to commercialize PsyBio’s therapies, and then compete directly with PsyBio, without payment to PsyBio.

 

If PsyBio were to initiate legal proceedings against a third party to enforce a patent covering one of PsyBio’s investigational therapies, the defendant could counterclaim that PsyBio’s licensed patent is invalid or unenforceable. In patent litigation in the United States or in Canada, defendant counterclaims alleging invalidity or unenforceability are commonplace. A claim for a validity challenge may be based on failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. A claim for unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement, during prosecution. Third parties may also raise challenges to the validity of PsyBio’s patent claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (i.e., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to PsyBio’s licensed patents in such a way that they no longer cover any future therapeutic candidates. The outcome following legal assertions of invalidity and unenforceability during patent litigation or other proceedings is unpredictable. With respect to the validity question, for example, PsyBio cannot be certain that there is no invalidating prior art, of which PsyBio and the patent examiner were unaware during prosecution. If a defendant or third party were to prevail on a legal assertion of invalidity or unenforceability, PsyBio would lose at least part, and perhaps all, of the patent protection on one or more of any future therapeutic candidates. Such a loss of patent protection could have a material adverse impact on PsyBio’s business financial condition, results of operations, and prospects. Further, litigation could result in substantial costs and diversion of management resources, regardless of the outcome, and this could harm PsyBio’s business and financial results.

 

IP Litigation Costs

 

Even if resolved in PsyBio’s favor, litigation or other legal proceedings relating to intellectual property claims may cause PsyBio to incur significant expenses and could distract PsyBio’s technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on PsyBio. Such litigation or proceedings could substantially increase PsyBio’s operating losses and reduce PsyBio’s resources available for development and commercialization activities. PsyBio may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of PsyBio’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than PsyBio can because of their substantially greater financial resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of PsyBio’s confidential information could be compromised by disclosure during this type of litigation. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on PsyBio’s ability to compete in the marketplace.

 

Protection of Intellectual Property

 

PsyBio will be able to protect its licensed intellectual property from unauthorized use by third parties only to the extent that PsyBio’s proprietary technologies, key products and any future products are covered by valid and enforceable intellectual property rights of the licensor, including patents, or are effectively maintained as trade secrets by the licensor, and provided PsyBio has the ability and funds to enforce its rights, if necessary.


Third-Party Licenses

 

PsyBio licenses all intellectual property relating to its proprietary platform technology, other than its trade names. In the future, there may not be any patents in the US or in foreign countries that are available to license on acceptable terms. PsyBio’s inability to obtain such licenses may hinder or eliminate its ability to manufacture and market its products. Further, if PsyBio obtains third-party licenses but fails to pay annual maintenance fees, development and sales milestones, or it is determined that PsyBio does not use commercially reasonable efforts to commercialize licensed products, PsyBio could lose its licenses which could have a material adverse effect on its business and financial condition.

 

In addition, a substantial number of patents have already been issued to other biotechnology and pharmaceutical companies. To the extent that valid third-party patent rights cover PsyBio’s products or services, PsyBio, the licensor of PsyBio’s intellectual property rights, or its strategic collaborators would be required to seek licenses from the holders of these patents in order to manufacture, use or sell these products and services and payments under them would reduce PsyBio’s profits from these products and services.

 

Third-party intellectual property right holders, including PsyBio’s competitors, may actively bring infringement, misappropriation or violation claims against PsyBio based on existing or future intellectual property rights, regardless of their merit. PsyBio may not be able to successfully settle or otherwise resolve such infringement claims. If PsyBio is unable to successfully settle future claims on terms acceptable to PsyBio, PsyBio may be required to engage or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing PsyBio’s therapies.

 

If PsyBio are unsuccessful defending in any such claim, in addition to being forced to pay damages, PsyBio or PsyBio’s licensor or licensees may be temporarily or permanently prohibited from commercializing any of PsyBio’s investigational therapies that were held to be infringing. If possible, PsyBio might be forced to redesign PsyBio’s therapeutic candidates or any future therapeutic candidates so that PsyBio no longer infringe the intellectual property rights of third parties, or PsyBio may be required to seek a license to any such technology that PsyBio are found to infringe, which license may not be available on commercially reasonable terms or at all. Even if PsyBio or PsyBio’s licensors or collaboration partners obtain a license, it may be non-exclusive, thereby giving PsyBio’s competitors access to the same technologies licensed to PsyBio or PsyBio’s licensors or collaboration partners and it could require PsyBio to make significant licensing and royalty payments. In addition, PsyBio could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if PsyBio are found to have willfully infringed a patent or other intellectual property right. Claims that PsyBio have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects. Any of these events, even if PsyBio were ultimately to prevail, could require PsyBio to divert substantial financial and management resources that PsyBio would otherwise be able to devote to PsyBio’s business.

 

In addition, if the breadth or strength of protection provided by PsyBio’s or PsyBio’s licensors’ or collaboration partners’ patents and patent applications is threatened, it could dissuade companies from collaborating with PsyBio to license, develop or commercialize current or future investigational therapies. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of PsyBio’s confidential information could be compromised by disclosure during this type of litigation.

