NewcelX Ltd 20-F for FY2023
NewcelX Ltd. (NCEL)
About this 20-F
NewcelX Ltd filed this 20-F on May 15, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $12.17M
- compared with a net loss of $16.5M a year earlier
- Diluted EPS
- -$0.32
- compared with -$0.84 a year earlier
FORM
OR
For the fiscal year ended
OR
OR
Commission File No.:
(Exact name of registrant as specified in its charter)
Translation of registrant’s name into English: Not applicable
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Executive Officer
Tel:
contact
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding
shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
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Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Emerging growth company |
If an emerging growth company
that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a)
of the Exchange Act.
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether
the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
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pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company.
Yes ☐
No
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ii
In this annual report, “we,” “us,” “our,” the “Company” and “NLS” refer to NLS Pharmaceutics Ltd., a Swiss corporation, and its wholly owned subsidiary, NLS Pharmaceutics Inc., a Delaware corporation.
Unless the context otherwise indicates or requires, the NLS logo and all product names and trade names used by us in this annual report, including Quilience® and Nolazol®, are our proprietary trademarks and service marks. Quilience® and Nolazol® are NOT approved drugs. They refer to Mazindol ER an investigational drug currently in late stage clinical development by NLS. All trademarks or trade names referred to in this annual report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this annual report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Our reporting currency and functional currency is the U.S. dollar. Unless otherwise expressly stated or the context otherwise requires, references in this annual report to “dollars,” “USD” or “$” mean U.S. dollars, and references to “CHF” are to the Swiss Franc. U.S. dollar translations of CHF amounts presented in this annual report were done on different dates in accordance with the date as of such entry in the Company’s books and are derived from our audited financial statements included elsewhere in this annual report. U.S. dollar translations of CHF amounts presented in this annual report that are not derived from our audited financial statements included elsewhere in this annual report are translated using the rate of CHF 1.00 to $1.19, based on the exchange rate provided by the Swiss Federal Tax Administration on December 31, 2023.
This annual report includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Although we believe that these sources are reliable, we have not independently verified the information contained in such publications.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this annual report on Form 20-F, or this annual report, may be deemed to be “forward-looking statements,” including some of the statements made under Item 3.D. “Risk Factors,” Item 5 “Operating and Financial Review and Prospects,” “Business” and elsewhere in this annual report constitute forward-looking statements. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “predict,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our product candidates, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
| ● | the regulatory pathways that we may elect to utilize in seeking European Medicines Agency, or EMA, the U.S. Food and Drug Administration, or FDA, and other regulatory approvals; | |
| ● | that our financial position raises substantial doubt about our ability to continue as a going concern; | |
| ● | our ability to maintain listing and effectively comply with the listing requirements of The Nasdaq Stock Market LLC, or Nasdaq; |
| ● | the re-scheduling of Mazindol ER in the U.S. by the DEA following approval by the FDA; |
| ● | the launch of a different formulation or different dosage of Mazindol by another company; |
| ● | the use of Quilience (Mazindol ER) in a compassionate use program, or CUP, and the results thereof; |
| ● | obtaining EMA and FDAFDA approval of, or other regulatory action in Europe or the United States and elsewhere with respect to, Quilience, Nolazol NLS-4, or other product candidates that we may seek to develop; |
| ● | the commercial launch and future sales of Quilience and/or Nolazol, or any other future product candidates; |
| ● | the dosage of Quilience, Nolazol, and or any of our pipeline drugs; | |
| ● | our ability to move NLS-3, NLS-8, NLS-11, NLS-12 and any of our Aexon Labs (Dual) Orexin compounds (recently secured through an in-license) into investigational new drug, or IND-enabling studies; | |
| ● | our expectations regarding the timing of commencing further clinical trials, the process entailed in conducting each such trial, including dosages, and the order of such trials with each of our product candidates or whether such trials will be conducted at all; |
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| ● | improved convenience relating to the prescription of and use of Nolazol for prescribers and patients (and their parents); |
| ● | our expectations regarding the supply of mazindol; |
| ● | third-party payor reimbursement for Quilience, Nolazol, and or any of our pipeline drugs; | |
| ● | our estimates regarding anticipated expenses, capital requirements and our needs for additional financing; |
| ● | changes to the narcolepsy patient market size and market adoption of Quilience by physicians and patients; |
| ● | the timing, cost, regulatory approvals or other aspects of the commercial launch of Quilience and Nolazol; |
| ● | submission of a Marketing Authorisation Application, or MAA, and New Drug Application, or NDA, with the EMA and FDA for Quilience, Nolazol, and or any of our pipeline drugs, respectively; |
| ● | completion and receiving favorable results of clinical trials for Quilience, Nolazol, and or any of our pipeline drugs; | |
| ● | issuance of patents to us by the U.S. Patent and Trademark Office, or PTO, and other governmental patent agencies; |
| ● | new issuances of orphan drug designations; | |
| ● | the overall global political and economic environment in the countries in which we operate; | |
| ● | the development and approval of the use of mazindol for additional indications other than narcolepsy and attention deficit hyperactivity disorder, or ADHD; | |
| ● | the development and commercialization, if any, of any other product candidates that we may seek to develop; | |
| ● | the use of mazindol controlled release, or CR, for treatment of additional indications other than narcolepsy, idiopathic hypersomnia, or IH, and ADHD; and |
| ● | the ability of our management team to lead the development of our product candidates, conclude a strategic partnership deal for Mazindol or any of our pipeline compounds. |
These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this in greater detail under Item 3.D. “Risk Factors” and elsewhere in this annual report. You should not rely upon forward-looking statements as predictions of future events. Readers are urged to carefully review and consider the various disclosures made throughout this annual report which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
You should not put undue reliance on any forward-looking statements. Any forward-looking statements in this annual report are made as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, the section of this annual report entitled “Item 4. Information on the Company” contains information obtained from independent industry sources and other sources that we have cited but not independently verified.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. [Reserved.]
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
You should carefully consider the risks described below, together with all of the other information in this annual report. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our common shares and our publicly listed warrants, or Warrants, could decline.
Summary of Risk Factors
Investing in our common shares and Warrants involves substantial risks. Our ability to execute our strategy is also subject to certain risks. The risks described below may cause us not to realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. In particular, our risks include, but are not limited to, the following summary of such risk factors:
Risks Related to Our Business
| ● | We may be unable to successfully use mazindol, on which we depend substantially, as the drug substance for each of our current clinical mid-stage product candidates, Quilience, for the treatment of narcolepsy, and Nolazol, for the treatment of ADHD, and which outcome could prove costly to our business and could prevent us from obtaining regulatory or marketing approval; | |
| ● | We may not be able to initiate our Phase 3 clinical trials in Quilience without additional pre-clinical studies, chemistry, manufacturing, and controls, or CMC, work or early-stage clinical trials; |
| ● | Prior results of mazindol for the treatment of other indications may not be replicated in the clinical trials that we conduct for the treatment of narcolepsy or ADHD; and | |
| ● | If, and when, we seek to commercialize Quilience and/or Nolazol, we may be partially dependent upon prescriptions from physicians for the sale of both such product candidates, and therefore, the loss of a significant number of patient referrals by physicians prescribing Quilience and/or Nolazol may have an adverse effect on our future revenues, if any, which could have an adverse effect on our business, financial condition and results of operations. |
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Risks Related to Our Relationships with Third Parties
| ● | We are dependent on a sole manufacturer for mazindol drug substance as well as the drug product. Any delay, price increase or unavailability of mazindol could materially adversely affect our ability to conduct clinical trials and, if this were to occur after we obtained commercialization and marketing approval, could cause us to cease operations. |
| ● | We may seek to form additional strategic alliances in the near future with respect to our product candidates and to Mazindol in particular, and if we do not achieve such alliances, our business, financial condition, commercialization prospects and results of operations may be materially adversely affected. |
Risks Related to Our Intellectual Property
| ● | If we are unable to obtain and maintain effective patent rights for our products, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used to compete against us; |
| ● | If we are unable to maintain effective proprietary rights for our products, we may not be able to compete effectively in our markets; and |
| ● | We may in the future be subject to future claims that our employees, consultants, or independent contractors have wrongfully or unavoidably used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. |
Risks Related to Our Financial Condition and Capital Requirements
| ● | Our financial statements for the year ended December 31, 2023, contained a going concern disclosure in Note 1 regarding substantial doubt about our ability to continue as a going concern. This going concern disclosure in Note 1 of financial statements could prevent us from obtaining new financing on reasonable terms or at all and risk our ability to continue operating as a going concern. | |
| ● | To date, we have not generated any revenue, and we do not expect to generate any significant revenue unless and until we obtain marketing approval to commercialize Quilience and/or Nolazol. We are unable to predict the extent of future losses or when we will become profitable based on the sale of any product, if at all. Even if we succeed in developing and commercializing our product candidates, we may never generate sufficient revenue to sustain profitability. As of December 31, 2023, we had an accumulated deficit of approximately $70.4 million. |
| ● | To date, we have not generated any revenues, have a history of losses and expect to incur losses in the foreseeable future and will need to raise substantial additional capital to successfully complete development, achieve and maintain phase 3 readiness, and seek to commercialize Quilience and/or Nolazol or other product candidates including NLS-3, NLS 4, NLS-8, NLS-11, and NLS-12 and the Aexon Labs Inc., or Aexon, platform, recently in-licensed, that we may seek to develop in the future, and such capital may not be available to us or available to us only on unfavorable terms. | |
| ● | As a public company, we are required to comply with extensive securities rules and regulations and Swiss governmental and Nasdaq Capital Market regulations, which are expensive, and which require significant management attention. We may voluntarily choose, or be forced to delist, from the Nasdaq Capital Market in case of non-compliance and or due to financial purposes. |
Risks Related to the Regulatory Environment
| ● | We require regulatory approvals prior to any attempt to commercialize our product candidates from the FDA and the EMA; and |
| ● | Our data from clinical trials may not satisfy the FDA or other comparable regulatory agencies, or the FDA or other regulatory agencies may require additional time or studies to assess the safety and efficacy of Quilience and/or Nolazol or other product candidates that we may seek to develop in the future. |
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Risks Related to the Ownership of Our Securities
| ● | Our failure to meet the continued listing requirements Nasdaq could result in a delisting of our securities or us seeking to transfer our listed securities to a different exchange; | |
| ● | The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, allows us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the Securities and Exchange Commission, or the SEC, which could undermine investor confidence in our Company and adversely affect the market price of our common shares and Warrants; | |
| ● | As a “foreign private issuer” we follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers; | |
| ● | For as long as we remain an emerging growth company, or EGC, we will be exempt from certain securities laws requirements, including the fact that our auditors are not required to conduct an audit of our internal control over financial reporting; however, once we cease to qualify as an EGC, we will no longer be permitted to rely on such exemptions and as a result we will incur additional legal, accounting and other expenses; and | |
| ● | We have identified material weaknesses in our internal control over financial reporting and instituted ongoing remediation efforts. If our ongoing remediation efforts are not effective, we may not be able to accurately or timely report our financial results, or prevent fraud, and investor confidence in our Company and the market price of our common shares and Warrants may be adversely affected. |
Risks Related to Our Business
We depend substantially on the success of our two product candidates, Quilience and Nolazol. We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
We have invested almost all of our efforts and financial resources to achieve and maintain phase 3 readiness in research and development and general and administrative costs of our two product candidates, Quilience for the treatment of excessive daytime sleepiness, or EDS, and cataplexy associated with narcolepsy and Nolazol, for the treatment of ADHD. The process to develop, obtain regulatory approval for and commercialize pharmaceutical product candidates is long, complex, costly and inherently uncertain of outcome. We are not permitted to market any of our product candidates in the United States, European Union, or the EU, or any other jurisdiction until we receive the requisite regulatory approvals. We may be able to generate pre-approval revenues from compassionate use activities leveraging on an expanded access policy in certain countries around the world. However, we cannot give any assurance that our current clinical development plan will proceed as planned, or that our product candidates will receive regulatory approval, or that such regulatory approval, if received, will be within a timeframe that allows us to effectively compete with our competitors, or be successfully marketed and commercialized.
Our initiation of clinical trials for Quilience is dependent upon the review and approval of the relevant regulatory agencies and authorities and if we are required to conduct pre-clinical trials, approval of an NDA or MAA, if any, for Quilience would be delayed and we may require additional capital as a result thereof.
Based in part on the prior use and FDA approval of mazindol to manage exogenous obesity, we have been able to commence our Phase 2 clinical trials for Quilience without having to do prior pre-clinical and/or early-stage clinical trials, such as Phase 1 trials. No assurance can be given that the EMA or FDA will agree to allow us to initiate Phase 3 clinical trials for Quilience without conducting such pre-clinical clinical trials. If the FDA or EMA, or any other applicable regulatory agency, were to require us to conduct additional pre-clinical trials, our planned development strategy for Quilience would be materially impacted and approval of an NDA or MAA, if any, for Quilience would be delayed and we may require additional capital as a result thereof.
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In addition, we may request a Paediatric Investigation Plan, or PIP, deferral in order to delay conducting clinical trials for Quilience in children until after we receive an MAA from the EMA for the use of Quilience in adults. A PIP deferral, as can be agreed upon by the EMA, allows an applicant to delay studies in children until after there is sufficient data on use in adults; we anticipate that we will be able to receive a PIP deferral from the EMA for Quilience; however, there is no guarantee that this deferral will be granted, which could impact our planned development process and would make the product candidate approval process more costly.
The commencement and completion of clinical trials can be delayed or prevented for a number of reasons.
We may not be able to commence or complete the clinical trials that would support our submission of an NDA to the FDA or MAA to the EMA. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. Clinical trials can be delayed or prevented for a number of reasons, including:
| ● | difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial; | |
| ● | delays in reaching or failing to reach agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
| ● | insufficient or inadequate supply or quality of a product candidate or other materials necessary to conduct our clinical trials; | |
| ● | if the FDA or EMA elect to enact policy changes, as a result of COVID-19 or otherwise; |
| ● | difficulties obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site; and | |
| ● | challenges recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including fears resulting from COVID-19 or due to government actions enacted and as a result of such pandemic, size and nature of patient population, proximity of patients to clinical sites, eligibility criteria for the trial, nature of trial protocol, the availability of approved effective treatments for the relevant disease and competition from other clinical trial programs for similar indications. |
Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a trial, a data safety monitoring board overseeing the clinical trial at issue or by other regulatory authorities due to a number of factors, including:
| ● | failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols; |
| ● | inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities; |
| ● | unforeseen safety issues (including those that result from COVID-19) or lack of effectiveness; and |
| ● | lack of adequate funding to continue the clinical trial. |
The results of pre-clinical studies, early-stage clinical trials, data obtained from real-world use, and published third-party studies may not be indicative of results in future clinical trials and we cannot assure you that any planned or future clinical trials will lead to results sufficient for the necessary regulatory approvals.
The results of pre-clinical studies may not be predictive of the results of clinical trials, and the results of any completed clinical trials, including studies derived from real-world use and studies in published literature, or clinical trials we commence may not be predictive of the results of later-stage clinical trials. Additionally, interim results during a clinical trial do not necessarily predict final results. Later clinical trial results may not replicate earlier clinical trials for a variety of reasons, including differences in trial design, different trial endpoints (or lack of trial endpoints in exploratory studies), subject population, number of subjects, subject selection criteria, trial duration, drug dosage and formulation and lack of statistical power in the earlier studies. There can be no assurance that any of our clinical trials will ultimately be successful or support further clinical development of any of our product candidates. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a negative impact on our business.
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We may find it difficult to enroll patients in our clinical trials. Difficulty in enrolling patients could delay or prevent clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends in part on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment. The evolving COVID-19 pandemic has impacted directly or indirectly the pace of enrollment in our clinical trials as patients may avoid or may not be able to travel to healthcare facilities and physicians’ offices unless due to a health emergency and clinical trial staff can no longer get to the clinic. Additionally, such facilities and offices have been and may continue to be required to focus limited resources on nonclinical trial matters, including treatment of COVID-19 patients, thereby decreasing availability, in whole or in part, for clinical trial services. See “Risks Related to Our Business Operations - We face business disruption and related risks resulting from the recent outbreak of COVID-19, which could have a material adverse effect on our business and results of operations” for additional information.
In addition, as a rare disorder, there is a limited patient pool from which to draw for our clinical trials for Quilience. Further, the eligibility criteria of our clinical trials will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study.
Additionally, the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical trials because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, the proximity and availability of clinical trial sites for prospective patients and the patient referral practices of physicians. If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our potential product candidates will be delayed.
If we experience delays in the completion or termination of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product candidate revenue from any of these product candidates could be delayed or prevented. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product candidate sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Interim topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim topline or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our reputation and business prospects.
Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates proceed through pre-clinical 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, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product 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, FDA or EMA notification or 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 our product candidates and jeopardize our ability to commence sales and generate revenues.
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International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States, Switzerland or the EU.
Other than our headquarters and other operations which are located in Switzerland and our wholly owned U.S. subsidiary, NLS Pharmaceutics Inc., a Delaware corporation (as further described below), we currently have limited international operations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product candidates. We may plan to maintain sales representatives and conduct physician and patient association outreach activities, as well as clinical trials, outside of the United States, Switzerland and Europe. If Quilience and/or Nolazol or any of our other product candidates are approved for commercialization outside the United States, Switzerland, or the EU, we will likely enter into agreements with third parties to market the drugs in these additional global territories. We expect that we will be subject to additional risks related to entering into or maintaining international business relationships, including:
| ● | different regulatory requirements for drug approvals in foreign countries; |
| ● | differing United States and foreign drug import and export rules, tariffs and other trade barriers; |
| ● | reduced protection for intellectual property rights in foreign countries; |
| ● | failure by us to obtain regulatory approvals for the use of our products in various countries; |
| ● | different reimbursement systems; |
| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| ● | multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses; |
| ● | complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems; |
| ● | financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations, which could result in increased operating expenses and reduced revenues; |
| ● | workforce uncertainty in countries where labor unrest is more common than in the United States; |
| ● | production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; | |
| ● | regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, or FCPA, its books and records provisions or its anti-bribery provisions; |
| ● | business interruptions resulting from cyber-attacks, geo-political actions, including war (such as the Russia-Ukraine war and the Israel-Hamas war) and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. |
| ● | potential liability resulting from development work conducted by these distributors; and |
| ● | business interruptions resulting from a local or worldwide pandemic, such as COVID-19, geopolitical actions, including war and terrorism, or natural disasters. |
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Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
Even if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
The commercial success of Quilience and/or Nolazol will depend upon the acceptance of each product by the medical community, including physicians, patients and third-party payors. The degree of market acceptance of any approved product will depend on a number of factors, including:
| ● | the efficacy and safety of the product; |
| ● | the potential advantages of the product compared to available therapies; | |
| ● | the convenience and ease of administration compared to alternative treatments; | |
| ● | limitations or warnings, including use restrictions contained in the product’s approved labeling; |
| ● | distribution and use restrictions imposed by the EMA, FDA, or other regulatory authority or agreed to by us as part of a mandatory or voluntary risk management plan; |
| ● | availability of alternative treatments, including, in the case of Nolazol, a number of competitive products already approved for the treatment of ADHD or expected to be commercially launched in the near future; |
| ● | pricing and cost effectiveness in relation to alternative treatments; |
| ● | if the product is included under physician treatment guidelines as a first-, second-, or third-line therapy; |
| ● | the strength of sales, marketing and distribution support; | |
| ● | the availability of third-party coverage and adequate reimbursement and the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors; |
| ● | the strength of sales, marketing and distribution support; |
| ● | the willingness of patients to pay for drugs out of pocket in the absence of third-party coverage; and | |
| ● | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies. |
If Quilience and/or Nolazol is approved but does not achieve an adequate level of acceptance by physicians, third party payors and patients, we may not generate sufficient revenue from the product, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of the product may require significant resources and may never be successful.
In addition, we may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we enter into arrangements with third parties to perform sales, marketing and distribution services for our products, the resulting revenues or the profitability from these revenues to us are likely to be lower than if we had sold, marketed and distributed our products ourselves. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval. Depending on the nature of the third-party relationship, we may have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, any of which could harm our business.
Our ability to commercialize any product candidates successfully will depend, in part, on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and impact reimbursement levels.
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Obtaining and maintaining adequate reimbursement for our products may be difficult. We cannot be certain if and when we will obtain an adequate level of reimbursement for our products by third party payors. Even if we do obtain adequate levels of reimbursement, third-party payors, such as government or private healthcare insurers, may carefully review and increasingly question the coverage of, and challenge the prices charged for, our drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs. We may also be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval, and the royalties resulting from the sales of those products may also be adversely impacted.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be reimbursed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription drug pricing remains subject to continuing governmental control, including possible price reductions, even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval. There can be no assurance that our product candidates, if they are approved for sale in the United States or in other countries, will be considered medically necessary or cost-effective for a specific indication, or that coverage or an adequate level of reimbursement will be available.
Our product candidates Quilience and Nolazol contain the active ingredient mazindol, which is currently listed as a Schedule IV controlled substance under the Controlled Substances Act of 1970, or CSA. Failure to maintain compliance with applicable requirements under the CSA or a change in the drug enforcement agency, or the DEA, scheduling (e.g., from IV to III) post approval or other applicable federal or state regulations could have an adverse effect on our operations and business.
Controlled substances are classified by the DEA as Schedule I, II, III, IV or V, or CI, CII, CIII, CIV, and CV, substances, with CI substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. The active ingredient of our lead and follow-on product candidates is mazindol, which is classified as a Schedule IV controlled substance under the CSA, and regulations of the DEA. Under the CSA, subject to certain exemptions, every person who manufactures, distributes, dispenses, imports or exports any controlled substance must register with the DEA.
Although the CSA’s restrictions governing substances in CIV are not as stringent as those for substances in CI, CII or CIII, they could still limit our ability to market and commercialize Quilience and Nolazol, if approved for marketing. In addition, failure to maintain compliance with applicable requirements under the CSA, particularly as manifested in loss or diversion of regulated substances, can result in enforcement action that could include civil penalties, refusal to renew registrations or quotas, revocation of registrations or quotas or criminal proceedings, any of which could have a material adverse effect on our business, results of operations and financial condition. Individual states also regulate controlled substances, and we along with our contract manufacturers will be subject to state regulation on distribution of these products.
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Our market is subject to intense competition, which may result in others commercializing products before or more successfully than us. If we are unable to compete effectively, Quilience and/or Nolazol may be rendered non-competitive or obsolete, which may adversely affect our operating results.
The development and commercialization of new products is highly competitive. Our potential competitors include major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to Quilience and/or Nolazol or any future product candidate that we may seek to develop or commercialize. Our competitors may succeed in developing, acquiring or licensing technologies and products that are more effective, have fewer or more tolerable side effects or are more convenient or less costly than Quilience and/or Nolazol or any future product candidate we may develop, which could render any product candidates obsolete and non-competitive. Our competitors also may obtain FDA or other marketing approvals for their products before we are able to obtain approval for ours, which could result in competitors establishing a strong market position before we are able to enter the applicable market.
Many of our potential competitors, alone or with their strategic partners, have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining marketing approvals and commercializing approved products than we do. There is a trend toward consolidation in the pharmaceutical and biotechnology industry, and additional mergers and acquisitions in these industries may result in even more resources being concentrated among a smaller number of our competitors, which may adversely affect us.
Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials.
In addition, if we enter the markets of our product candidates, with such entrance remaining subject to various additional regulatory approvals, too late in the cycle, we may not achieve commercial success, or we may have to reduce our price in order to effectively compete, which would impact our ability to generate revenues, obtain profitability and adversely affect our operating results.
While orphan drug product candidates are typically sold at a high price relative to other medications, the market may not be receptive to high pricing of our product candidates.
We are developing certain product candidates to treat rare CNS disorders with high unmet medical needs, a space where medications are usually sold at high prices compared with other medications. Accordingly, even if regulatory authorities approve our product candidates, the market may not be receptive to, and it may be difficult for us to achieve, a per-patient per-year price high enough to allow us to realize a return on our investment.
Unfavorable global economic conditions, including as a result of the ongoing war between Russia and Ukraine as well as Israel and Hamas, could have a negative impact on our operations, which could materially and adversely affect our business, financial condition, results of operations, prospects and market price of our common shares.
Global economic instability and unfavorable conditions could materially and adversely affect our business. The war between Russia and Ukraine is ongoing. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by Canada, the United Kingdom, the European Union, the United States. and other countries against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and responses of countries and political bodies to such sanctions, tensions, and military actions and the potential for more widespread conflict, have resulted in supply chain disruptions, increases in inflation, financial market volatility and capital markets disruption. In addition, the war between Israel and Hamas is ongoing. Any resulting instability and unfavorable economic conditions from the wars could disrupt our and our collaborators’ supply chains and adversely affect our and our collaborators’ ability to conduct ongoing and future clinical trials of our product candidates. The extent and duration of the wars, sanctions and resulting economic, market and other disruptions are impossible to predict, but could be substantial. Any such disruptions may heighten the impact of the other risks described in this annual report.
If product liability lawsuits are brought against us, we may incur substantial liabilities, even if we have appropriate insurance policies, and we may be required to limit commercialization of our product candidates.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Currently, we have no products that have been approved for marketing or commercialization; however, the use of our product candidates in clinical trials, and the sale of these product candidates, if approved, in the future, may expose us to liability claims. Product liability claims may be brought against us or our partners by participants enrolled in our clinical trials, patients, health care providers, pharmaceutical companies, our collaborators or others using, administering or selling any of our future approved products. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities, even if we have product liability or such other applicable insurance policies in effect. We may not be able to maintain adequate levels of insurance for these liabilities at reasonable cost and/or reasonable terms. Excessive insurance costs or uninsured claims would add to our future operating expenses and adversely affect our financial condition. As a result of such lawsuits and their potential results, we may be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
| ● | decreased demand for our product candidates; | |
| ● | termination of clinical trial sites or entire trial programs; | |
| ● | injury to our reputation and negative media attention; |
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| ● | product recalls or increased warnings on product labels; |
| ● | withdrawal of clinical trial participants; |
| ● | costs of to defend the related litigation; |
| ● | diversion of management and our resources; | |
| ● | substantial monetary awards to, or costly settlements with, clinical trial participants, patients or other claimants; | |
| ● | higher insurance premiums; | |
| ● | loss of initiation of investigations by regulators or other authorities; and | |
| ● | the inability to successfully commercialize our product candidates, if approved. |
Risks Related to the Regulatory Environment
Obtaining approval of an NDA or a MAA even after clinical trials that are believed to be successful is an uncertain process.
We are not permitted to market Quilience and/or Nolazol in the United States or the EU until we receive regulatory approval of an NDA from the FDA or MAA from the EMA, or in any foreign countries until we receive the requisite approval from regulatory authorities in such countries. We have not received regulatory clearance to conduct the additional clinical trials that are necessary to be able to submit an NDA to the FDA for Nolazol. Similarly, we have not received regulatory clearance in the EU to conduct clinical trials that are necessary to receive approval of a MAA for Quilience in Europe. As such, we have not submitted an MAA for any of our product candidates.
We may be able make our products available on a named patient basis and generate pre-approval revenues from compassionate use activities leveraging on an expanded access policy in certain countries around the world.
Even if we complete our planned clinical trials and believe the results to be successful, all of which are uncertain, obtaining regulatory approval is an extensive, lengthy, expensive and uncertain process, and the FDA and EMA, and other regulatory authorities may delay, limit or deny approval of Quilience and/or Nolazol for many reasons, including, but not limited to:
| ● | we may not be able to demonstrate to their satisfaction that the product candidate is a safe or effective treatment for a given indication; | |
| ● | the results of clinical trials may not meet the level of statistical significance or clinical significance required by the regulatory agencies; | |
| ● | disagreements regarding the number, design, size, conduct or implementation of our clinical trials, or with our interpretation of data from pre-clinical studies or clinical trials; | |
| ● | a lack of acceptance of the accuracy or sufficiency of the data generated at our clinical trial sites to demonstrate, among others, that clinical and other benefits outweigh its safety risks or to support the submission of an NDA or MAA; | |
| ● | difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee, or such other similar committee, may recommend against approval of our application or may recommend that such regulators require, as a condition of approval, additional pre-clinical studies or clinical trials, limitations on approved labeling, or distribution and use restrictions; |
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| ● | the requirement that we develop a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval, which may or may not be feasible for us; | |
| ● | the identification of deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for clinical and commercial supplies; | |
| ● | changes in approval policies or the adoption of new regulations by such regulators; and | |
| ● | we may be unable to be granted a PIP deferral which we intend to request from the EMA for delayed clinical trials and subsequent approval in children; this may delay our clinical trial program or approvals for adults, or we may have successful clinical trial results for adults but not children (if we were required to conduct pediatric studies prior to the receipt of an NDA or MAA for use of our product candidates in adults), or vice versa. |
Before we can submit an NDA to the FDA, we must conduct pivotal trials, in addition to human pharmacokinetic and bioavailability studies, that will be substantially broader than our Phase 2 trial for Nolazol and or Quilience. An NDA must be supported by extensive clinical and pre-clinical data, as well as extensive information regarding chemistry, manufacturing and controls to demonstrate the safety and effectiveness of the applicable product candidate. The number and types of pre-clinical studies and clinical trials that will be required varies depending on the product candidate, the disease or condition that the product candidate is designed to target and the regulations applicable to any particular product candidate. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA review processes can take years to complete and approval is never guaranteed.
In this respect, we will also need to agree on a protocol with the FDA for the pivotal trials before commencing those trials. Pivotal trials frequently produce unsatisfactory results even though prior clinical trials were successful. Therefore, the results of the additional trials that we conduct may or may not be successful. The FDA may suspend all clinical trials or require that we conduct additional clinical, nonclinical, manufacturing validation or drug product quality studies and submit those data before it will consider or reconsider the NDA. Depending on the extent of these or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve the NDA. If any of these outcomes occur, we would not receive approval for Quilience or Nolazol at such time, if any, when we seek FDA approval. We may face similar risks with respect to obtaining regulatory approval from the EMA for Quilience, and for Nolazol, at such time, if any, when we seek EMA approval. The risks that we face in obtaining applicable approvals from the FDA and EMA for Quilience and/or Nolazol or any other product candidate that we may seek to develop, may also exist with other regulatory authorities, such as those in Latin America.
Even if we obtain FDA, EMA or other regulatory approval for Quilience and/or Nolazol, the approval might contain significant limitations related to use restrictions for certain age groups, warnings, precautions or contraindications, or may be subject to significant post-marketing studies or risk mitigation requirements. In addition, even if we obtain a MAA from the EMA for the use of Quilience in adults, there can be no guarantee that we will receive an MAA for Quilience for the use in children. If we are unable to successfully commercialize Quilience and/or Nolazol we may be forced to cease operations.
The results of clinical trials conducted at clinical sites outside the United States may not be accepted by the FDA and the results of clinical trials conducted at clinical sites in the United States may not be accepted by international regulatory authorities.
We are conducting our Phase 2 clinical trials in the United States. In future, we are planning to conduct Phase 2b and or Phase 3 clinical trials in the United States and the EU. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well-designed and conducted and performed by qualified investigators in accordance with ethical principles such as IRB or ethics committee approval and informed consent. The study population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the subject population for any clinical trials conducted outside of the United States must be representative of the U.S. population. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials were conducted consistent with all applicable U.S. laws and regulations. There can be no assurance the FDA or international regulatory authorities will accept data from trials conducted outside of the United States or inside the United States, as the case may be, as adequate support of a marketing application. If the FDA or international regulatory authorities do not accept the data from sites in our globally conducted clinical trials, it would likely result in the need for additional trials, which would be costly and time-consuming and could delay or permanently halt the development of one or more of our product candidates.
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Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial potential or result in significant negative consequences following regulatory approval, if obtained.
During the conduct of clinical trials, patients may experience changes in their health, including illnesses, injuries, discomforts or a fatal outcome. It is possible that as we develop Quilience and Nolazol, or other product candidates that we may seek to develop, in larger, longer and more extensive clinical trials as use of our product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier clinical trials, as well as conditions that did not occur or went undetected in previous clinical trials, will be reported by subjects. Many times, side effects are only detectable after investigational products are tested in larger scale, Phase 2b/Phase 3 clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical experience indicates that Quilience and/or Nolazol, or other product candidates that we may seek to develop, have side effects or cause serious or life-threatening side effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be revoked or limited.
Additionally, if any of our product candidates receives marketing approval, the FDA or EMA could require us to adopt a REMS to ensure that the benefits outweigh its risks, which may include, among other things, a medication guide outlining the risks of the product for distribution to patients, a communication plan to health care practitioners, and restrictions on how or where the product can be distributed, dispensed or used. Furthermore, if we or others later identify undesirable side effects caused by Quilience and/or Nolazol, several potentially significant negative consequences could result, including:
| ● | regulatory authorities may suspend or withdraw approvals of such a product candidate; |
| ● | regulatory authorities may require additional warnings on the label; |
| ● | regulatory authorities may issue negative publicity regarding the affected product, including safety communications; |
| ● | we may be required to change the way the product is distributed, dispensed or administered, or conduct additional pre-clinical studies or clinical trials; | |
| ● | we may need to voluntarily recall our products; and |
| ● | we could be sued and held liable for harm caused to patients. |
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could significantly harm our business, prospects, financial condition and results of operations.