Failure to Comply with IP or License Agreements

PsyBio are or may become a party to third-party agreements under which PsyBio grant or are granted rights to intellectual property that are potentially important to PsyBio’s business and PsyBio expect that PsyBio may need to enter into additional license or collaboration agreements in the future. PsyBio’s existing third-party agreements impose, and PsyBio expect that future license agreements will impose, various obligations related to, among other things, therapeutic development and payment of royalties and fees based on achieving certain milestones. In addition, under several of PsyBio’s collaboration agreements, PsyBio are prohibited from developing and commercializing therapies that would compete with the therapies licensed under such agreements. If PsyBio fail to comply with PsyBio’s obligations under these agreements, PsyBio’s licensor or collaboration partner may have the right to terminate the agreement, including any licenses included in such agreement.

 

The termination of any license or collaboration agreements or failure to adequately protect such license agreements or collaboration could prevent PsyBio from commercializing PsyBio’s therapeutic candidates or any future therapeutic candidates covered by the agreement or licensed intellectual property. For example, PsyBio may rely on license agreements which grant failure PsyBio rights to certain intellectual property and proprietary materials that PsyBio use in connection with the development of PsyBio’s therapies. If this agreement were to terminate, PsyBio would be unable to timely license similar intellectual property and proprietary materials from an alternate source, on commercially reasonable terms or at all, and may be required to conduct additional bridging studies on PsyBio’s therapeutic candidates or any future therapeutic candidates, which could delay or otherwise have a material adverse effect on the development and commercialization of PsyBio’s therapeutic candidates or any future therapeutic candidates.

 

Several of PsyBio’s existing license agreements are sublicenses from third parties which are not the original licensor of the intellectual property at issue. Under these agreements, PsyBio must rely on PsyBio’s licensor to comply with its obligations under the primary license agreements under which such third party obtained rights in the applicable intellectual property, where PsyBio may have no relationship with the original licensor of such rights. If the licensors fail to comply with their obligations under these upstream license agreements, the original third-party licensor may have the right to terminate the original license, which may terminate the sublicense. If this were to occur, PsyBio would no longer have rights to the applicable intellectual property and, in the case of a sublicense, if PsyBio were not able to secure PsyBio’s own direct license with the owner of the relevant rights, which it may not be able to do at a reasonable cost or on reasonable terms, it may adversely affect PsyBio’s ability to continue to develop and commercialize PsyBio’s therapeutic candidates or any future therapeutic candidates incorporating the relevant intellectual property.

 

Disputes may arise regarding intellectual property subject to a license or collaboration agreement, including the following:

  • the scope of rights granted under the agreement and other interpretation-related issues;

  • the extent to which PsyBio’s technology and processes infringe on intellectual property of the licensor or collaboration partner that is not subject to the agreement;

  • the sublicensing of patent and other rights under any current or future collaboration relationships;

  • PsyBio’s diligence obligations under the agreement and what activities satisfy those diligence obligations;

  • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by PsyBio’s licensors and PsyBio and PsyBio’s collaboration partners; and

  • the priority of invention of patented technology.

In addition, PsyBio’s third-party agreements are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what PsyBio believe to be the scope of PsyBio’s rights to the relevant intellectual property or technology, or increase what PsyBio believe to be PsyBio’s financial or other obligations under the relevant agreement, either of which could have a material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that PsyBio have licensed prevent or impair PsyBio’s ability to maintain PsyBio’s current licensing arrangements on commercially acceptable terms, PsyBio may be unable to successfully develop and commercialize the affected therapeutic candidate, which could have a material adverse effect on PsyBio’s business, financial conditions, results of operations, and prospects

 

Failure to Extend Term of Patents

 

In the United States, if all maintenance fees are paid on time, the natural expiration of a patent is generally 20 years from its earliest non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering PsyBio’s investigational therapies, their manufacture, or use are obtained, once the patent life has expired, PsyBio may be open to competition from competitive therapies. Given the amount of time required for the development, testing and regulatory review of new investigational therapies, patents protecting such candidates and concomitant therapies might expire before or shortly after such candidates and concomitant therapies are commercialized. As a result, PsyBio’s licensed patent portfolio may not provide PsyBio with sufficient rights to exclude others from commercializing therapies similar or identical to PsyBio’s.

Intellectual Property Rights May Fail to Protect Competitive Advantage

 

The degree of future protection afforded by PsyBio’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect PsyBio’s business, or permit PsyBio to maintain PsyBio’s competitive advantage. The following examples are illustrative:

  • others may be able to make compounds or develop digital assets that are the same as or similar to PsyBio’s future therapeutic candidate, any future therapeutic candidates and digital assets but that are not covered by the claims of the patents that PsyBio own or control;

  • the patents of third parties may have an adverse effect on PsyBio’s business;

  • PsyBio or PsyBio’s licensors or any current or future collaboration partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that PsyBio own or control;

  • PsyBio or PsyBio’s licensors or any current or future collaboration partners might not have been the first to file patent applications covering certain of PsyBio’s inventions;

  • others may independently develop similar or alternative technologies or duplicate any of PsyBio’s technologies without infringing misappropriating or otherwise violating PsyBio’s intellectual property rights;

  • issued patents that PsyBio has exclusively licensed may not provide PsyBio with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by third parties;

  • PsyBio’s competitors might conduct research and development activities in countries where PsyBio do not have patent rights and then use the information learned from such activities to develop competitive therapies for sale in PsyBio’s major commercial markets;

  • third parties performing manufacturing or testing for PsyBio using PsyBio’s therapies or technologies could use the intellectual property of others without obtaining a proper license;

  • PsyBio may not develop additional technologies that are patentable; and

  • PsyBio may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property, or otherwise develop similar know-how.

 

Should any of these events occur, they could have a material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects.

Employee Patent Claim Liability

 

Some of PsyBio’s present and future consultants, advisors and employees, including PsyBio’s senior management, may have previously been employed at other biotechnology or pharmaceutical companies, including PsyBio’s competitors and potential competitors. Some of these individuals executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although PsyBio intend that PsyBio’s consultants, advisors and employees do not use proprietary information or know-how of their former employers while working for PsyBio, PsyBio may be subject to claims that PsyBio or these individuals have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such individual’s former employer. Litigation may be necessary to defend against these claims.

 

If PsyBio fail in prosecuting or defending any such claims, in addition to paying monetary damages, PsyBio may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and PsyBio could be required to obtain a license from such third party to commercialize PsyBio’s therapies. Such a license may not be available on commercially reasonable terms or at all. Even if PsyBio successfully prosecute or defend against such claims, litigation could result in substantial costs and distract PsyBio’s management from its day-to-day activities.

 

In addition, while it is PsyBio’s policy to require PsyBio’s employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to PsyBio, PsyBio may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that PsyBio regard as PsyBio’s own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and PsyBio may be forced to bring claims against third parties, or defend claims that they may bring against PsyBio, to determine the ownership of what PsyBio regard as PsyBio’s intellectual property. Such claims could have a material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects.

 

Patent Law Reforms

 

As is the case with other companies in PsyBio’s industry, PsyBio’s success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological and legal complexity. Therefore, obtaining and enforcing patents for therapeutics is costly, time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States or other jurisdictions could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents.

 

Depending on decisions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken PsyBio’s ability to license new patents or to enforce PsyBio’s existing rights to licensed patents.

 

Difficulties Securing Jurisdictional Intellectual Property Rights

Filing, prosecuting and defending patents on therapeutic candidates in all countries and jurisdictions throughout the world would be prohibitively expensive and PsyBio’s intellectual property rights in some countries outside of Canada and the United States, could be less extensive than those in Canada and the United States, assuming that rights are obtained in Canada and the United States. Consequently, PsyBio may not be able to prevent third parties from practicing PsyBio’s inventions in all countries outside Canada and the United States, or from selling therapies or importing therapeutic substances made using PsyBio’s inventions in and into Canada and the United States, or other jurisdictions.

 

Further, if PsyBio obtains third-party licenses but fails to pay annual maintenance fees, development and sales milestones, or it is determined that PsyBio does not use commercially reasonable efforts to commercialize licensed products, PsyBio could lose its licenses which could have a material adverse effect on its business and financial condition.

 

It is possible that PsyBio have failed, and in the future may fail, to identify relevant patents or applications that may be asserted against PsyBio. For example, certain U.S. applications filed after November 29, 2000 can remain confidential until and unless issued as patents, provided that inventions disclosed in the applications have not and will not be the subject of a corresponding application filed outside the United States. In general, patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering PsyBio’s therapies could have been filed by others without PsyBio’s knowledge. Furthermore, PsyBio operate in a highly competitive field, and given PsyBio’s limited resources, it is unreasonable to monitor all patent applications in the areas in which PsyBio are active. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover PsyBio’s therapies or the use of PsyBio’s therapies.

Third-party intellectual property right holders, including PsyBio’s competitors, may actively bring infringement, misappropriation or violation claims againstPsyBio based on existing or future intellectual property rights, regardless of their merit. PsyBio may not be able to successfully settle or otherwise resolve such infringement claims. If PsyBio are unable to successfully settle future claims on terms acceptable to PsyBio, PsyBio may be required to engage or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing PsyBio’s therapies.

 

If PsyBio are unsuccessful defending in any such claim, in addition to being forced to pay damages, PsyBio or PsyBio’s licensees may be temporarily or permanently prohibited from commercializing any of PsyBio’s investigational therapies that were held to be infringing. If possible, PsyBio might be forced to redesign PsyBio’s therapeutic candidates or any future therapeutic candidates so that PsyBio no longer infringe the intellectual property rights of third parties, or PsyBio may be required to seek a license to any such technology that PsyBio are found to infringe, which license may not be available on commercially reasonable terms or at all. Even if PsyBio or PsyBio’s licensors or collaboration partners obtain a license, it may be non-exclusive, thereby giving PsyBio’s competitors access to the same technologies licensed toPsyBio or PsyBio’s licensors or collaboration partners and it could requirePsyBio to make significant licensing and royalty payments. In addition, PsyBio could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if PsyBio are found to have willfully infringed a patent or other intellectual property right. Claims that PsyBio have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects. Any of these events, even if PsyBio were ultimately to prevail, could requirePsyBio to divert substantial financial and management resources that PsyBio would otherwise be able to devote to PsyBio’s business.