We will need to obtain FDA approval of any proposed names for our product candidates that gain marketing approval, and any failure or delay associated with such naming approval may adversely impact our business.
Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or the U.S. PTO. The FDA typically conducts a review of proposed product names, including an evaluation of whether proposed names may be confused with the names of other drug products. The FDA may object to any product name we submit if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product names, we may be required to adopt an alternative name for our product candidates, which could result in further evaluation of proposed names with the potential for additional delays and costs.
Obtaining regulatory approval for clinical trials of Nolazol in children will be more difficult than obtaining such approvals for adult clinical trials since the requirements for regulatory approval to conduct pediatric clinical trials are more stringent.
Pediatric drug development requires additional nonclinical work (such as animal studies in juvenile animals and additional reproductive toxicity work), as well as staged clinical work in determining safe dosing and monitoring. These additional tasks involve investment of significant additional resources beyond those needed for approval of the drug for adults. Approval of Nolazol for use in children may be significantly delayed due to these additional requirements and this may have an adverse effect on the commercial prospects for Nolazol and our ability to generate product revenues would be delayed, possibly materially. In addition, we do not know if as a result of the COVID-19 pandemic there will be a smaller pool of children from which we can enroll for our clinical trials. We cannot guarantee that we will receive any regulatory approvals to commercialize our product candidates in children.
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Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes to clinical trial protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion of our clinical trials.
Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which we may need to amend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval, which may impact the cost, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for Quilience and Nolazol would be harmed and our ability to generate product revenues would be delayed, possibly materially.
Our development and regulatory strategy for our product candidates depends in part on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of approved products containing mazindol. If the FDA does not conclude that our product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for our product candidates under Section 505(b)(2) are not as we expect, the approval pathway would likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated and in either case may not be successful.
The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or FDCA, or Section 505(b)(2). Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. We intend to seek FDA approval through the Section 505(b)(2) regulatory pathway for Quilience and may seek this regulatory pathway for other product candidates that we seek to develop.
If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional pre-clinical and or clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval, and complications and risks associated with FDA approval, would substantially increase. We may need to obtain additional funding, which could result in significant dilution to the ownership interests of our then existing shareholders to the extent we issue equity securities or convertible debt. We cannot assure you that we would be able to obtain such additional financing on terms acceptable to us, if at all. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive product candidates reaching the market faster than our product candidates, which could materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.
We may seek designations for our product candidates with the FDA and other comparable regulatory authorities that are intended to confer benefits such as a faster development process or an accelerated regulatory pathway, but there can be no assurance that we will successfully obtain such designations. In addition, even if one or more of our product candidates are granted such designations, we may not be able to realize the intended benefits of such designations.
The FDA, and other comparable regulatory authorities, offer certain designations for product candidates that are intended to encourage the research and development of pharmaceutical products addressing conditions with significant unmet medical need. These designations may confer benefits such as additional interaction with regulatory authorities, a potentially accelerated regulatory pathway and priority review. There can be no assurance that we will successfully obtain such designation for Quilience and/or Nolazol. In addition, while such designations could expedite the development or approval process, they generally do not change the standards for approval. Even if we obtain such designations for one or more of our product candidates, there can be no assurance that we will realize their intended benefits.
For example, we may seek a Breakthrough Therapy designation from the FDA for one or more of our product candidates. A Breakthrough Therapy designation is defined as a therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or condition, if preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For therapies that have Breakthrough Therapy designation, interaction and communication between the 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. Therapies with Breakthrough Therapy designation from the FDA are also eligible for accelerated approval. Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for Breakthrough Therapy designation, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify for Breakthrough Therapy designation, the FDA may later decide that such product candidates no longer meet the conditions for qualification.
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We may also seek Fast Track designation from the FDA for some of our product candidates. If a therapy is intended for the treatment of a serious or life-threatening condition and the therapy demonstrates the potential to address unmet medical needs for this condition, the therapy sponsor may apply for Fast Track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive Fast Track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a Fast-Track designation does not provide assurance of ultimate FDA approval. The FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program.
We may also seek a priority medicines scheme, or PRIME, designation for some of our product candidates. PRIME was launched by EMA in 2016 to facilitate the development of medicines that target an unmet medical need. Through PRIME, the Agency offers early and proactive support to medicine developers with the aim of optimizing the generation of robust data on a medicine’s benefits and risks and enabling accelerated assessment of medicines applications. The overall goal is to ensure patients benefit as early as possible from therapies that may significantly improve their quality of life. PRIME focuses on improving the design of clinical trials in order to ensure the efficient generation of the necessary clinical data for inclusion in a Marketing Authorization Application, or MAA.
Even if we obtain regulatory approval for a product candidate, our products will remain subject to ongoing regulatory oversight.
Even if we obtain any regulatory approval for our product candidates, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information. Any regulatory approvals that we receive for our product candidates also may be subject to a REMS, limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the quality, safety and efficacy of the product. The holder of an approved marketing application also must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or cGMP, requirements and adherence to commitments made in the NDA or foreign marketing application. If a regulatory authority discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of that product, a regulatory authority may impose restrictions relative to that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we fail to comply with applicable regulatory requirements, a regulatory authority may:
| ● | issue an untitled letter or warning letter that we are in violation of the law; |
| ● | seek an injunction or impose administrative, civil or criminal penalties or monetary fines; |
| ● | suspend or withdraw regulatory approval; |
| ● | suspend any ongoing clinical trials; |
| ● | refuse to approve pending applications or supplements to applications; |
| ● | restrict the marketing or manufacturing of the product; |
| ● | seize or detain the products or require the withdrawal of the product from the market; |
| ● | refuse to permit the import or export of the products; or |
| ● | refuse to allow us to enter into supply contracts, including government contracts. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and adversely affect our business, financial condition, results of operations and prospects.
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The FDA and other regulatory authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, if approved. In particular, while the FDA permits the dissemination of truthful and non-misleading information about an approved product, a manufacturer may not promote a product for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees, corporate integrity agreements or permanent injunctions under which specified promotional conduct must be changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions. Our failure to obtain regulatory approval in foreign jurisdictions would prevent our product candidates from being marketed abroad, and any approval we are granted for our product candidates in the United States would not assure approval of product candidates in foreign jurisdictions.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding clinical trial design, safety and efficacy. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drugs are subject to extensive regulation by the FDA in the United States and other regulatory authorities in other countries. These regulations differ from country to country. Even if we obtain and maintain regulatory approval of our product candidates in one jurisdiction, such approval does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries.
Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional pre-clinical studies or clinical trials as investigations conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval. These regulatory procedures can result in substantial delays in such countries. In other countries, product approval depends on showing superiority to an approved alternative therapy. This can result in significant expenses for conducting complex clinical trials.
Finally, we do not have any products approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval. If we, or any third parties with whom we work, fail to comply with regulatory requirements in the United States or international markets or to obtain and maintain required approvals or if regulatory approvals in international markets are delayed, our target market may be reduced and our ability to realize the full market potential of our products will likely be harmed. The inability to meet continuously evolving regulatory standards for approval may result in our failing to obtain regulatory approval to market our current product candidates, which could significantly harm our business, results of operations and prospects.
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We may be unable to obtain or maintain orphan drug designation for our product candidates and, even if we obtain such designation, we may not be able to realize the benefits of such designation, including potential marketing exclusivity of our product candidates, if approved.
Regulatory authorities in some jurisdictions, including the United States and EU, may designate drugs for relatively small patient populations as “orphan drugs.” Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States or a patient population of greater than 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the EU, the European Commission grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the EU community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the EU would be sufficient to justify the necessary investment in developing the drug.
The FDA granted orphan drug designation to mazindol for the treatment of narcolepsy in the United States. We also received orphan drug designation for mazindol in the EU for the treatment of IH. This designation of a product candidate as an orphan product does not mean that any regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency to grant orphan drug designation to product candidates of other companies that treat the same indications as our product candidates prior to our product candidates receiving exclusive marketing approval.
Generally, if a product candidate with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug may be entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same drug for that time period, except in limited circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be precluded from receiving marketing approval for our product for the applicable exclusivity period. The applicable period is seven years in the United States and ten years in the EU, which may be extended by six months and two years, respectively, in the case of product candidates that have complied with the respective regulatory agency’s agreed upon PIP. The exclusivity period in the EU can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the EU, marketing authorization may be granted to a similar medicinal product for the same orphan indication if:
| ● | the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior; |
| ● | the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or |
| ● | the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinal product. |
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Risks Related to Our Financial Condition and Capital Requirements
Our financial statements for the year ended December 31, 2023, contained a disclosure in Note 1 regarding substantial doubt about our ability to continue as a going concern. This going concern disclosure in Note 1 of financial statements could prevent us from obtaining new financing on reasonable terms or at all and risk our ability to continue operating as a going concern.
To date, the Company has not generated significant revenues from its activities and has incurred substantial operating losses. In part because we have incurred losses in each year since our inception, our audited financial statements for the period ended December 31, 2023 contain a disclosure in Note 1 regarding substantial doubt about our ability to continue as a going concern. These events and conditions, along with other matters, indicated that a material uncertainty existed as of December 31, 2023, that raises substantial doubt on our ability to continue as a going concern. The financial statements for the year ended December 31, 2023 have been prepared assuming that we will continue as a going concern. Management expects the Company to continue to generate substantial operating losses and to continue to fund its operations primarily through the utilization of its current financial resources, sales of its products, and through additional raises of capital. As of December 31, 2023, we incurred accumulated losses of approximately $70.4 million. The disclosure regarding substantial doubt about our ability to continue as a going concern could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise in the future. Further financial statements may also include a similar disclosure with respect to our ability to continue as a going concern. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through existing cash, debt or equity financing. We expect to require additional financing to fund our operations in the near future. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products and it risks our ability to continue operating as a going concern.
We are exposed to various risks related to legal or administrative proceedings or claims that could adversely affect our financial condition, results of operations and reputation, and may cause loss of business.
Litigation in general can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. We and/or our directors and officers may be involved in allegations, litigation or legal or administrative proceedings from time to time.
On December 1, 2023, we received a letter from Cambrex Corporation, stating that as of December 1, 2023, we had an overdue balance for services completed under certain proposals by and between the Company, Cambrex High Point, Inc. and Avista Pharma Solutions, Inc. in the aggregate amount of $492,723,23.
On June 1, 2023, Clinilabs, Inc., or Clinilabs, entered into a start-up agreement with us. On December 4, 2023, we received five credit notes and two invoices from Clinilabs pursuant to services performed by Clinilabs under the start-up agreement. Clinilabs demanded $793,112.46 from us for unpaid service fees.
On December 11, 2023, we received a notice alleging several causes of action, including a failure to remit payment for services rendered by CoreRX, Inc., or CoreRX. On December 11, 2023, we and CoreRX agreed to a structured payment plan in which we agreed to pay CoreRX a total amount of $1,007,700.50.
Regardless of the merits, responding to allegations, litigation or legal or administration proceedings and defending against litigation can be time-consuming and costly, and may result in us incurring substantial legal and administrative expenses, as well as divert the attention of our management. Any such allegations, lawsuits or proceedings could have a material adverse effect on our business operations. Further, unfavorable outcomes from these claims or lawsuits could adversely affect our business, financial condition and results of operations.
We believe that our current cash on hand and access to existing financing arrangements will not be sufficient to fund our projected operating requirements for a period of one year from the issuance of the financial statements included elsewhere in this annual report. This raises substantial doubt about our ability to continue as a going concern. There can be no assurance that these funds will be available, or if they are available, their availability will be on terms acceptable to the Company or in an amount sufficient to enable the Company to fully complete its development activities, sustain operations or pay back its debt.
We believe that our current cash on hand and access to existing financing arrangements will not be sufficient to fund our projected operating requirements for a period of one year from the issuance of the financial statements included elsewhere in this annual report. This raises substantial doubt about our ability to continue as a going concern. We expect that we will be required to obtain additional liquidity in order to fund our operations through the approval of our lead product candidate. Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through debt, equity financing or income from a partnership deal. We cannot be certain that funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products. We may ultimately be forced to file for bankruptcy if no funds are available either through a financing or a strategic partnership.
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Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. We believe that our current cash on hand and access to existing financial arrangements will not be sufficient to fund our projected operating requirements for at least one year from the issuance of the financial statements included elsewhere in this annual report. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products.
We have a limited operating history and we have incurred significant operating losses since our inception, and anticipate that we will incur continued losses for the foreseeable future.
We are an emerging biopharmaceutical company with a limited operating history. To date, we have focused almost exclusively on developing product candidates using the active ingredient mazindol in proprietary formulations. We have funded our operations to date primarily through proceeds from the private placement of common shares, convertible instruments, related party credit facilities, shareholder loans, an initial public offering of common shares and Warrants, and drawdowns from a standby equity distribution agreement. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. To date, although we received an upfront payment of approximately $2.5 million pursuant to the EF License Agreement (defined below) in 2019, we have not generated revenue from the sale of our product candidates (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information). We have incurred losses in each year since our inception. Our net loss attributable to holders of our common shares for the year ended December 31, 2023 was approximately $12.2 million and for the year ended December 31, 2022 was approximately $16.4 million. As of December 31, 2023, we had an accumulated deficit of approximately $70.4 million. Substantially all of our operating losses resulted from costs incurred in connection with our clinical development program and from general and administrative costs associated with our operations.
We expect our research and development expenses to increase in connection with our planned expanded clinical trials. In addition, if we obtain marketing approval for Quilience and/or Nolazol, or any other current or future product candidate, we will likely incur significant sales, marketing and outsourced manufacturing expenses, as well as continued research and development expenses. Furthermore, we expect to incur additional costs associated with operating as a public company, which we estimate will be at least several hundred thousand dollars annually. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.
We expect to continue to incur significant losses until we are able to commercialize our product candidates, which we may not be successful in achieving. We anticipate that our expenses will increase substantially if and as we:
| ● | continue the research and development of our product candidates; |
| ● | expand the scope of our current clinical studies for our product candidates; |
| ● | seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies; |
| ● | establish a sales, marketing, and distribution infrastructure to commercialize our product candidates; |
| ● | seek to identify, assess, acquire, license, and/or develop other product candidates and subsequent generations of our current product candidates; |
| ● | seek to maintain, protect, and expand our intellectual property portfolio; |
| ● | seek to attract and retain skilled personnel; and |
| ● | create additional infrastructure to support our operations as a public company and our product candidate development and planned future commercialization efforts. |
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We have not generated revenues from any product candidate and may never be profitable.
Our ability to become profitable depends upon our ability to generate revenues. To date, we have not generated any revenue from our pre-clinical and clinical development stage product candidates, Quilience, Nolazol and NLS-4, and we do not know when, or if, we will generate any such revenue. We do not expect to generate significant revenues unless or until we obtain marketing approval of, and commercialize, Quilience and/or Nolazol and/or the Aexon platform that we may seek to develop in the future. Our ability to generate future revenues from product candidate sales depends heavily on our success in many areas, including but not limited to:
| ● | obtaining favorable results from and progress the pre-clinical and clinical development of our product candidates, namely Quilience and/or Nolazol; |
| ● | developing and obtaining regulatory approval for registration studies protocols for our product candidates, namely Quilience and/or Nolazol; |
| ● | subject to successful completion of registration and clinical trials of Quilience and/or Nolazol, applying for and obtaining marketing approval; |
| ● | establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products, and at acceptable costs, to support market demand for our product candidates, if marketing approval is received; |
| ● | identifying, assessing, acquiring and/or developing new product candidates; |
| ● | accurately identifying demand for our product candidates; |
| ● | continued consumer interest in treatments to the symptoms of narcolepsy, IH, ADHD and Long-COVID; |
| ● | obtaining market acceptance of our product candidates, if approved for marketing, as viable treatment options; |
| ● | negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; |
| ● | obtaining and maintaining CIV labeling (no FDA imposed boxed warning, commonly referred to as a “Black Box” warning) of our lead product candidate Quilience and follow-on product candidates, Nolazol and NLS-4; |
| ● | establishing and nurturing relationships with the leading prescribers of narcolepsy, ADHD and Long-COVID prescriptions in the United States; and |
| ● | attracting, hiring, and retaining qualified personnel. |
Alexander Zwyer, our Chief Executive Officer, and Eric Konofal, our Chief Scientific Officer, have interests that may be different from, or in addition to, the interests of our shareholders and the Company and Aexon may not have sufficient funds to continue or grow operations.
Alexander Zwyer owns 35% of Aexon, and Eric Konofal owns 59% of Aexon. Mr. Konofal is the founder of Aexon, with which we have a license agreement, and also serves as the President of Aexon. Mr. Zwyer holds no board or executive position at Aexon Labs. Mr. Zwyer and Mr. Konofal may have interests in the transactions with Aexon that may be different from, or in addition to, the interests of our shareholders and that may create potential conflicts of interest. Each of us and Aexon expect to be required to obtain additional liquidity in order to fund operations through the approval of certain of each of the company’s products. Until each company can generate significant revenues, if ever, each company expects to satisfy its future cash needs through debt or equity financings. Each company cannot be certain that funding will be available to it on acceptable terms, if at all. If funds are not available, each company may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to each company’s products.
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We expect that we will need to raise substantial additional funding before we can expect to complete the development of Quilience or any other product candidate. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product candidate development efforts or other operations.
As of December 31, 2023, our cash and cash equivalents were approximately $0.9 million, and we had a negative working capital of $6.07 million and an accumulated deficit of $70.4 million. Based upon our currently expected level of operating expenditures, we believe that our current cash on hand and access to existing financial arrangements will not be sufficient to fund our projected operating requirements for a period of one year from the issuance of these financial statements included elsewhere in this annual report. This raises substantial doubt about our ability to continue as a going concern. We expect that we will require substantial additional capital to commercialize our product candidates and put in place multiple options to raise the funds necessary to support our operations. However, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future funding requirements will depend on many factors, including but not limited to:
| ● | our clinical trial results and the costs for conducting pivotal trials; |
| ● | the cost, timing and outcomes of seeking marketing approval of Quilience and/or Nolazol; |
| ● | the cost of filing and prosecuting patent applications and the cost of defending our patents; |
| ● | the cost of prosecuting patent infringement actions against third parties; |
| ● | development of other early-stage development product candidates; |
| ● | the costs associated with commercializing Quilience and/or Nolazol if we receive marketing approval, including the cost and timing of establishing sales and marketing capabilities to market and sell Quilience and/or Nolazol; |
| ● | subject to receipt of marketing approval, revenue received from sales of approved products, if any, in the future; |
| ● | any product liability or other lawsuits related to our products; |
| ● | the expenses needed to attract and retain skilled personnel; and |
| ● | the costs associated with being a public company. |
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all, during or after the COVID-19 pandemic. Moreover, the terms of any financing may adversely affect the holdings or the rights of holders of our securities and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common shares or our publicly traded Warrants to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the development or commercialization, if any, of any product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
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Risks Related to Our Reliance on Third Parties
We are dependent on a sole manufacturer for mazindol. Any delay, price increase or unavailability of mazindol could materially adversely affect our ability to conduct clinical trials and, if this were to occur after we obtained commercialization and marketing approval, could cause us to cease operations.
Currently we rely on a single manufacturer for mazindol for our clinical trials conducted to date pursuant to purchase orders and do not have any existing contract with such manufacturer for future supplies. The FDA requires identification of raw material suppliers in applications for approval of drug products. If mazindol were to be unavailable from the specified manufacturer, FDA approval of a new manufacturer, assuming one is found, could delay the manufacture of the drug involved or delay any clinical trial we are then conducting or planning to conduct. Either such occurrence could have an adverse effect on our operations and reputation or could cause us to cease operations.
Furthermore, there is a risk of a sole approved manufacturer significantly raising prices. If prices for mazindol or other raw materials were to be significantly increased, our profit margins and sales, if any, would be greatly reduced and, assuming our products were approved for commercialization or marketing, delay product launches, or delay clinical trials at earlier stages of development. Such price increase occurrences could be resolved by the successful FDA approval of an alternate supplier; however, such approval process can be lengthy and costly. There can be no guarantee that a resolution would be reached in the event of a significant price increase by our supplier of mazindol.
We rely on third parties to conduct our pre-clinical and clinical studies and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing pre-clinical and clinical programs. We rely on these parties for execution of our pre-clinical and clinical studies, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with current cGMP, Good Clinical Practices, or GCP, quality system requirements, or QSR, and Good Laboratory Practices, or GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical studies before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical studies comply with GCP regulations. In addition, our clinical studies must be conducted with product candidates which are produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process.
We have no manufacturing capacity and anticipate reliance on third-party manufacturers for our products.
We do not currently operate manufacturing facilities for clinical production of Quilience and/or Nolazol. We do not intend to develop facilities for the manufacture of products for clinical trials or commercial purposes in the foreseeable future. We will rely on third-party manufacturers to produce bulk drug products required for our clinical trials and commercial sales, if any. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of our drug product candidates if and when approved for marketing by the applicable regulatory authorities. Our contract manufacturers have not completed process validation for the drug substance manufacturing process. Process validation involves a series of activities taking place over the lifecycle of the product and process. If our contract manufacturers are not approved by the FDA, or other regulatory bodies, our commercial supply of drug substance will be significantly delayed and may result in significant additional costs. If the FDA does not consider the result of the process validation or required testing to be satisfactory, regulatory approval and/or commercial supply after launch may be delayed. The FDA and similar foreign regulatory bodies may also implement new requirements, or change their interpretation and enforcement of existing requirements, for manufacturers, packaging or testing of products at any time. If we, or our contract manufacturers are unable to comply with such process validation or other requirements, we may be subject to regulatory, civil actions or penalties which could harm our business.
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We purchase finished mazindol, the molecule in both of Quilience and Nolazol, from a single third party, currently under a development agreement with us. In addition, we do not have an agreement in place for, but we have identified, a secondary fill/finish supplier. There can be no guarantee that we will enter into an agreement with such fill/finish supplier or that an effort to enter into such an agreement will be on favorable terms. If we need to identify an additional fill/finish manufacturer, we would not be able to do so without delay and likely significant additional cost.
Our existing manufacturer and any future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, such as difficulties involving production yields, quality control and quality assurance, we may be unable to replace a third-party manufacturer in a timely manner and the production of any product candidate or commercialized drug would be interrupted, resulting in delays and additional costs.
In addition, because the contract manufacturer of our drug substance is located in the United States, we may face difficulties in importing our drug substances into Europe as a result of, among other things, import inspections, incomplete or inaccurate import documentation or defective packaging.
We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
Manufacturers and their facilities are required to comply with extensive regulatory requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs. These cGMP regulations cover all aspects of manufacturing relating to our product candidates. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational product candidates and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We, our collaborators or our contract manufacturers must supply all necessary documentation in support of an NDA or MAA on a timely basis and must adhere to GLP and cGMP QSR regulations enforced by the FDA and other regulatory authorities through their facilities inspection program. Some of our contract manufacturers have never produced a commercially approved pharmaceutical product and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential product candidates or the associated quality systems for compliance with the regulations applicable to the activities being conducted. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the product candidates may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever. Moreover, if our contract manufacturers fail to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or there are substantial manufacturing errors, this could result in patient injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business.
Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential future product candidates.
We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our current and potential future product candidates. We may enter into these arrangements on a selective basis depending on the merits of retaining commercialization rights for ourselves as compared to entering into selective collaboration arrangements with other pharmaceutical or biotechnology companies for each product candidate, both in the United States and internationally. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so choose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.
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Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority.
Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration could adversely affect us financially and could harm our business reputation.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
Risks Related to Our Intellectual Property
We have been granted several issued patents and filed multiple patent applications. There can be no assurance that any of our patent applications will result in issued patents. As a result, our ability to protect our proprietary technology in the marketplace may be limited.
We have been granted issued patents in countries worldwide. These issued patents cover a range of areas including: the therapeutic use of mazindol for the treatment of ADHD and combination therapies containing mazindol (add-ons with iron or stimulants) in sleep disorders such as narcolepsy or IH. We have also filed patent applications in many countries worldwide. Unless and until our pending patent applications are issued, their protective scope is impossible to determine. It is impossible to predict whether or how many of our patent applications will result in issued patents. Even if pending applications are issued, they may be issued with coverage significantly narrower than what we currently seek.
Our proprietary position for our product candidates currently depends upon patents protecting the method of use, which may not prevent a competitor or other third party from using the same product candidate for another use.
The primary patent based intellectual property protection for our product candidates are patents granted on the method of use and formulation. We do not have patents or patent applications covering our products as a composition of matter (i.e., compound claims)) for all our product candidates.
Composition of matter patent claims on the active pharmaceutical ingredient, or API, in pharmaceutical drug products are generally considered to be the favored form of intellectual property protection for pharmaceutical products, as such patents provide protection without regard to any particular method of use, manufacture or formulation of the API used. Method of use patent claims protect the use of a product for the specified method and dosing. These types of patent claims do not prevent a competitor or other third party from making and marketing an identical API for an indication that is outside the scope of the method claims or from developing a different dosing regimen. Moreover, even if competitors or other third parties do not actively promote their product for our targeted indications or uses for which we may obtain patents, physicians may recommend that patients use these products off-label, or patients may do so themselves. Although off-label use may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.
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Because the patent positions of pharmaceutical products are complex and uncertain, we cannot predict the scope and extent of patent protection of our issued patents for our product candidates.
Our issued patents may not ensure the protection of our intellectual property for a number of reasons, including without limitation the following:
| ● | any issued patents may not be broad or strong enough to prevent competition from other drug products including identical or similar drug products; |
| ● | if issued patents expire, there would be no protections against competitors making generic equivalents; |
| ● | there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim; |
| ● | there may be other patents existing, now or in the future, in the patent landscape for Quilience and Nolazol, or any other product candidates that we seek to commercialize or develop, if any, that will affect our freedom to operate; |
| ● | if our patents are challenged, a court could determine that they are not valid or enforceable; |
| ● | a court could determine that a competitor’s technology or product does not infringe our patents; |
| ● | our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations, or could be subject to compulsory licensing; and |
| ● | if we encounter delays in our development or clinical trials, the period of time during which we could market our products under patent protection would be reduced. |
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the term of the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
We may not be able to enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States and Switzerland can be less extensive than those in the United States and Switzerland. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as laws in the United States and Switzerland. Consequently, we may not be able to seek to prevent third parties from practicing our inventions in all countries outside the United States and Switzerland, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors, for example, may use our technologies in jurisdictions where we have not obtained patents to develop their own products and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United States and Switzerland.
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Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certain countries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to medical devices and biopharmaceutical and biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreign jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe and developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
If we are unable to maintain effective proprietary rights for our product candidates, we may not be able to compete effectively in our markets.
In addition to the protection afforded by any patents currently issued, historically, we have relied on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes that are not easily known, knowable or easily ascertainable, and for which patent infringement is difficult to monitor and enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining physical security of our premises and physical and electronic security of our information technology systems. Agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors.
We cannot provide any assurances that our trade secrets and other confidential proprietary information will not be disclosed in violation of our confidentiality agreements or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Also, misappropriation or unauthorized and unavoidable disclosure of our trade secrets and intellectual property could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets and intellectual property are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secret.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the pharmaceutical industry. While no such litigation has been brought against us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our product candidates or use of our product candidates do not infringe third-party patents. It is also possible that we have failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering our product candidates could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates.
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We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates, including inter parties review, interference, or derivation proceedings before the U.S. PTO and similar bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our product candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Any inability to secure licenses could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same license. We could be forced, including by court order, to cease commercializing the products subject to the infringing intellectual property rights. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. In addition, we may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectual property, which in turn could impact our future profitability.
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective of their agreements with us.
We generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. Under Swiss law, a non-compete agreement could be invalidated if, for example, the geographic scope of the non-compete agreement is too broad, or, alternatively, such an agreement could be deemed by a Swiss court to be an occupation ban. Such actions would make enforcing our non-competition agreements more challenging and could make it easier for our competitors to employee our previous employees.
In addition, under Swiss law, if we wish to obtain ownership over inventions developed by our employees, which inventions were developed while performing their employment activities, but outside the performance of their contractual duties, we are required to compensate the employee for the rights to their respective inventions. There can be no guarantee that we will be able to obtain any such inventions and the failure to obtain such ownership rights over employee inventions could have a material adverse effect on our operations and ability to effectively compete.
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Risks Related to Our Business Operations
We manage our business through a small number of key employees and consultants.
As of the date of this annual report, our key employees and consultants include our Chief Executive Officer, Mr. Alexander Zwyer, our Chief Financial Officer, Elena Thyen-Pighin, our Chief Scientific Officer, Eric Konofal, and our Chief Medical Officer and Global Head of Research and Development, Dr. George Apostol. Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees and key consultants. The loss of the services of our Chief Executive Officer or any of our senior management or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.
In addition, laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, legislation affecting public companies has been passed that, among other things, (i) imposes an annual binding shareholders’ “say-on-pay” vote with respect to the compensation of the members of (a) the senior management and (b) the board of directors, (ii) prohibits severance, advances, transaction premiums and similar payments to senior management and directors, and (iii) requires companies to specify various compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote.
Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific and technical consultants. In particular, the loss of one or more of our senior management or key consultants could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of senior management. The competition for qualified personnel in the pharmaceutical industry is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
| ● | the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; |
| ● | federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; |
| ● | the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; |
| ● | HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; |
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| ● | the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA, requires manufacturers of drugs, devices and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; |
| ● | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and |
| ● | European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers, and the European General Data Protection Regulation, or GDPR, which became effective in May 2018 and contains new provisions specifically directed at the processing of health information, higher sanctions and extra-territoriality measures intended to bring non-EU companies under the regulation, including companies like us that conduct clinical trials in the EU; we anticipate that over time we may expand our business operations to include additional operations in the EU and with such expansion, we would be subject to increased governmental regulation in the EU countries in which we might operate, including the GDPR. |
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. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other related governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, disgorgement, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, reputational harm, additional oversight and reporting obligations if we become subject to a corporate integrity agreement or similar settlement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to similar actions, penalties and sanctions. Efforts to ensure that our business arrangements comply with applicable healthcare laws and regulations, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s attention from the business.
Healthcare legislative and regulatory reform measures may have a material adverse effect on our business and results of operations.
Our industry is highly regulated and changes in law may adversely impact our business, operations, or financial results. The PPACA was a sweeping measure intended to, among other things, expand healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and an additional downward pressure on the reimbursement our customers may receive for our products. Further, there have been, and there may continue to be, judicial and Congressional challenges to certain aspects of the PPACA. For example, the U.S. Tax Cuts and Jobs Act of 2017, or TCJA, includes a provision repealing the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.
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In addition, the delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval.
We are currently unable to predict what additional legislation or regulation, if any, relating to the healthcare industry may be enacted in the future or what effect recently enacted federal legislation or any such additional legislation or regulation would have on our business. The pendency or approval of such proposals or reforms could result in a decrease in the price of our common shares or Warrants or limit our ability to raise capital or to enter into collaboration agreements for the further development and potential commercialization of our products.
The use of any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.
Our business exposes us to an inherent risk of potential product liability or similar claims. The pharmaceutical industry has historically been litigious, and we face financial exposure to product liability or similar claims if the use of any of our products were to cause or contribute to injury or death. There is also the possibility that defects in the design or manufacture of any of our products might necessitate a product recall. Although we plan to maintain product liability insurance, the coverage limits of these policies may not be adequate to cover future claims. In the future, we may be unable to maintain product liability insurance on acceptable terms or at reasonable costs and such insurance may not provide us with adequate coverage against potential liabilities. A product liability claim, regardless of merit or ultimate outcome, or any product recall could result in substantial costs to us, damage to our reputation, customer dissatisfaction and frustration and a substantial diversion of management attention. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.
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Risks Related to the Ownership of Our Securities
The market price of our common shares and Warrants may be highly volatile, and you may not be able to resell your shares or Warrants at or above the initial public offering price.
The trading price of each of our common shares and Warrants is likely to be volatile. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of such securities:
| ● | unsatisfactory results of clinical trials; | |
| ● | announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process; | |
| ● | announcements of therapeutic innovations or new products by us or our competitors; | |
| ● | adverse actions taken by regulatory authorities with respect to our clinical trials, manufacturing supply chain or sales and marketing activities; | |
| ● | changes or developments in laws or regulations applicable to the treatment of the symptoms of narcolepsy, ADHD, or any other indication that we may seek to develop, or the use of mazindol to treat any such indications; | |
| ● | any adverse changes to our relationship with manufacturers or suppliers; | |
| ● | any intellectual property infringement actions in which we may become involved; | |
| ● | announcements concerning our competitors or the pharmaceutical industry in general; | |
| ● | achievement of expected product sales and profitability or our failure to meet expectations; | |
| ● | our commencement of, or involvement in, litigation; | |
| ● | any major changes in our board of directors or management; | |
| ● | our ability to recruit and retain qualified regulatory, research and development personnel; | |
| ● | legislation in the United States relating to the sale or pricing of pharmaceuticals; | |
| ● | the depth of the trading market in our common shares and Warrants; | |
| ● | economic weakness, including rising or sustained high interest rates and high inflation, or political instability in particular foreign economies and markets; | |
| ● | business interruptions resulting from a local or worldwide pandemic, pandemics (such as the COVID-19 pandemic), geopolitical instability (such as the war in Ukraine), and other conditions beyond our control; | |
| ● | the granting or exercise of employee stock options or other equity awards; and | |
| ● | changes in investors’ and securities analysts’ perception of the business risks and conditions of our business. |
In addition, the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. For example, during 2022, the sale prices of our common shares ranged from a high of $2.40 per share to a low of $0.33 per share and during 2023, the sale prices of our common shares ranged from a high of $1.88 per share to a low of $0.26 per share. During this time, we do not believe that we have experienced any material changes in our financial condition or results of operations that would explain such price volatility or trading volume; however, we have sold equity which was dilutive to existing shareholders. These broad market fluctuations may adversely affect the trading price of our securities. Additionally, these and other external factors have caused and may continue to cause the market price and demand for our common shares to fluctuate substantially, which may limit or prevent our shareholders from readily selling their shares and may otherwise negatively affect the liquidity of our shares.