In addition, if the breadth or strength of protection provided by PsyBio’s or PsyBio’s licensors’ or collaboration partners’ patents and patent applications is threatened, it could dissuade companies from collaborating withPsyBio to license, develop or commercialize current or future investigational therapies. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of PsyBio’s confidential information could be compromised by disclosure

during this type of litigation.

Failure to Comply with IP or License Agreements

 

PsyBio is or may become a party to third - party agreements under which PsyBio grants or is granted rights to intellectual property that are potentially important to PsyBio’s business and PsyBio expects that PsyBio may need to enter into additional license or collaboration agreements in the future. PsyBio’s existing third - party agreements impose, and PsyBio expects that future license agreements will impose, various obligations related to, among other things, therapeutic development and payment of royalties and fees based on achieving certain milestones. In addition, under several of PsyBio’s collaboration agreements, PsyBio is prohibited from developing and commercializing therapies that would compete with the therapies licensed under such agreements. If PsyBio fails to comply with PsyBio’s obligations under these agreements, PsyBio’s licensor or collaboration partner may have the right to terminate the agreement, including any licenses included in such agreement.

 

The termination of any license or collaboration agreements or failure to adequately protect such license agreements or collaboration could prevent PsyBio from commercializing PsyBio’s therapeutic candidates or any future therapeutic candidates covered by the agreement or licensed intellectual property. For example, PsyBio may rely on license agreements which grant PsyBio rights to certain intellectual property and proprietary materials that PsyBio use in connection with the development of PsyBio’s therapies. If this agreement were to terminate, PsyBio would be unable to timely license similar intellectual property and proprietary materials from an alternate source, on commercially reasonable terms or at all, and may be required to conduct additional bridging studies on PsyBio’s therapeutic candidates or any future therapeutic candidates, which could delay or otherwise have a material adverse effect on the development and commercialization of PsyBio’s therapeutic candidates or any future therapeutic candidates.

 

Several of PsyBio’s existing license agreements are sublicenses from third parties which are not the original licensor of the intellectual property at issue. Under these agreements, PsyBio must rely on PsyBio’s licensor to comply with its obligations under the primary license agreements under which such third party obtained rights in the applicable intellectual property, where PsyBio may have no relationship with the original licensor of such rights. If the licensors fail to comply with their obligations under these upstream license agreements, the original third-party licensor may have the right to terminate the original license, which may terminate the sublicense. If this were to occur, PsyBio would no longer have rights to the applicable intellectual property and, in the case of a sublicense, if PsyBio were not able to secure PsyBio’s own direct license with the owner of the relevant rights, which it may not be able to do at a reasonable cost or on reasonable terms, it may adversely affect PsyBio’s ability to continue to develop and commercialize PsyBio’s therapeutic candidates or any future therapeutic candidates incorporating the relevant intellectual property.

 

Disputes may arise regarding intellectual property subject to a license or collaboration agreement, including the following:

  • the scope of rights granted under the agreement and other interpretation-related issues;

  • the extent to which PsyBio’s technology and processes infringe on intellectual property of the licensor or collaboration partner that is not subject to the agreement;

  • the sublicensing of patent and other rights under any current or future collaboration relationships;

  • PsyBio’s diligence obligations under the agreement and what activities satisfy those diligence obligations;

  • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by PsyBio’s licensors and PsyBio and PsyBio’s collaboration partners; and

  • the priority of invention of patented technology.

 

In addition, PsyBio’s third-party agreements are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what PsyBio believes to be the scope of PsyBio’s rights to the relevant intellectual property or technology, or increase what PsyBio believes to be PsyBio’s financial or other obligations under the relevant agreement, either of which could have a material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that PsyBio has licensed prevent or impair PsyBio’s ability to maintain PsyBio’s current licensing arrangements on commercially acceptable terms, PsyBio may be unable to successfully develop and commercialize the affected therapeutic candidate, which could have a material adverse effect on PsyBio’s business, financial conditions, results of operations, and prospects

 

Failure to Extend Term of Patents

In the United States, if all maintenance fees are paid on time, the natural expiration of a patent is generally 20 years from its earliest non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering PsyBio’s investigational therapies, their manufacture, or use are obtained, once the patent life has expired, PsyBio may be open to competition from competitive therapies. Given the amount of time required for the development, testing and regulatory review of new investigational therapies, patents protecting such candidates and concomitant therapies might expire before or shortly after such candidates and concomitant therapies are commercialized. As a result, PsyBio’s licensed patent portfolio may not provide PsyBio with sufficient rights to exclude others from commercializing therapies similar or identical to ours.

 

Depending upon the timing, duration and conditions of US FDA marketing approval of any future therapeutic candidates, one or more of PsyBio’s U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, and similar legislation in other jurisdictions. The Hatch-Waxman Act permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term loss during product development and the US FDA regulatory review process. The patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method of manufacturing it may be extended. However, PsyBio may not receive an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the length of the extension could be less than PsyBio request. If PsyBio is unable to obtain patent term extension or the term of any such extension is less than PsyBio’s request, the period during which PsyBio can enforce PsyBio’s patent rights for that product will not be lengthened and third parties, including PsyBio’s competitors, may obtain approval to market competing therapies sooner than PsyBio expect. As a result, PsyBio’s revenue from applicable therapies could be materially reduced and PsyBio’s business, financial condition, results of operations, and prospects could be materially harmed.

 

Intellectual Property Rights May Fail to Protect Competitive Advantage

 

The degree of future protection afforded by PsyBio’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect PsyBio’s business, or permit PsyBio to maintain PsyBio’s competitive advantage. The following examples are illustrative:

  • others may be able to make compounds or develop digital assets that are the same as or similar to PsyBio’s future therapeutic candidate, any future therapeutic candidates and digital assets but that are not covered by the claims of the patents that PsyBio own or control;

  • the patents of third parties may have an adverse effect on PsyBio’s business;

  • PsyBio or PsyBio’s licensors or any current or future collaboration partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that PsyBio own or control;

  • PsyBio or PsyBio’s licensors or any current or future collaboration partners might not have been the first to file patent applications covering certain of PsyBio’s inventions;

  • others may independently develop similar or alternative technologies or duplicate any of PsyBio’s technologies without infringing misappropriating or otherwise violating PsyBio’s intellectual property rights;

  • it is possible that PsyBio’s current and future pending patent applications will not lead to issued patents;

  • issued patents that PsyBio has exclusively licensed may not provide PsyBio with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by third parties;

  • PsyBio’s competitors might conduct research and development activities in countries where PsyBio do not have patent rights and then use the information learned from such activities to develop competitive therapies for sale in PsyBio’s major commercial markets;

  • third parties performing manufacturing or testing for PsyBio using PsyBio’s therapies or technologies could use the intellectual property of others without obtaining a proper license;

  • PsyBio may not develop additional technologies that are patentable; and

  • PsyBio may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property, or otherwise develop similar know-how.

 

Should any of these events occur, they could have a material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects.

 

Employee Patent Claim Liability

 

Some of PsyBio’s present and future consultants, advisors and employees, including PsyBio’s senior management, may have previously been employed at other biotechnology or pharmaceutical companies, including PsyBio’s competitors and potential competitors. Some of these individuals executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although PsyBio intends that PsyBio’s consultants, advisors and employees do not use proprietary information or know-how of their former employers while working for PsyBio, PsyBio may be subject to claims that PsyBio or these individuals have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such individual’s former employer. Litigation may be necessary to defend against these claims.

 

If PsyBio fail in prosecuting or defending any such claims, in addition to paying monetary damages, PsyBio may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and PsyBio could be required to obtain a license from such third party to commercialize PsyBio’s therapies. Such a license may not be available on commercially reasonable terms or at all. Even if PsyBio successfully prosecute or defend against such claims, litigation could result in substantial costs and distract PsyBio’s management from its day-to-day activities.

 

In addition, while it is PsyBio’s policy to require PsyBio’s employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to PsyBio, PsyBio may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that PsyBio regard as PsyBio’s own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and PsyBio may be forced to bring claims against third parties, or defend claims that they may bring against PsyBio, to determine the ownership of what PsyBio regard as PsyBio’s intellectual property. Such claims could have a material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects.

 

Patent Law Reforms

 

As is the case with other companies in PsyBio’s industry, PsyBio’s success is heavily dependent on PsyBio’s intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological and legal complexity. Therefore, obtaining and enforcing patents for therapeutics is costly, time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States or other jurisdictions could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For example, the America Invents Act, or the AIA, enacted in the United States in 2012 and 2013, has resulted in significant changes to the U.S. patent system.

 

Prior to the enactment of the AIA, assuming that other requirements for patentability are met, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 16, 2013, under the AIA, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention regardless of whether a third party was the first to invent the claimed invention. On or after that date, a third party that files a patent application in the USPTO before PsyBio could be awarded a patent covering an invention of ours even if PsyBio made the invention before the third party. The AIA will require PsyBio to be cognizant going forward of the time from invention to filing of a patent application, but circumstances could prevent PsyBio from promptly filing patent applications on PsyBio’s inventions.

 

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide additional opportunities for third parties to challenge any pending patent application or issued patent in the USPTO. Such opportunities include allowing third - party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceeding. This applies to all of PsyBio’s U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim in PsyBio’s patents invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate PsyBio’s patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of PsyBio’s patent applications and the enforcement or defense of PsyBio’s issued patents.

 

Additionally, the United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to PsyBio’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.

 

Depending on decisions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken PsyBio’s ability to obtain new patents or to enforce PsyBio’s existing patents and patents that PsyBio might obtain in the future.

 

Difficulties Securing Jurisdictional Intellectual Property Rights

 

Filing, prosecuting and defending patents on therapeutic candidates in all countries and jurisdictions throughout the world would be prohibitively expensive and PsyBio’s intellectual property rights in some countries outside of Canada and the United States, could be less extensive than those in Canada and the United States, assuming that rights are obtained in Canada and the U.S. Consequently, PsyBio may not be able to prevent third parties from practicing PsyBio’s inventions in all countries outside Canada and the United States, or from selling therapies or importing therapeutic substances made using PsyBio’s inventions in and into Canada and the United States, or other jurisdictions. In addition, PsyBio may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national/regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant patent offices, while granted by others. It is also quite common that depending on the country, the scope of patent protection may vary for the same therapeutic candidate or technology.