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We have identified material weaknesses in our internal control over financial reporting. If our remediations are not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial conditions or results or operations, or prevent fraud, which may adversely affect investor confidence in our Company and as a result, the market price of our common shares and Warrants.
As a public company, we are required to maintain internal control over financial reporting and will be required to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an EGC as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. According to the U.S. Public Company Accounting Oversight Board, a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. If we fail to remediate the material weaknesses,or are otherwise unable to maintain effective internal control over financial reporting, management could be required to expend significant resources and we could fail to meet our public reporting requirements on a timely basis, and be subject to fines, penalties, investigations or judgements, all of which could negatively affect investor confidence and adversely impact our stock price.
As of December 31, 2023, we have material weaknesses in our internal control over financial reporting, relating to a lack of sufficient number of trained professionals with an appropriate level of U.S. GAAP accounting knowledge to design and maintain controls over the preparation of financial statements, and relating to a lack of maintaining appropriate segregation of duties.
During the year ended December 31, 2023, we have taken steps to remediate the material weaknesses and to strengthen our internal control over financial reporting. We conducted an analysis to identify the underlying reasons for the material weaknesses. This involved assessing risk factors, understanding process gaps, and pinpointing areas that needed improvement. As part of our remediation we have transitioned the accounting processes, previously outsourced to an external fiduciary company, to an in-house team. While we believe that these efforts will improve our internal control over financial reporting in accordance with U.S. GAAP and SEC reporting requirements, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to establish and maintain effective internal control over financial reporting.
The Warrants we have issued are speculative in nature.
The Warrants we have offered and sold do not confer any rights of common share ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire common shares at a fixed price for a limited period of time. Specifically, holders of the Warrants we have issued may exercise their right to acquire the common shares and pay an exercise price per common share as contemplated in such holder’s Warrant, prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value.
If we were to be characterized as a “passive foreign investment company” for U.S. tax purposes, U.S. holders of our common shares and Warrants could have adverse U.S. income tax consequences.
In general, we will be treated as a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. We do not believe that we will be deemed a PFIC for 2023. If we are a PFIC in any taxable year during which a U.S. taxpayer holds the common shares and Warrants, such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, except with respect to the Warrants (unless exercised), if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of the common shares by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for the common shares; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market election. U.S. taxpayers that have held the common shares during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. We intend to make available to U.S. taxpayers upon request the information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. U.S. taxpayers that hold the common shares are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to the common shares in the event that we are a PFIC. See Item 10.E. “Taxation-U.S. Federal Income Tax Consequences-Passive Foreign Investment Companies” for additional information.
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We have not paid, and do not intend to pay, dividends on our common shares and, therefore, unless our traded securities appreciate in value, our investors may not benefit from holding our common shares.
We have never declared or paid cash dividends on our common shares. We do not anticipate paying any cash dividends on our common shares in the foreseeable future. Moreover, Swiss Law imposes certain restrictions on our ability to declare and pay dividends. See Item 8.A. “Dividends” for additional information.
Our failure to meet the continued listing requirements Nasdaq could result in a delisting of our securities or us seeking to transfer our listed securities to a different exchange.
On April 17, 2024, we received a determination letter from the staff (the "Staff") of the Listing Qualifications Department of Nasdaq notifying the Company of the Staff's determination that, unless the Company timely requests a hearing before a Nasdaq Hearings Panel (the "Panel"), the Company's securities would be subject to delisting from The Nasdaq Capital Market due to the Company's failure to maintain at least a $1.00 bid price per share over the course of 30 consecutive business days, as set forth in Nasdaq Listing Rule 5550(a)(2). Accordingly, the Company requested a hearing before the Panel. The hearing request stayed any suspension or delisting action pending the hearing and the expiration of any additional extension period granted by the Panel following the hearing.
At the hearing, the Company intends to present a plan to achieve compliance with the bid price requirement, as well as any other applicable Nasdaq listing requirements, and to request that the Panel allow the Company additional time to regain such compliance. However, there can be no assurance that the Panel will grant the Company's request for an extension or that the Company will ultimately regain compliance with all applicable requirements for continued listing.
On January 9, 2024, we received a letter from the Listing Qualifications Department of Nasdaq indicating that we did not meet the minimum of $2.5 million in shareholders’ equity required for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(b)(1) or the alternative compliance standards relating to the market value of listed securities or net income from continuing operations, or the Minimum Stockholders’ Equity Requirement. The letter also indicated that we would be provided with a period of 45 calendar days to submit a plan to regain compliance, and if such plan is accepted by Nasdaq, we may be granted up to 180 calendar days from January 9, 2024 in which to regain compliance. On February 23, 2024, we submitted our plan, on time, to regain compliance with Nasdaq Listing Rule 5550(b)(1). On March 7, 2024, the Listing Qualifications Department of Nasdaq notified us that Nasdaq had accepted the plan submitted and the Company has been afforded an additional 180 day calendar days from the date of the letter, or until July 8, 2024, to evidence compliance.
We have in the past, and may in the future, be unable to comply with certain of the listing standards that we are required to meet to maintain the listing of our common shares on Nasdaq. If we fail to satisfy the continued listing requirements of Nasdaq, such as minimum stockholders’ equity requirements or minimum bid price requirements, Nasdaq may take steps to delist our common shares. Such a delisting would have a negative effect on the price of our common shares, impair the ability to sell or purchase our common shares when persons wish to do so, and any delisting materially adversely affect our ability to raise capital or pursue strategic restructuring, refinancing or other transactions on acceptable terms, or at all. Delisting from Nasdaq could also have other negative results, including the potential loss of institutional investor interest and fewer business development opportunities, as well as a limited amount of news and analyst coverage of us. Delisting could also result in a determination that our common shares are a “penny stock,” which would require brokers trading in our common shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary market for our common shares. In the event of a delisting, we would attempt to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our common shares from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
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The JOBS Act allows us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our Company and adversely affect the market price of our common shares and Warrants.
For so long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements that are applicable to public companies that are not EGCs including:
| ● | the provisions of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting; |
| ● | Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. This means that an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards. As a result of this adoption, our financial statements may not be comparable to companies that comply with the public company effective date; and |
| ● | any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. |
We intend to take advantage of these exemptions until we are no longer an EGC. We will remain an EGC until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, as defined in the rule under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We cannot predict if investors will find our common shares and Warrants less attractive because we may rely on these exemptions. If some investors find our common shares and Warrants less attractive as a result, there may be a less active trading market for each such traded security, and the trading price of each may be more volatile and may decline.
The requirements associated with being a public company require significant company resources and management attention.
We are subject to the reporting requirements of the Exchange Act, Nasdaq listing requirements and other applicable securities rules and regulations. The Exchange Act requires that we file periodic reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and Nasdaq may also impose various additional requirements on public companies. As a result, we will incur additional legal, accounting and other expenses, particularly after we are no longer an EGC as defined in the JOBS Act. We estimate that these expenses will be in excess of one million dollars annually. We have made changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. The measures we take, however, may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our common shares, fines, sanctions and other regulatory action and potentially civil litigation.
After we are no longer an “emerging growth company”, we expect to incur significant expenses and devote substantial management efforts toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the other rules and regulations of the SEC.
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Risks Related to Swiss Law and Our Operations in Switzerland
We are a Swiss corporation. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.
We are a Swiss corporation. Our corporate affairs are governed by our articles of association and by the laws governing companies, including listed companies, incorporated in Switzerland. The rights of our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and directors of companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our Company, our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge resolutions made or other actions taken by our board of directors in court. Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors but are instead only permitted to seek damages for breaches of fiduciary duty. However, if a board resolution has been invalidly formed, anyone, including the shareholders, may claim that such an invalid resolution shall be declared null and void. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach of fiduciary duty would have to be brought to the competent court at the legal seat of the Company, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought to the competent court at the legal seat of the Company.
Our common shares are issued under the laws of Switzerland, which may not protect investors in a similar fashion afforded by incorporation in a U.S. state.
We are organized under the laws of Switzerland. However, there can be no assurance that Swiss law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which could adversely affect the rights of investors.
Our status as a Swiss corporation may limit our flexibility with respect to certain aspects of capital management and may cause us to be unable to make distributions without subjecting our shareholders to Swiss withholding tax.
The amended Swiss corporate law, effective January 1, 2023, allows our shareholders to implement a so called capital band (Kapitalband) in the articles of association which authorizes the board of directors to increase and/or decrease the share capital within a certain bandwidth without additional shareholder approval. This authorization is limited to 50% of the existing registered share capital and the authorization must be renewed by the shareholders every five years. Additionally, subject to specified exceptions, Swiss law grants pre-emptive subscription rights to existing shareholders to subscribe to any new issuance of shares. Swiss law also does not provide as much flexibility in the various terms that can attach to different classes of shares as the laws of some other jurisdictions. Swiss law also reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, dividends must be approved by shareholders. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided substantial benefits to our shareholders.
Under Swiss law, a Swiss corporation may pay dividends only if the corporation has sufficient distributable profits from previous fiscal years, or if the corporation has distributable reserves, each as evidenced by its audited statutory balance sheet. Furthermore, a Swiss corporation may pay interim dividends (“Zwischendividende”) if the corporation has sufficient distributable profits during the current fiscal year. The remaining provisions applicable to the dividends are also applicable to the interim dividends. Freely distributable reserves are generally booked either as “free reserves” or as “capital contributions” (contributions received from shareholders) in the “reserve from capital contributions.” Distributions may be made out of issued share capital-the aggregate nominal value of a company’s issued shares-only by way of a capital reduction. As of December 31, 2023, we had CHF 47,188,748 (approximately $50,432,748) of qualifying capital contributions and CHF 713,436 (approximately $733,413) of registered share capital (consisting of 35,671,780 common shares each with a nominal value of CHF 0.02 and no preferred shares) on our audited statutory balance sheet (which audit was performed by our independent registered public accounting firm), as required pursuant to Swiss law. We will not be able to pay dividends or make other distributions to shareholders on a Swiss withholding tax-free basis in excess of that amount unless we increase our share capital or our reserves from capital contributions. We would also be able to pay dividends out of distributable profits or freely distributable reserves but such dividends would be subject to Swiss withholding taxes. There can be no assurance that we will have sufficient distributable profits, free reserves, reserves from capital contributions or registered share capital to pay a dividend or effect a capital reduction, that our shareholders will approve dividends or capital reductions proposed by us, or that we will be able to meet the other legal requirements for dividend payments or distributions as a result of capital reductions.
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Generally, Swiss withholding tax of 35% is due on dividends and similar distributions to our shareholders, regardless of the place of residency of the shareholder, unless the distribution is made to shareholders out of (i) a reduction of nominal value or (ii) assuming certain conditions are met, qualifying capital contributions accumulated on or after January 1, 1997. A U.S. holder that qualifies for benefits under the Convention between United States of America and Switzerland for the Avoidance of Double Taxation with Respect to Taxes on Income, which we refer to as the “U.S.-Swiss Treaty,” may apply for a refund of the tax withheld in excess of the 15% treaty rate (or in excess of the 5% reduced treaty rate for qualifying corporate shareholders with at least 10% participation in our voting shares, or for a full refund in the case of qualified pension funds).
There can be no assurance that we will have sufficient qualifying capital contributions to pay dividends free from Swiss withholding tax, or that Swiss withholding rules will not be changed in the future. In addition, we cannot provide assurance that the current Swiss law with respect to distributions out of qualifying capital contributions will not be changed or that a change in Swiss law will not adversely affect us or our shareholders, in particular as a result of distributions out of qualifying capital contributions becoming subject to additional corporate law or other restrictions. In addition, over the long term, the amount of par value available to us for nominal value reductions or qualifying capital contributions available to us to pay out as distributions is limited. If we are unable to make a distribution through a reduction in nominal value or out of qualifying capital contributions, we may not be able to make distributions without subjecting our shareholders to Swiss withholding taxes.
Our securities are not listed in Switzerland, our home jurisdiction. As a result, our shareholders will not benefit from certain provisions of Swiss law that are designed to protect shareholders in a public takeover offer or a change-of-control transaction and may not be protected in the same degree in a public takeover offer or a change-of-control transaction as are shareholders of certain U.S. companies or in a Swiss company listed in Switzerland.
Because our securities are listed exclusively on Nasdaq and not in Switzerland, our shareholders will not benefit from the protection afforded by certain provisions of Swiss law that are designed to protect shareholders in the event of a public takeover offer or a change-of-control transaction. For example, Article 120 of the Swiss Financial Market Infrastructure Act and its implementing provisions require investors to disclose their interest in our company if they reach, exceed or fall below certain ownership thresholds. Similarly, the Swiss takeover regime imposes a duty on any person or group of persons who acquires more than one-third of a company’s voting rights to make a mandatory offer for all of the company’s outstanding listed equity securities. In addition, the Swiss takeover regime imposes certain restrictions and obligations on bidders in a voluntary public takeover offer that are designed to protect shareholders. However, these protections are applicable only to issuers that list their equity securities in Switzerland and, because our securities are listed exclusively on Nasdaq, will not be applicable to us. Furthermore, since Swiss law restricts our ability to implement rights plans or U.S.-style “poison pills,” our ability to resist an unsolicited takeover attempt or to protect minority shareholders in the event of a change of control transaction may be limited. Therefore, our shareholders may not be protected in the same degree in a public takeover offer or a change-of-control transaction as are shareholders in certain U.S. companies or in a Swiss company listed in Switzerland.
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U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our senior management or members of our board of directors.
We are organized under the laws of Switzerland and our registered office and domicile is located in Kloten (Zurich), Switzerland. Moreover, a majority of our directors and senior management are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent solely predicated upon the federal and state securities laws of the United States. Original actions against persons in Switzerland based solely upon the U.S. federal or state securities laws are governed, among other things, by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides that the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result is incompatible with Swiss public policy. Also, certain mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise apply.
Switzerland and the United States do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides in principle that a judgment rendered by a non-Swiss court may be recognized in Switzerland only if:
| ● | the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law; |
| ● | the judgment of such non-Swiss court has become final and non-appealable; |
| ● | the judgment does not contravene Swiss public policy; |
| ● | the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and |
| ● | no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland. |
Exchange rate fluctuations between the U.S. dollar and the Swiss Franc may negatively affect our results.
Under our existing agreements, we make a significant number of payments in U.S. dollars, Swiss Francs and Euro. Since our reporting currency is the U.S. dollar, financial line items are converted into U.S. dollars at the applicable exchange rates. As a result, changes and fluctuations in currency exchange rates between the Swiss Franc, Euro the U.S. dollar could have a material adverse effect on our operating results.
General Risk Factors
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
Our status as a foreign private issuer exempts us from compliance with certain SEC laws and regulations and certain regulations of Nasdaq, including the proxy rules, the short-swing profits recapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. In addition, we are not required under the Exchange Act to file current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are exempt from filing quarterly reports with the SEC. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.
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We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a half-yearly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
Raising additional capital would cause dilution to our existing shareholders, and may affect the rights of existing shareholders.
In future, we may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the issuance of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Future sales of our common shares or of securities convertible into our common shares, or the perception that such sales may occur, could cause immediate dilution and adversely affect the market price of our common shares and the Warrants.
Our business is subject to a variety of U.S. and international laws and regulations, including those regarding privacy, cybersecurity and data protection. Any failure of our platform to comply with applicable laws and regulations could harm our business, operating results and financial condition.
Our operations may from time to time involve cross-border transfer of data, which may subject us and our customers that use our products to privacy, cybersecurity and data protection-related laws and regulations that impose obligations in connection with the collection, processing and use of personal data, financial data, health or other similar data and general cybersecurity. Multiple jurisdictions have adopted or proposed limitations on, or requirements regarding, the collection, distribution, use, security and storage of information, including personally identifiable information of individuals.
In the United States, the U.S. Federal Trade Commission and numerous state attorneys general are applying federal and state consumer protection laws to impose standards on the online collection, use and dissemination of data, and to the security measures applied to such data. We continue to see increased regulation of privacy cybersecurity and data protection, including the adoption of more stringent subject matter specific state laws in the United States. For example, in 2018, California enacted the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020. 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. The CCPA may increase our compliance costs and potential liability, and we may be required to modify our practices and take additional steps in an effort to comply with the CCPA. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent state privacy legislation in the United States, which could increase our potential liability and adversely affect our business.