 

Competitors may use PsyBio’s and PsyBio’s licensors’ or collaboration partners’ technologies in jurisdictions where PsyBio have not obtained patent protection to develop their own therapies and, further, may export otherwise infringing therapies to territories where PsyBio and PsyBio’s licensors or collaboration partners have patent protection, but enforcement is not as strong as that in the Canada and the United States. These therapies may compete with future therapeutic candidates, and PsyBio’s and PsyBio’s licensors’ or collaboration partners’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in Canada and the United States, and companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If PsyBio or PsyBio’s licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for PsyBio’s business in such jurisdictions, the value of these rights may be diminished and PsyBio may face additional competition from others in those jurisdictions.

 

Some countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If PsyBio or any of PsyBio’s licensors or collaboration partners is forced to grant a license to third parties with respect to any patents relevant to PsyBio’s business, PsyBio’s competitive position may be impaired and PsyBio’s business and results of operations may be adversely affected.

 

Proceedings to enforce PsyBio’s and PsyBio’s licensors’ or collaboration partners’ patent rights in foreign jurisdictions could result in substantial costs and divert PsyBio’s and PsyBio’s licensors’ or collaboration partners’ efforts and attention from other aspects of PsyBio’s business, regardless of whether PsyBio or PsyBio’s licensors or collaboration partners are successful, and could put PsyBio’s and PsyBio’s licensors’ or collaboration partners’ patents at risk of being invalidated or interpreted narrowly. In addition, such proceedings could put PsyBio’s and PsyBio’s licensors’ or collaboration partners’ patent applications at risk of not issuing and could provoke third parties to assert claims againstPsyBio or PsyBio’s licensors or collaboration partners. PsyBio or PsyBio’s licensors or collaboration partners may not prevail in any lawsuits that PsyBio or PsyBio’s licensors or collaboration partners initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Any of the foregoing could have a material adverse effect on PsyBio’s business, financial condition, results of operations, and prospects.

Financial and Accounting Risks

Negative Cash Flow from Operating Activities

 

PsyBio has had negative cash flow from operating activities since inception. This has resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with operations. Significant capital investment will be required to achieve PsyBio’s existing plans. PsyBio’s net losses have had and will continue to have an adverse effect on, among other things, shareholder equity, total assets and working capital. PsyBio expects that losses may fluctuate from quarter to quarter and year to year, and that such fluctuations may be substantial. PsyBio cannot predict when it will become profitable, if at all. Accordingly, PsyBio may be required to obtain additional financing in order to meet its future cash commitments.

 

Additional Capital Requirements

 

As a research and development company, PsyBio expects to spend substantial funds to continue the research, development and testing of its product candidates and to prepare to commercialize products subject to applicable regulatory approval. Substantial additional financing may be required if PsyBio is to be successful in continuing to develop its business and its products. No assurances can be given that PsyBio will be able to raise the additional capital that it may require for its anticipated future development. Any additional equity financing may be dilutive to investors and debt financing, if available, may involve restrictions on financing and operating activities. There is no assurance that additional financing will be available on terms acceptable to PsyBio, if at all. If PsyBio is unable to obtain additional financing as needed, it may be required to reduce the scope of its operations or anticipated expansion.

 

Lack of Product Revenue

 

To date, PsyBio has not generated product revenue and cannot predict when and if it will generate product revenue. PsyBio’s ability to generate product revenue and ultimately become profitable depends upon its ability, alone or with partners, to successfully develop its product candidates, obtain regulatory approval and commercialize products, including any of its current product candidates or other product candidates that it may develop, in-license or acquire in the future. PsyBio does not anticipate generating revenue from the sale of products for the foreseeable future. PsyBio expects its research and development expenses to increase in connection with its ongoing activities, particularly as it advances its product candidates through clinical trials.

 

Estimates or Judgments Relating to Critical Accounting Policies

 

The preparation of financial statements in conformity with the International Financial Reporting Standards requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. PsyBio bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. PsyBio’s operating results may be adversely affected if the assumptions change or if actual circumstances differ from those in the assumptions, which could cause its operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the share price of PsyBio. Significant assumptions and estimates will be used in preparing the financial statements including those related to the credit quality of accounts receivable, income tax credits receivable, share based payments, impairment of non-financial assets, fair value of biological assets, as well as revenue and cost recognition.

 

Exchange Rate Fluctuations

 

Due to the international scope of PsyBio’s current and future operations, PsyBio’s assets, future earnings and cash flows may be be influenced by movements in exchange rates of several currencies, particularly the U.S. dollar and Canadian Dollar. PsyBio’s reporting currency is denominated in U.S. dollars and PsyBio’s functional currency is the U.S. dollars  and the majority of PsyBio’s operating expenses are paid in U.S. and Canadian Dollars. PsyBio may also regularly acquire services, consumables and materials in U.S. dollars, Canadian dollars and other currencies. Further, future revenue may be derived from abroad. As a result, PsyBio’s business and the price of PsyBio’s products may be affected by fluctuations in foreign exchange rates between the U.S. dollar and  other currencies, which may also have a significant impact on PsyBio’s results of operations and cash flows from period to period. Currently, PsyBio do not have any exchange rate hedging arrangements in place.