Similarly, many other countries and governmental bodies, including the EU member states, have laws and regulations concerning the collection and use of personal data obtained from individuals located in the EU or by businesses operating within their jurisdiction, which are often more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of personal data that identifies or may be used to identify an individual, such as names, telephone numbers, email addresses and, in certain circumstances, IP addresses and other online identifiers. For example, the EU has adopted the GDPR, which enhances data protection obligations for businesses and requires service providers (data processors) processing personal data on behalf of customers to cooperate with European data protection authorities, implement security measures and keep records of personal data processing activities. The GDPR also extends the geographical scope of EU data protection law to non-EU entities under certain conditions, tightens existing EU data protection principles and creates new obligations for companies and new rights for individuals. Noncompliance with the GDPR can trigger fines equal to or greater of €20 million or 4% of global annual revenues. Given the breadth and depth of its obligations, working to meet the requirements of the GDPR has required significant time and resources, including a review of our technology and systems currently in use against the requirements of the GDPR. There are also additional EU laws and regulations (and member states implementations thereof) which govern the protection of consumers and of electronic communications. We have taken measures to address certain obligations under the GDPR and to make us GDPR compliant, but we may be required to take additional steps in order to comply with the GDPR. If our efforts to comply with GDPR or other applicable EU laws and regulations are not successful, we may be subject to penalties and fines that would adversely impact our business and operating results, and our ability to conduct business in the EU could be significantly impaired.
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We also continue to see jurisdictions imposing data localization laws, which require personal information, or certain subcategories of personal information to be stored in the jurisdiction of origin. These regulations may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in those markets without significant additional costs.
Additionally, although we endeavor to have our products and platform comply with applicable laws and regulations, these and other obligations may be modified, they may be interpreted and applied in an inconsistent manner from one jurisdiction to another, and they may conflict with one another, other regulatory requirements, contractual commitments or our practices. We expect that there will continue to be new proposed laws, rules of self- regulatory bodies, regulations and industry standards concerning privacy, data protection and information security in the United States, the EU and other jurisdictions, and we cannot yet determine the impact such future laws, rules, regulations and standards may have on our business. The uncertainty and changes in the requirements of multiple jurisdictions may increase the cost of compliance, delay or reduce demand for our services, restrict our ability to offer services in certain locations, impact our customers’ ability to deploy our products and solutions in certain jurisdictions, or subject us to claims and litigation from private actors and investigations, proceedings, and sanctions by data protection regulators, all of which could harm our business, financial condition and operating results.
We also may be bound by contractual obligations relating to our collection, use and disclosure of personal, financial and other data or may find it necessary or desirable to join industry or other self-regulatory bodies or other privacy, cybersecurity or data protection-related organizations that require compliance with their rules pertaining to privacy and data protection.
Any failure or perceived failure by us, our products or our platform to comply with new or existing U.S., EU or other foreign privacy, cybersecurity or data protection laws, regulations, policies, industry standards or legal obligations, any failure to bind our suppliers and contractors to appropriate agreements or to manage their practices or any systems failure or security incident that results in the unauthorized access to, or acquisition, release or transfer of, personally identifiable information or other data relating to customers or individuals may result in governmental investigations, inquiries, enforcement actions and prosecutions, private claims and litigation, fines and penalties, adverse publicity or potential loss of business.
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, companies that have experienced volatility in the market price of their shares have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.
Sales of a substantial number of shares of our common shares in the public market by our existing shareholders could cause our share price to fall.
Sales of a substantial number of our common shares in the public market or the perception that these sales might occur, could depress the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common shares. In addition, shares held by our shareholders prior to our initial public offering may be available for re-sale as the lock up period set forth in certain lock-up agreements executed by certain company insiders relating to our initial public offering has expired. In addition, shares issued or issuable upon exercise of vested options and exercised Warrants as of the expiration of the lock-up period are eligible for sale. Sales of shares by these shareholders could have a material adverse effect on the trading price of our common shares.
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If securities or industry analysts do not publish or cease publishing research reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our shares and Warrants, the trading prices of our shares and Warrants and trading volume of our shares and Warrants could decline.
The trading market for our common shares and Warrants will be influenced by the research reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our shares and Warrants, or provide more favorable relative recommendations about our competitors, the trading price of our shares and Warrants would likely decline. If any analyst who may cover us were to cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price of our shares and Warrants and trading volume of our shares and Warrants to decline.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We were established on June 10, 2015 as a Swiss limited company. Our registered office is located at The Circle 6, Postfach, 8058 Zurich, Switzerland.
In 2016, we acquired several patents from Assistance Publique - Hopitaux de Paris, or AP-HP, in France, including for our lead compound mazindol. Since our founding, we have assembled an experienced leadership team with a track record of developing and repurposing products to treat rare neurological disorders. Our Chief Executive Officer, Alexander Zwyer, has held a variety of senior leadership roles of increasing responsibility in the pharmaceutical industry, including global roles in business development, sales and marketing, medical as well as regulatory affairs, and general management. We complement our management team with a group of scientific and clinical advisors that includes internationally recognized North American and European experts in CNS disorders, including the areas of our current focus, rare hypersomnolence (specifically, narcolepsy) and complex neurodevelopmental disorders.
Our principal executive offices are located The Circle 6, Postfach, 8058 Zurich, Switzerland, our general telephone number is (+41) 44 512 21 50 and our internet address is www.nlspharma.com. The SEC also maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are available to the public through the SEC’s website at www.sec.gov. The information contained on our website and the SEC website or available through such websites is not incorporated by reference into and should not be considered a part of this annual report, and the references to websites in this annual report are inactive textual references only.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act. As such, we are eligible to, and intend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies” such as not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceeds $1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.
We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us from compliance with certain laws and regulations of the SEC and certain regulations of Nasdaq, including the proxy rules, the short-swing profits recapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. In addition, we are not required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies registered under the Exchange Act.
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Starting the last quarter of 2023, we began to adjust our workforce, primarily comprised of consultants. On March 20, 2024, we announced that we had secured Exclusive Global License for Next-Generation Non-Sulfonamide Dual Orexin Agonist Platform. On March 22, 2024, we announced the closing of $1.75 Million Registered Direct Offering.
In 2023, 2022 and 2021 our capital expenditures amounted to $0, $0, and $39,560, respectively. Our current capital expenditures are primarily for software and office furniture substantially all in Switzerland, and we expect to finance these expenditures primarily from cash on hand.
B. Business Overview
We are a clinical-stage biopharmaceutical company focused on the discovery and development of innovative therapies for patients with rare and complex central nervous system, or CNS, disorders with unmet medical needs. Our lead compound mazindol, a triple monoamine reuptake inhibitor and partial orexin receptor 2 agonist, in a proprietary ER formulation, is being developed for the treatment of narcolepsy (lead indication), IH (follow-on indication) and potentially ADHD (back-up indication). We believe that this unique mechanism of action will also enable Mazindol ER to provide potential therapeutic benefit in other rare and complex CNS disorders. CNS disorders are a diverse group of conditions that include neurological, psychiatric, and substance use disorders. According to the World Health Organization and based on data from the Global Burden of Disease Report, CNS disorders result in a socio-economic burden of more than $317 billion annually in the United States alone. Additionally, CNS disorders were expected to account for approximately 15% of the global disease burden in 2020, the largest of any disease area. However, treatment options for these conditions are often limited, inadequate or non-existent, and the development of new CNS treatments generally trails behind other therapeutic areas. We are pursuing the development of the next generation of CNS therapies with high medical impact to address this critical and growing unmet need. Our dual development strategy is designed to optimize the outcome of our clinical programs by developing new chemical entities, or NCE’s, from known molecules with strong scientific rationale, and also by re-defining previously approved molecules with well-established tolerability and safety profiles, as determined by applicable regulatory agencies. We believe that our streamlined clinical development approach has the potential to advance our product candidates rapidly through early-stage clinical trials, while carrying an overall lower development risk. A lower development risk, we believe, exists with respect to the development of our lead product candidate, Quilience, and follow-on product candidate, due to their use of mazindol as the active ingredient, which was previously approved and marketed in the United States, Japan and Europe to manage exogenous obesity (obesity caused by excessive eating).
Our discovery platform currently focuses on single molecules that operate through multiple mechanisms designed to target the complexity of the CNS disease state, and, we believe these may potentially offer new treatment options for patients, including for those patients who are refractory to currently available treatments. We recently announced pre-clinical results of NLS-4, our next-generation wake-promoting drug candidate, for the chronic fatigue syndrome, or CFS, associated with the symptoms of Long-COVID, also known as Chronic Fatigue caused by COVID -19 infection.
Our current focus is in the therapeutic areas of rare hypersomnia disorders (conditions highlighted by EDS) and complex neurodevelopmental disorders, and includes our lead product candidate: Quilience, for the treatment of EDS and cataplexy associated with narcolepsy, and our follow-on candidate Nolazol, for the treatment of ADHD. We initiated our clinical development with a Phase 2 clinical trial in the third quarter of 2021, in adult patients with narcolepsy. We published positive interim top-line results from our Phase 2 clinical trial in March 2022. As a result, we intend to apply for expedited development program(s) facilitated by the FDA, such as Breakthrough Therapy and/or Fast Track designations and by the European Medicines Agency, or EMA, such as PRIME. We have completed a Phase 2 clinical trial evaluating the safety and efficacy of Nolazol in adults with ADHD in the U.S. Although further clinical development of Nolazol in ADHD is on hold, given the positive outcome of this trial, we may initiate Phase 3 clinical trials after we receive approval to commercialize Quilience. We also intend to seek FDA and other regulatory approval for Nolazol for use in children with ADHD, which requires additional nonclinical work, as well as staged clinical work in determining safe dosing and monitoring. In addition, following our current focus on the development of Quilience for narcolepsy in adults, and if approved for marketing, we intend to seek a label expansion for the treatment of narcolepsy in pediatric patients, which may require additional pre-clinical and clinical studies.
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Quilience and Nolazol both contain mazindol as the active ingredient in a proprietary controlled release, or CR, formulation developed for a once-a-day dosing. Mazindol has a well-established safety record from its extended history of clinical use across the United States and several countries in Europe, where mazindol was previously approved in an immediate release formulation for the short-term management of exogenous obesity. It was marketed for nearly 30 years, into the early 2000’s, before being voluntarily withdrawn from the market not for safety nor for efficacy reasons (Docket n° FDA-2007-P-0326) but for commercial. In addition to the 30-year period in which it was marketed, mazindol was also widely used off-label and prescribed under compassionate use for the treatment of narcolepsy for approximately four decades, during which time it demonstrated a well-tolerated safety profile in patients over long-term, chronic use of the drug. We have entered into an agreement with Novartis Pharma AG for the exclusive rights to mazindol pre-clinical, non-clinical and clinical data and to Sanorex (mazindol) NDA in the U.S., and non-exclusive rights of mazindol in the rest of the world, except Japan and intend to use the toxicology, clinical safety and tolerability, and CMC intellectual property from the Sanorex (mazindol) NDA to support a marketing application for Mazindol ER for the treatment of narcolepsy.
We believe that our lead product candidate, Quilience, offers a meaningfully differentiated product profile over current treatment options for the following reasons:
| ● | Mechanism of action. If approved today, Quilience would be the only partial orexin 2 receptor agonist approved by the FDA, as well as the only triple monoamine reuptake inhibitor approved by the FDA for the treatment of narcolepsy. Narcolepsy is caused by a profound loss of orexin producing neurons and a partial orexin 2 receptor agonist may help to replace the missing endogenous orexin peptide, addressing the underlying orexin deficiency and reduce disease specific symptoms. In addition, its unique dual mechanism of action as also a monoamine triple reuptake inhibitor further acts to reduce disease specific symptoms, offering patients a treatment option that may address simultaneously and in concert the two primary symptoms of narcolepsy. |
| ● | Low potential for abuse and misuse and diversion. Mazindol is still listed as a Schedule IV controlled substance as classified by the DEA. The DEA defines Schedule IV controlled substances as those “with a low potential for abuse and a low risk of dependence.” Unlike sodium oxybate (a Schedule III controlled substance), the top-selling medication for narcolepsy in the United States with over $ 2 billion in annual revenues, historically mazindol never required a REMS to manage known or potential serious risks associated with its use. |
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| ● | Quilience is expected to be administered as a monotherapy. Narcolepsy is a complex spectrum disorder to manage and even with available approved medications, the majority of narcolepsy patients often require multiple medications to treat their symptoms. According to the current treatment guidelines (initially published in 2007) of the AASM, approved medications for narcolepsy, at best, provide only moderate improvement in narcolepsy symptoms and their respective side effects may limit their use. The AASM specifically highlights that future investigations should be directed toward development of more effective and better tolerated therapies and primary prevention. The Voice of the Patient report from the FDA’s patient-focused drug development initiative, published in 2014, concluded that, based on the overall benefit-risk assessment of currently approved medications, there is a continued need for additional effective and tolerable treatment options for patients with narcolepsy. A retrospective analysis (Nittur et.al, Sleep Med. 2013 Jan;14(1):30-6) showed that mazindol has a long-term, favorable benefit/risk ratio in 60% of drug-resistant hypersomniacs, including a clear benefit on the two primary symptoms of narcolepsy, EDS and cataplexy. |
| ● | Quilience is expected to have minimal drug interactions. Based on the results of five in vitro metabolism studies, Mazindol ER has a very low potential for drug interactions In the lab, mazindol did not interact with any of the enzymes that metabolize drugs in humans. Its metabolism was also not influenced by any well-known enzyme inhibitors or stimulants. One of its metabolites (representing less than 12% of mazindol) showed some interactions with a minor metabolic enzyme named P-glycoprotein (Pgp) and this interaction will be further investigated in humans. Nevertheless, mazindol showed significantly less interactions with metabolic enzymes than any other narcolepsy treatment. |
| ● | Quilience is being developed as a once-daily oral tablet administered in the morning upon wakening. Patients have identified a need for treatment options that are easier to take, dosed less frequently, do not disrupt night-time sleeping and provide full day coverage of symptoms. We believe that once-daily dosing with Quilience may address this need and may help improve patient compliance and adherence with treatment. Quilience utilizes our proprietary extended-release formulation and is being designed to optimize its pharmacokinetic and pharmacodynamic properties with a rapid onset of action and prolonged controlled therapeutic effect, allowing for a daily oral dose that effectively provides consistent and long-acting symptom control to uniquely meet the needs of patients. |
Leveraging our scientific insights and direct hands-on clinical experience, we are developing compounds that we believe have innovative mechanisms of action with positive therapeutic profiles and represent a differentiated treatment option to overcome the limitations of the current therapies. For example, Quilience and Nolazol are agents that differ significantly from available treatments in their apparent dual mechanism of action. In addition to their action as a triple monoamine reuptake inhibitor that blocks serotonin, norepinephrine, and dopamine transporters, they also target the orexin pathway as a selective (in relation to the orexin-1 receptor) partial agonist of the OX2R. This activity could provide cortical regulation of the lower brain, and thereby lead to improved attention and inhibitory control, while also improving regulation of executive function and inhibitory control which would provide both “top down” and “bottom up” regulation of the brain. Orexin neurons (located in a part of the brain known as the hypothalamus) are multi-tasking neurons that serve as key modulators to several vital functions, including sleep-wake states, attention, feeding behavior, energy homeostasis, reward systems, cognition and mood throughout the cerebral cortex, and as such, the orexin system is a central promoter of wakefulness. A drug that targets orexin could potentially increase arousal in individuals with ADHD, which could be useful in individuals who have a low level of arousal or motivation, as is not infrequently the case in individuals with ADHD. To the best of our knowledge, no currently available medication for ADHD or for the treatment of EDS and cataplexy, the two main symptoms associated with narcolepsy, has effects on the orexin system. In addition to narcolepsy and ADHD, we believe that our product compound, Mazindol ER, may have therapeutic potential across a range of diverse CNS conditions such as RLS, IH, OSA, Kleine-Levin-syndrome, daytime sleepiness due to myotonic dystrophy Type 1 (DM1) and Prader Willi Syndrome, given the mechanism of action.
Relationship Between Narcolepsy and ADHD
Narcolepsy and psychiatric disorders have a significant but unrecognized relationship in which the two can coexist. However, narcolepsy is frequently misdiagnosed initially as a psychiatric condition, contributing to the protracted time for accurate diagnosis and treatment. Narcolepsy is a disabling neurological condition that carries a high risk for development of social and occupational dysfunction. Deterioration in function associated with narcolepsy may lead to the secondary development of psychiatric symptoms and inversely, the development of psychiatric symptoms can lead to the deterioration in function and quality of life. The overlap in treatments may further enhance the difficulty to distinguish between diagnoses.
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ADHD is the most common neurobehavioral disorder characterized by symptoms of inattention, impulsivity and hyperactivity with an estimated prevalence rate of approximately 4-12% worldwide, as reported by the paper, “Understanding Attention Deficit/Hyperactivity Disorder from Childhood to Adulthood,” by Drs. Timothy E. Wilens and Thomas J. Spencer. On the surface, ADHD may appear to be the opposite of narcolepsy; however, there may actually be significant clinical similarity between the two. Cumulative data about sleep problems in children and adolescents with ADHD has shown that children with ADHD have had a higher rate of restless sleep, impaired sleep, and daytime sleepiness than children without ADHD. However, it is unclear whether EDS in ADHD is due to nocturnal sleep disturbances or primary vigilance disorders because shorter sleep onset latency is assessed by the Multiple Sleep Latency Test, or MSLT (an objective physiologic measure of sleepiness), in ADHD, rather than in the control group irrespective of the presence/absence of sleep disturbances.
On the other hand, problems with sleep may represent an intrinsic component of ADHD. The presence of ADHD symptoms in children and adolescents with narcolepsy has been found to be about two-fold higher than in the general control population and adults with narcolepsy have been found to have a much greater likelihood of having a diagnosis of ADHD in childhood compared to the general control population. Hyperactivity seen in ADHD may, in fact, be a compensatory response for individuals who are under-aroused or sleepy and ADHD symptoms contribute to poor quality of life and increased frequency of depressive symptoms, similar to narcolepsy. To the best of our knowledge, almost all of the treatments used in ADHD have mechanistic overlap with treatments used in narcolepsy for EDS and researchers suggest that the symptoms of EDS, fatigue, and sleep fragmentation may be the cause for ADHD symptoms, which is consistent with similar findings in other hypersomnia disorders.
Business Strategy
Our goal is to continue building a differentiated, global biopharmaceutical company that is patient-focused on the development of transformative therapies that address critical unmet needs in rare and complex CNS and neurodevelopmental disorders, such as Central Disorders of Hypersomnolence (which include narcolepsy as well as IH) and ADHD. As we navigate the competitive landscape of our industry, while focusing on development of our product candidates, we also intend to continually seek out-licensing and asset sale transactions that we believe will allow us to drive greater value for our shareholders. The key elements of our business strategy are to:
| ● | globally develop Quilience for narcolepsy in adults (lead project); |
| ● | pursue new indications beyond narcolepsy (e.g., Quilience in IH) (follow-on projects); and |
| ● | explore expansion of our growing product pipeline either through in-house innovation or in-licensing. |
Our Portfolio and Lead/Follow-On Product Candidates
Quilience for Treatment of EDS and Cataplexy in Narcolepsy (Lead Product Candidate)
Narcolepsy is a rare chronic primary sleep disorder characterized by two main symptoms:
| ● | EDS: This symptom is the inability to stay awake or alert throughout the day and, in general, EDS interferes with normal activities on a daily basis, whether or not a person with narcolepsy has sufficient sleep at night. People with EDS report mental cloudiness, lack of energy and concentration, memory lapses, depressed mood, and/or extreme exhaustion. |
| ● | Cataplexy: This symptom consists of a sudden loss of muscle tone that leads to muscle weakness and a loss of voluntary muscle control, while being fully conscious. It can cause symptoms ranging from slurred speech to total body collapse, depending on the muscles involved, and is often triggered by intense emotions such as surprise, laughter, or anger. |
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Nearly all patients diagnosed with narcolepsy require lifelong treatment to combat the daily and debilitating symptoms, yet, most continue to suffer because a large portion remain undiagnosed and/or because of inadequate treatments. One FDA approved medication for both EDS and cataplexy associated with narcolepsy, sodium oxybate franchise (Xyrem/Xywav), although marketed with significant limitations impeding its use, generated revenues of over $2.0 billion in 2022 according to Jazz Pharmaceuticals’ 2022 full year financial results issued on March 1, 2023. According to a September 2021 report from Dun & Bradstreet, the narcolepsy market generated $2.68 billion in 2020 and is projected to reach $6.67 billion by 2030, growing at a compound annual growth rate of 9.6% from 2020 to 2030.
As partial agonist of the OX2R and a triple monoamine reuptake inhibitor, we believe that Quilience reflects a unique mechanism of action to address the shortcomings of the approved medications and the unmet needs of patients. Quilience is being designed as an oral, once-daily treatment, intended for long-term use. Through the use of mazindol in Quilience and the expected benefits of our proprietary controlled-release formulation, we hope that regulatory agencies will conclude that Quilience has a desirable balance of efficacy, safety and tolerability to support marketing authorization.
We also anticipate developing additional mazindol based ER product(s) for broader hypersomnia indications, such as IH, where there is a critical unmet need and no currently approved treatments available, in addition to other disorders, such as neurocognitive disorders implicated by EDS.
Quilience has been granted orphan drug designation by both the FDA and European Commission for the treatment of narcolepsy, and if approved for marketing in adults, this designation is expected to provide 7 years and 10 years of market exclusivity in the United States and Europe, respectively, and with the potential for additional market exclusivity, if and when further developed and approved in pediatrics (extended for an aggregate of 7.5 years and 12 years in the United States and Europe, respectively). Additionally, we have been granted formulation patents in several countries including the U.S., Europe, Canada and South Korea for our proprietary ER formulation, which provide patent protection through 2037.
After obtaining an IND approval mid-2021, we initiated a Phase 2 clinical trial in the third quarter of 2021 to evaluate Quilience as a once-daily monotherapy for the treatment of EDS and cataplexy, the primary symptoms of narcolepsy. This proof-of-concept, or PoC, trial was conducted in approximately 20-25 specialized centers across the U.S. and positive top-line results were announced on September 27, 2022. On January 30, 2023, we announced the completion of an open label extension study with Quilience(R) (Mazindol ER) for the treatment of narcolepsy. On March 27, 2023, we announced open label extension study six-month data for Quilience(R) (Mazindol ER) in the treatment of narcolepsy Type 1 and Type 2.
As a result of the subsequent open label extension, or OLE, interim data results discussed more fully below, we intend to pursue an expedited development program with the FDA under the Breakthrough Therapy and Fast Track designation programs, as well as potentially a similar program, PRIME, with the EMA. Collectively, these programs are designed to expedite the development and review of drugs intended to treat serious conditions and fill an unmet medical need. We believe Quilience may qualify for these programs based on (i) positive real-world evidence, namely, previous off-label use of Quilience’s active molecule, mazindol, in treating narcolepsy, which was prescribed under France’s Authorization Treatment Use program for 17 years in patients who failed to respond or could not tolerate the available approved treatments, (ii) its dual mechanism of action as a serotonin-norepinephrine-dopamine reuptake inhibitors, or SNDRI, and partial OX2R agonist, which we believe are crucial in addressing the underlying symptoms of both EDS and cataplexy, providing a pharmacological profile targeting multiple CNS pathways, and (iii) the limited availability of treatments that successfully treat both cataplexy and EDS in narcolepsy.
Additionally, we are planning to leverage the demonstrated biological activity of the active molecule in Quilience to further expedite the clinical development, as well as drawing on the data from our ADHD program to support our clinical development efforts of Quilience and the FDA’s previous approval of mazindol (in its immediate release form in the pharmaceutical product “Sanorex®,” as manufactured and distributed by Novartis (through its Sandoz division) as safe in the management of exogenous obesity through the 505(b)(2) regulatory pathway. In March 2021, we entered into a license agreement with Novartis Pharma AG, whereby we obtained, on an exclusive basis in the U.S., all of the available data referred to and included in the original NDA for Sanorex® (mazindol) submitted to the FDA in February 1972. The agreement encompasses all preclinical and clinical studies, data used for manufacturing including stability and other chemistry manufacturing and controls data, formulation data and know-how for all products containing mazindol as an active substance, and all post-marketing clinical studies and periodic safety reports from 1973 onwards. Under the agreement, we have obtained the same rights on a non-exclusive basis in all territories outside of the U.S. except for Japan, with the right to cross-reference the Sanorex® NDA with non-U.S. regulatory agencies in the licensed territories.
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We believe that previous off-label use of Quilience’s active molecule, mazindol, in treating narcolepsy, which was prescribed under a regulatory authorized CUP in France for 17 years in patients who failed to respond or could not tolerate the available approved treatments, supports our development of Quilience. We believe this positive real-world evidence in improving both EDS and reducing cataplexy demonstrates the potential for Quilience to be a treatment for patients suffering from narcolepsy, and notably, also the potential to provide an alternative treatment for patients who have not had a successful outcome with approved treatments, such as sodium oxybate, modafinil, methylphenidate-based, and amphetamine-based products.
In most patients, narcolepsy is caused by the permanent loss of orexin (also called hypocretin), which has been identified as the major regulator in the brain that modulates the stability of the sleep-wake cycle. Individuals with narcolepsy often emphasize that their symptoms go beyond falling asleep during the day and report feeling chronically tired, fatigued, or sleep deprived and also struggle with cognitive difficulties that interfere with their ability to perform at work or school and devastating cataplexy attacks that can be debilitating and frightening. These impairments are associated with an increased risk of accidents, trauma, and difficulties in maintaining personal relationships. The economic burden of narcolepsy is also extensive and people with narcolepsy have above-average rates of health care visits, medication use, and unemployment, and those employed have lower income levels. According to the Narcolepsy Network, narcolepsy affects an estimated 1 in every 2,000 people in the United States, which equates to 150,000 to 200,000 patients in the United States and 3 million worldwide; however, it is estimated that only 25% of those living with narcolepsy have been diagnosed and are receiving treatment. Most people with narcolepsy begin having symptoms in their teenage years, but the diagnosis is usually not made until adulthood, suggesting that narcolepsy is both an underdiagnosed and an undertreated disorder. According to the August 2018 National Know Narcolepsy Survey, most narcolepsy patients remain unsatisfied on current treatments.
While symptomatic improvement is possible, patients’ needs are usually not met and the therapeutic effects of the currently approved treatments remain inadequate for most patients, including lack of symptom control, variable efficacy, rebound sleepiness and rebound cataplexy, troublesome side effects, inconvenience, and high potential for abuse. Given the considerable burden of the condition, the adverse effects on the health of narcolepsy patients, and the limitations of available medications, there is a critical unmet need for additional treatment options. Quilience is a triple monoamine reuptake inhibitor, a SNDRI and partial agonist of the OX2R that may mimic the natural sleep-wake process by activating and further enhancing the brain mechanisms that promote and regulate wakefulness. We believe Quilience may bridge this considerable treatment gap and that the current narcolepsy landscape may provide an opportunity to establish ourselves as a leader in this space.
Real-World Evidence in Narcolepsy
The use of real-world evidence may improve the quality and efficiency of clinical development and clinical trial design, with the potential to accelerate the development of therapies that may provide meaningful benefits to patients. Real-world evidence is the analysis of real-world data, which can originate from sources such as CUPs, and may provide a more complete picture of patient experience to inform patient-focused drug development, and support the advancement of randomized, placebo-controlled clinical trials to support a marketing application.
While no longer commercially available in the United States or Europe, the active molecule in Quilience, mazindol, was previously widely used off-label and for several decades for the treatment of narcolepsy. Additionally, it was prescribed under a long-term CUP administered and regulated by ANSM (“L’agence nationale de sécurité du medicament et des produits de santé”), the national agency in France responsible for overseeing the safety of medicines and health products, helping to address the unmet needs of patients who did not initially respond, later failed or were unable to tolerate the approved available treatments, such as modafinil, methylphenidate, sodium oxybate, and amphetamine-based products. This CUP ran for 17 years, ended in 2016 due to unavailability of the product, and more than 200 patients with narcolepsy who were refractory to available treatments were prescribed mazindol for the treatment of EDS and/or cataplexy.
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A retrospective, multi-center, observational study of this real-world data, financed by the French Health Ministry, and conducted in part by certain members of our team and members of our Scientific Advisory Board (prior to their work with us), was performed to evaluate the effectiveness and safety of mazindol in real-world, clinical practice. A total of 94 patients with narcolepsy, and suffering from cataplexy, including adults and children, with a mean 30 months of treatment exposure were included in the analysis to evaluate the effectiveness of mazindol on improving EDS. Mazindol noticeably improved EDS (p<0.0001), as measured by the ESS, a validated patient-reported measure of the patients’ recent likelihood of falling asleep in everyday activities and is the same primary outcome measure widely used in other narcolepsy-related Phase 3 clinical trials. An analysis was also performed assessing the effectiveness of mazindol in controlling cataplexy in 62 patients and demonstrated a statistically significant reduction in the frequency of cataplexy episodes (p<0.0001). The ESS score before mazindol was 18.0 ± 3.1 and decreased to 13.6 ± 5 after mazindol, for a change of -4.2 (p<0.0001). In addition, the change in weekly cataplexy rate before and after mazindol changed from 4.6 ± 3.1 (before mazindol) to 2.0 ± 2.8 after mazindol (for a change of -2.7) (p<0.0001).
This retrospective study with analysis of real-world data, provides positive real-world evidence that the treatment was well-tolerated and effective, in terms of improvement in EDS and the reduction in cataplexy events, with a conclusion of an overall positive benefit-risk ratio in the majority of patients. In their report concluding the results of the study (Nittur et.al, Sleep Med. 2013 Jan;14(1):30-6), the researchers found that Mazindol has a long-term, favorable benefit/risk ratio in 60% of drug-resistant hypersomniacs, including a clear benefit on cataplexy and that the data, taken altogether, suggest that mazindol has a major effect on sleepiness, possibly greater than that of modafinil (Provigil).
Narcolepsy Overview and Market Opportunity
Narcolepsy is the inability to stay awake and arises from the dysregulation of the sleep-wake cycle, and in most individuals is thought to be caused by an immune system mediated destruction of brain cells that contain orexin. Orexin is a neuropeptide and is critical to the maintenance of wakefulness, continuity of sleep and coordination of the timing and features of REM sleep. Narcolepsy is often debilitating and incapacitating for those affected and with no known cure, it usually requires life-long symptomatic treatment. Narcolepsy symptoms significantly interfere with and cause a negative impact on cognitive, psychological and social functioning and can greatly affect daily activities.
The clinical hallmark of narcolepsy is EDS, which is present in all narcolepsy patients and is generally the first symptom to occur. EDS manifests as sudden irresistible bouts of sleep throughout the day, which can strike at any time, leading to inadvertently falling asleep during a variety of situations, such as while at work or at school, when having a conversation, playing a game, eating a meal, or, most dangerously, when driving or operating other types of machinery. A prominent and distinctive symptom of narcolepsy is cataplexy, which occurs in approximately 70% of those patients with narcolepsy. Although the severity of cataplexy is variable, it can be very frightening and usually causes additional disability. In addition to cataplexy, individuals with narcolepsy may also have symptoms indicative of altered REM sleep. REM sleep is normally characterized by dreaming and muscle paralysis that prevents an individual from acting out their dreams. In narcolepsy however, REM sleep can occur at any time of day and elements of REM sleep can mix into wake, manifesting as cataplexy, hallucinations that occur when going to sleep or upon waking, and sleep paralysis, a transitional state between wakefulness and sleep in which one is aware but cannot move, speak, or react.
Narcolepsy is classified into two subtypes, narcolepsy type 1 and narcolepsy type 2. Type 1 is characterized by cataplexy or an undetectable or low level of orexin in the cerebrospinal fluid, or CSF. In type 2, patients generally have less severe symptoms and do not experience cataplexy attacks. The underlying cause of narcolepsy type 2 is unknown and many patients have normal CSF orexin levels; however, 25% of patients with narcolepsy type 2 do have intermediate CSF orexin levels and these individuals are more likely to develop cataplexy and subsequently be diagnosed with narcolepsy type 1.
Cataplexy is a symptom that occurs almost exclusively in people with narcolepsy type 1, so its presence strongly suggests this diagnosis. However, cataplexy can sometimes be subtle or mild, making additional testing sometimes necessary, with the diagnosis depending on ruling out causes of secondary hypersomnia and performing an overnight sleep test with MSLT. On the MSLT, it takes less than eight minutes on average for people with narcolepsy type 1 to fall asleep, and REM sleep is observed on at least two naps. People with narcolepsy type 2 show the same results on MSLT as those with cataplexy.
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In addition to EDS, cataplexy and other symptoms of altered REM sleep, people with narcolepsy type 1 are prone to gain significant weight, which may be due to the loss of orexin. Soon after narcolepsy onset, children can rapidly gain 5-15 kg (approximately 11 to 33 pounds) and adults with type 1 are often overweight or obese, despite normal caloric intake and activity levels. Given that the active molecule in Quilience was previously approved for the management of exogenous obesity and its multifunctional mechanism of action targets two pathways known to be implicated in obesity, Quilience may also help to counter this negative effect of weight gain associated with narcolepsy.