 

Risks Related to the Offering

 

No Public Market for the Subscription Receipts

 

There is no public market for the subscription receipts of the Company (the “Subscription Receipts”) offered pursuant to the private placement (the “Offering”) and the Subscription Receipts will not be listed on any stock exchange. There can be no assurance that an active and liquid market for the Resulting Issuer Shares will develop following the completion of the Offering, or if developed, that such a market will be sustained. If an active public market does not develop or is not maintained, investors may have difficulty selling their Resulting Issuer Shares. The price per Subscription Receipt was determined by arm’s length negotiation between Eight Capital and the Company, and may not be indicative of the price per Resulting Issuer Share following the completion of the Offering. The Company cannot assure investors that the market price of the Resulting Issuer Shares will not materially decline below the offering price.

 

Subscription Receipt holders do not have Voting Rights

 

Holders of the Subscription Receipts are not shareholders and the Subscription Receipts do not carry any voting rights as shareholders whatsoever.

 

Satisfaction of Escrow Release Conditions

 

There can be no assurance that the escrow release conditions will be satisfied prior to the occurrence of the escrow release deadline. Each subscriber’s subscription proceeds will be held in escrow pending the satisfaction of the escrow release conditions or the occurrence of the escrow release deadline and, accordingly, subscribers will not be able to use such funds for other investment opportunities that occur prior to the satisfaction of the escrow release conditions or the occurrence of the escrow release deadline nor to participate in any growth in the trading price of the Resulting Issuer Shares if the escrow release conditions are not satisfied before the occurrence of the escrow release deadline.

 

Risks Related to Resulting Issuer Shares

 

Volatile Market Price for Resulting Issuer Shares

Assuming the completion of the Transaction, the market price of Resulting Issuer Shares may be volatile. The volatility may affect the ability of holders to sell Resulting Issuer Shares at an advantageous price or at all. Market price fluctuations in Resulting Issuer Shares may be adversely affected by a variety of factors relating to PsyBio’s business, including fluctuations in PsyBio’s operating and financial results, such results failing to meet the expectations of securities analysts or investors and downward revisions in securities analysis’ estimates in connection therewith, sales of additional Resulting Issuer Shares, governmental regulatory action, adverse change in general market conditions or economic trends, acquisitions, dispositions or other material public announcements by PsyBio or its competitors, along with a variety of additional factors, including, without limitation, those set forth under the heading “Forward-Looking Statements”. In addition, the market price for securities on stock markets, including the TSX Venture Exchange (“TSXV”) is subject to significant price and trading fluctuations. These fluctuations have resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating performance, underlying asset values or prospects of such companies. These broad market fluctuations may materially adversely affect the market price of the Resulting Issuer Shares.

 

Additionally, the value of Resulting Issuer Shares is subject to market value fluctuations based upon factors that influence PsyBio’s operations, such as legislative or regulatory developments, competition, technological change and changes in interest rates or foreign exchange rates. There can be no assurance that the market price of Resulting Issuer Shares will not experience significant fluctuations in the future, including fluctuations that are unrelated to PsyBio’s performance.

 

Substantial Number of Authorized but Unissued Resulting Issuer Shares

 

It is anticipated that the Resulting Issuer will have a class of authorized capital consisting of an unlimited number of Resulting Issuer Shares that may be issued by the board without further action or approval of shareholders. While the Resulting Issuer board will be required to fulfill its fiduciary obligations in connection with the issuance of such Resulting Issuer Shares, Resulting Issuer Shares may be issued in transactions with which not all shareholders agree, and the issuance of such Resulting Issuer Shares will cause dilution to the ownership interests of shareholders.

 

Dilution

 

The financial risk of PsyBio’s future activities will be borne to a significant degree by its shareholders. If additional Resulting Issuer Shares are issued from treasury for financing purposes, control of the Resulting Issuer may change and purchasers may suffer additional dilution.

 

Market for Resulting Issuer Shares

 

There can be no assurance that an active trading market for Resulting Issuer Shares will develop or, if developed, that any market will be sustained. PsyBio cannot predict the prices at which Resulting Issuer Shares will trade. Fluctuations in the market price of Resulting Issuer Shares could cause an investor to lose all or part of its investment in Resulting Issuer Shares. Factors that could cause fluctuations in the trading price of Resulting Issuer Shares include: (i) announcements of new offerings, products, services or technologies; commercial relationships, acquisitions or other events by PsyBio or its competitors; (ii) price and volume fluctuations in the overall stock market from time to time; (iii) significant volatility in the market price and trading volume of similar companies in its industry; (iv) fluctuations in the trading volume of Resulting Issuer Shares or the size of PsyBio’s public float; (v) actual or anticipated changes or fluctuations in PsyBio’s results of operations; (vi) whether PsyBio’s results of operations meet the expectations of securities analysts or investors; (vii) actual or anticipated changes in the expectations of investors or securities analysts; (viii) litigation involving PsyBio, its industry, or both; (ix) regulatory developments; (x) general economic conditions and trends; (xi) major catastrophic events; (xii) escrow releases, sales of large blocks of Resulting Issuer Shares; (xiii) departures of key employees or members of management; or (xiv) an adverse impact on PsyBio from any of the other risks cited herein.

 

Significant Sales of Resulting Issuer Shares

 

Although Resulting Issuer Shares held by existing shareholders of PsyBio will be freely tradable under applicable securities legislation, Resulting Issuer Shares held by PsyBio’s directors, executive officers, control persons and certain other securityholders may be subject to contractual lock-up restrictions and may also be subject to escrow restrictions pursuant to the policies of the TSXV. Sales of a substantial number of Resulting Issuer Shares in the public market after the expiry of lock-up or escrow restrictions, or the perception that these sales could occur, could adversely affect the market price of Resulting Issuer Shares and may make it more difficult for investors to sell Resulting Issuer Shares at a favourable time and price.

 

Tax Issues

 

There may be income tax consequences in relation to Resulting Issuer Shares, which will vary according to circumstances of each investor. Prospective investors should seek independent advice from their own tax and legal advisers.

 

Discretion over the use of proceeds

 

PsyBio will have discretion concerning the use of the net proceeds of the Offering as well as the timing of their expenditures, and may apply the net proceeds of the Offering in ways other than as disclosed. As a result, an investor will be relying on the judgment of PsyBio for the application of the net proceeds of the Offering. PsyBio may use the net proceeds of the Offering in ways that an investor may not consider desirable. The results and the effectiveness of the application of the net proceeds are uncertain. If the net proceeds are not applied effectively, PsyBio’s business, prospects, financial position, financial condition or results of operations may suffer.

Conflicts of Interest

 

PsyBio may be subject to various potential conflicts of interest because of the fact that some of its officers and directors may be engaged in a range of business activities. PsyBio’s executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to PsyBio. In some cases, PsyBio’s executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to PsyBio’s business and affairs and that could adversely affect PsyBio’s operations. These outside business interests could require significant time and attention of PsyBio’s executive officers and directors.

 

In addition, PsyBio may also become involved in other transactions which conflict with the interests of its directors and the officers who may from time to time deal with persons, firms, institutions or companies with which PsyBio may be dealing, or which may be seeking investments similar to those desired by it. The interests of these persons could conflict with those of PsyBio, and from time to time, these persons may be competing with PsyBio for available investment opportunities.

 

Conflicts of interest, if any, will be subject to the procedures and remedies provided under applicable laws. In particular, in the event that such a conflict of interest arises at a meeting of PsyBio’s directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of PsyBio are required to act honestly, in good faith and in the best interests of PsyBio.

 

No Dividends

 

PsyBio’s current policy is, and will be, to retain earnings to finance the development and enhancement of its products and to otherwise reinvest in PsyBio. Therefore, PsyBio does not anticipate paying cash dividends on Resulting Issuer Shares in the foreseeable future. PsyBio’s dividend policy will be reviewed from time to time by the PsyBio Board in the context of its earnings, financial condition and other relevant factors. Until the time that PsyBio does pay dividends, which it might never do, its shareholders will not be able to receive a return on their Resulting Issuer Shares unless they sell them.

 

US Operations

 

PsyBio carries on operations primarily in the United States. As a result, PsyBio is subject to political, economic and other uncertainties, including, but not  limited  to,  cancellation  or  modification  of  contract  rights,  foreign  exchange  restrictions,  currency  fluctuations, export quotas, royalty and tax increases and other risks arising out of foreign governmental sovereignty  over  the  areas  in  which  PsyBio’s  operations  are  conducted.  

 

PsyBio’s international  operations  may  also  be  adversely affected by laws and policies of Canada affecting foreign trade, taxation and investment. In the event  of  a  dispute  arising  in  connection  with  its  foreign  operations,  PsyBio  may  be  subject  to  the  exclusive  jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in Canada or enforcing Canadian judgments in foreign jurisdictions.

 

Additional risks apply. For more detailed risk disclosures, please contact PsyBio at evan@psybiolife.com. PsyBio makes no medical or treatment claims about psilocybin or PsyBio’s proposed products. Statements regarding psilocybin have not been evaluated by the US FDA or other similar regulatory authorities, nor has the efficacy of psilocybin been confirmed by US FDA-approved research. There is no assurance that psilocybin can be used to diagnose, treat, cure or prevent any disease or condition. Robust scientific research is needed. In addition, PsyBio has not conducted clinical trials for the use of its proposed products. Any references to quality, consistency, efficacy and safety of potential products are not intended to imply that such claims have been verified in clinical trials or that PsyBio will be able to complete such trials. If PsyBio is not able to obtain the approvals or research necessary to commercialize its business, it may have a material adverse effect on PsyBio’s performance and operations.

513-449-9585

Info@PsyBioLife.com

Corporate

4400 Sample Rd, Suite 138

Coconut Creek, FL 33073

Laboratory

Miami University

650 E High Street

Oxford, OH 45056

4400