Recently, we received a granted patent (U.S. Patent No. 11207271), from the U.S. Patent and Trademark Office which covers oral formulations containing immediate-release and sustained-release layers of mazindol and their use in the treatment of attention deficit disorders (ADD or ADHD), related deficit of alertness or decline in vigilance, or EDS (e.g., narcolepsy, IH).
The patent has a term that expires no earlier than March 2037. Based on its current clinical development plans to obtain regulatory approval, we intend to list the patent in FDA Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book, if it receives market approval.
In January 2023, we announced the new in vitro study results demonstrating the agonist effect of Mazindol ER at the Orexin-2 Receptor (OX2R). Two identical studies measuring differing concentrations of Mazindol ER confirmed significant OX2R partial agonist activity at 30μM or higher. Notably, findings show that Mazindol ER showed strong OX2R partial agonist activity by cellular and nuclear receptor functional assays. Results showed pEC50 (a logarithm measure of drug potency expressing a concentration that is effective in producing 50% of the maximal response) values of 4.7 to 5 for mazindol on the OX2R, indicating a strong OX2R partial agonist. Additional pre-clinical in vivo studies are currently underway to confirm OX2R activity. A pilot study in OXR2 KO mice animal model compared favorably with investigational drug, TAK-925, an orexin 2 receptor agonist.
Prevalence
According to the European Narcolepsy Network, narcolepsy affects only 20 to 40 out of every 100,000 people; however, it is estimated that only one out of four people living with narcolepsy have been properly diagnosed. Although it usually has an early age of onset during the adolescent years, a diagnostic delay that often exceeds 10 years from the time of symptom onset suggests that narcolepsy is both under diagnosed and under treated. This delay may result from several factors, including lack of clinician and patient recognition of the signs and symptoms of narcolepsy and leading to multiple physician visits before receiving a diagnosis, as well as misdiagnosis of narcolepsy as another condition, such as epilepsy, depression, or ADHD, which further delays treatment.
Current Treatment Landscape and Treatment Limitations
Until a cure is available, the current treatment of narcolepsy focuses on symptom control, with the goal of keeping the patient alert during the day, primarily by improving EDS and minimizing the occurrence of cataplexy. More than 90% of individuals with narcolepsy require chronic use of medication to manage symptoms, in order to allow for important everyday activities to be performed safely, such as attending school, going to work and caring for a child.
The current available treatment options require the careful balancing of the drug’s efficacy, convenience of administration, development of drug tolerance, adverse effects, comorbidities, monitoring for evidence of drug abuse, and new life circumstances, such as school, pregnancy and parenthood. In narcolepsy, several classes of drugs are used for the treatment of EDS, including a CNS depressive agent, wake-promoting agents, a histamine 3 receptor antagonist/inverse agonist, and CII controlled stimulants.
Sodium oxybate (commercial brands: Xyrem (Jazz), Xywav (Jazz), Lumryz (Avadel)) is the legally manufactured form of gamma hydroxybutyrate, an illicit drug of abuse. It was the first FDA approved treatment for cataplexy and is also approved for EDS, and as such, is often used as a first-line therapeutic. While it has been reported to have a positive impact for patients, sodium oxybate also has many challenges with significant limitations that can often impede its use. As a severe CNS depressant with a rapid onset of sedation with both hypnotic and amnestic effects, it is abused to incapacitate victims for sexual assault. Sodium oxybate is a CIII controlled drug and with the potential for an adverse outcome, it is further subject to higher CI controls for abuse and is only available through an FDA imposed restricted-access REMS program. It carries a Black Box warning for respiratory depression and abuse, which can lead to seizures, decreased consciousness, coma and death, and at doses lower than those used to treat narcolepsy. The occurrence of experiencing adverse effects is more common with sodium oxybate compared to other medications used in narcolepsy and adverse effects, even at recommended doses, include nausea, confusion, CNS and respiratory depression, neuropsychiatric depression and confusion, bed-wetting, sleepwalking, automatic behaviors, and involuntary movements. Sodium oxybate has a short half-life and is administered in a split dose, once at bedtime and again two and a half to four hours later, which can be difficult for patients to manage. In addition, generally, an extensive titration period is required, which can take upwards of seven months to achieve a complete optimal response.
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Many patients with narcolepsy have cardiovascular risk concerns, including hypertension, and treatment with sodium oxybate contributes 1,100-1,640 milligrams, or mg, to an individual’s daily sodium intake, in comparison to a total daily intake of 1,500 mg as recommended by the American Heart Association. Additionally, life-style changes are also often needed when being treated with sodium oxybate, including the avoidance of alcohol and other medications that may cause sedation and due to its profound sedation and hypotonic effects, a change in living arrangements may be needed if living alone or the need to seek different and multiple treatment options when becoming a parent. Yet, despite these severe limitations, sodium oxybate continues to be the market leader in the United States in terms of revenues.
Our Solution: Quilience for Narcolepsy - A Well-Suited Approach for the Disease Pathology
Narcolepsy is a debilitating neurological disorder and the currently available treatment options are not considered sufficiently effective for most patients. This is highlighted by the results of the recent 2018 “Know Narcolepsy Survey,” conducted by Versta Research, that emphasizes the continuing and substantial burden of narcolepsy with an astonishing 88% of patients indicating that their current treatments are not effectively managing their symptoms, while 94% and 93% stated that new treatment options are needed and expressed frustration with current treatment options, respectively.
Quilience has a mechanism of action that is distinct from existing and emerging therapies and we believe that, if approved, Quilience may represent a substantial improvement to existing treatments. Mazindol’s mechanism of action, which may restore orexin signaling in the brain and further enhance monoamine availability in promoting wakefulness and reducing cataplexy has the potential to be a breakthrough treatment and thereby offering a significant treatment advancement. Furthermore, in November 2019, the Swiss Narcolepsy Network endorsed Quilience as a potential novel treatment of narcolepsy. The Swiss Narcolepsy Network stated that its decision is based on several decades of highly promising off-label use and compassionate use of mazindol in patients with narcolepsy.
Quilience Label Expansion
Following our current focus on the development of Quilience for narcolepsy in adults, and if approved for marketing, we intend to seek a label expansion for the treatment of narcolepsy in pediatric patients, which may require additional nonclinical and clinical studies. We are also aiming to develop Quilience for the treatment of IH, a rare and chronic hypersomnia disorder for which there is currently no effective or approved treatments available. Its hallmark symptom is chronic EDS and a craving to sleep during the day, regardless of how many hours slept at night, which results in such persons taking daytime naps that are usually long and not refreshing. Individuals with IH struggle to wake, despite setting multiple alarms and may have difficulty rising from bed, called sleep inertia. Sleep inertia also includes feelings of grogginess upon waking and can result in impaired alertness and interfere with the ability to perform mental or physical tasks. Similar to narcolepsy, people with IH may also suffer from hallucinations and sleep paralysis when going to bed or upon waking.
The active molecule in Quilience was also prescribed under compassionate use for the treatment of IH, providing positive real-world evidence of its benefit in improving EDS specifically in patients with IH. We have received orphan drug designation from both the FDA and the European Commission for the treatment of IH and this designation is expected to provide us initially with 7 years and 10 years of market exclusivity in the United States and Europe, respectively. Additionally, the recently granted patent for a proprietary modified-release formulation, provides patent protection through 2037 in the United States.
Quilience Development Program
We conducted a Phase 2 randomized, double-blind, placebo controlled clinical trial in adult patients with narcolepsy in the third quarter of 2021 and concluded the trial in the third quarter of 2022. The primary endpoint of the study was the change from baseline in EDS, as measured by the Epworth Sleepiness Scale (ESS). The key secondary endpoint was the change from baseline in the weekly number of cataplexy attacks in the subset of patients with cataplexy. The trial design is shown below:
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The trial was conducted in 21 clinics in the U.S. and enrolled 67 patients with both narcolepsy Type 1 and Type 2, who received treatment with either 3mg of Quilience (Mazindol ER) once daily or placebo. Patients in the trial were randomized 1:1 into each treatment arm. All patients who completed the Phase 2 POLARIS study were eligible to participate in an open label extension (OLE) study and continued once-a-day treatment with Mazindol ER 3 mg for up to six months as monotherapy (no concomitant wake-promoting or anti-cataplexy treatments were allowed). On January 30, 2023, we announced that 87% of patients who completed the POLARIS Phase 2 study requested to continue monotherapy treatment with Mazindol ER in the six-month OLE study rather than transition to other therapies.
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In September 2022, we announced top-line data relating to our Phase 2 POLARIS study for the use of Mazindol ER in patients with narcolepsy. Of the 60 patients targeted for enrollment in the U.S. Phase 2 trial (Study NLS-1021), 67 were randomized and included in the final analysis. The final database included 33 patients on treatment and 34 patients on placebo, with balanced mean baseline ESS scores (17.9 for treatment and 18.0 for placebo). Approximately one-third of patients enrolled in the study were diagnosed with narcolepsy type 1 (NT1), and therefore presented with both EDS and cataplexy symptoms. Eligible NT1 patients must have had moderate to severe disease according to the study protocol - defined as having more than 3-4 cataplexy attacks per week. Study participants were required to undergo a 1-2-week wash out period (depending on prior therapy). After the wash out period, participants were randomized to receive either once-daily treatment with Mazindol ER 2mg for week 1 and 3mg for weeks 2-4, or matching placebo for 4 weeks.
For EDS, the ESS mean change from baseline to each visit and the standard error (SE) of Quilience® (NLS-2) versus placebo were all statistically significant at week 1 -4.3 (1.13) versus -1.1 (1.06) (p=0.0055), at week 2 -4.7 (1.14) versus -1.3 (1.06) (p=0.0035), at week 3 -5.0 (1.18) versus -1.6 (1.09) (p=0.0045), and at week 4 -5.8 (1.23) versus -2.1 (1.14) (-6.26, -1.15; p=0.0045).
Observed Mean Change from Baseline in ESS:
The change from baseline to Week 4 in the weekly average number of cataplexy episodes decreased over time in both treatment groups. The change from Baseline to Week 4 in Average Weekly Cataplexy Episodes was statistically significantly greater in the Mazindol ER group (mean [SD] –14.3 [9.50]) than in the placebo group (–6.1 [6.30]) (p = 0.019) despite the smaller sample size (only 1/3 of the study population were NT1 patients).
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Observed Mean Change from Baseline in Weekly Cataplexy Episodes:
The treatment arms were balanced in terms of patient demographics, baseline levels, and disease characteristics. Mazindol ER was well-tolerated and no safety concerns were identified. No serious adverse events were reported.
Mazindol ER was generally safe and well-tolerated in the completed Phase 2 trial. There were 66 patients in the Safety Population (all patients who received at least one dose of Mazindol ER). Treatment emergent adverse events (TEAEs), were reported by 48.5% (16/34) of patients receiving Mazindol ER and 23.5% (8/33) of patients receiving placebo. There were no unexpected adverse events. There were no severe and no serious TEAEs reported for either the placebo or the Mazindol ER groups. In addition, no patients discontinued Mazindol ER due to TEAEs. The most common TEAEs for the Mazindol ER group was dry mouth (21.2% [7/34]) followed by nausea (9.1% [3/34]), and decreased appetite (9.1% [3/34]). The most common TEAEs for the placebo group were dry mouth (2.9% [1/34]), urinary tract infection, (2.9% [1/34]), and headache (2.9% [1/34]). Other than an expected reduction in body weight (~1.3 kg) and a moderate increase in heart rate (~11.3 bpm), there were no other significant ECG, labs, or vital signs changes on mazindol versus placebo.
Patients who completed the POLARIS Phase 2 trial were able to participate in the OLE study. The OLE study enabled patients completing the randomized controlled trial to access treatment with Mazindol ER without any background stimulant and/or anti-cataplexy treatment for up to 6 months. Of the 67 patients who completed the randomized controlled Phase 2 trial, 52 patients (or 87% of completers) elected to roll over into the OLE study. Patients treated with Mazindol ER in the randomized Phase 2 trial continued to improve after rolling over into the OLE study. Placebo patients in the randomized Phase 2 trial achieved comparable results to treated patients in the Phase 2 trial after switching to Mazindol ER in the OLE study. Safety and tolerability of Mazindol ER were similar between the randomized trial and OLE study.
For patients treated with Mazindol ER in the randomized Phase 2 trial, ESS improved by an additional 1.8 points in the OLE study by the third month of treatment (double-blind and OLE treatment combined). At that timepoint, the mean ESS score for these patients reached 8.2, with lower scores denoting an improvement in the condition (improved wakefulness). Importantly, ESS scores of 10 or below are considered to be typical scores for people without narcolepsy. As an extension of the 4-week randomized treatment period in the Phase 2 trial, these data indicate that maximum efficacy for EDS with Mazindol ER is reached at approximately 3 months of treatment. Overall, the mean score for these patients declined by approximately 10 points from their baseline levels at the start of the randomized Phase 2 trial to month 3 in the OLE study.
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For patients who received placebo in the randomized Phase 2 trial and rolled over to receive Mazindol ER in the OLE study, EDS scores declined to levels comparable to those treated with Mazindol ER in the randomized trial at Week 4. This effect was maintained through month 3 in the OLE study, with EDS scores just above the “normal” range.
For patients diagnosed with cataplexy and treated with Mazindol ER in the randomized Phase 2 trial, the mean number of weekly cataplexy episodes was approximately 10 at the end of the 4-week DB period, down from a baseline level of approximately 17.5 at the beginning of the trial. During the OLE study, mean weekly cataplexy episodes for these patients declined to 2.1, and remained relatively stable in the 2 to 4 range through week 24 of the OLE study.
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Notably, there were patients diagnosed with Narcolepsy Type I who achieved zero weekly cataplexy episodes in the OLE study, with some of those maintaining this effect through week 12 and beyond. Below is an example of one of those super responders:
Given the success of our Phase 2 clinical trial, we intend to commence two Phase 3 randomized, double-blind, placebo controlled, parallel studies in adult patients with narcolepsy type 1. On March 29, 2023, we met with the FDA for an end of Phase 2 meeting. On May 2, 2023, we announced that the FDA provided authorization to proceed with the Phase 3 clinical program (AMAZE) for Mazindol ER. In July 2023, we announced that the first Phase 3 clinical trial protocol received approval from the independent IRB. The AMAZE Program encompasses two almost-identical double-blind Phase 3 studies (N=50 each) investigating Mazindol ER versus placebo in adult patients with narcolepsy. Along with IRB approval and the green light from the FDA, NLS has retained a CRO and has enrolled a number of sites for the phase 3 studies. Once suitable capital has been secured, we expect the phase 3 program to commence as the sites are ready to begin enrolling patients.
Additional clinical studies may be required for regulatory approval necessary to commercialize Mazindol ER, such as clinical pharmacology studies, and, if needed, we intend to conduct these studies in parallel with our Phase 3 program, subject to agreement with the FDA and other applicable regulatory authorities.
Both phase 3 trials, NLS-1031 and NLS-1032, will measure the weekly cataplexy episodes as the primary endpoint over eight weeks of treatment. Patients will then continue into a 12-month OLE phase of each study. To be eligible for enrollment into the program, patients must be at least 18 years of age and have been diagnosed with narcolepsy with cataplexy.
As agreed with the FDA, we intend to submit the NDA for Quilience as a new NDA. Nevertheless, a large amount of the original NDA data will be used for this submission. To license the original mazindol data, we entered into an agreement with Novartis in March 2021 to obtain all preclinical and clinical data for studies previously conducted on mazindol by Novartis. This data may potentially provide us another avenue to streamline and/or reduce the costs of our preclinical and clinical programs. Our ability to rely on the FDA’s previous findings of safety studies published in the scientific literature, and the extent to which licensed innovator data may be utilized will depend on our ability to demonstrate a scientific bridge to Mazindol ER from the previous formulation.
In November 2022, we launched an individual Paid-for Named Patient Program, or NPP, to provide access to Mazindol ER for the treatment of IH in Europe where this medication would not otherwise be available for this indication in certain countries. The NPP for IH was launched in the United Kingdom and we were expected to expand to other countries including France, Italy and Switzerland. This NPP was terminated in May 2023 for lack of performance of Calcog (Caligor Coghlan Ltd.), the service provider in charge of the development and execution of this program in Europe. We partnered with a third-party pharmaceutical company to expand access, early access and compassionate use programs to provide treatment of IH with Mazindol ER where it would otherwise not be available.
In January 2023, we announced a technology patent grant covering Mazindol ER for treatment of ADHD and IH in Hong Kong. This further supports our global strategy with key patents granted the following major markets: Hong Kong, Japan, South Korea, the U.S., Europe & Canada.
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Compassionate Use Objectives in CDH1 in Europe
While “compassionate use” originally was understood to imply that the drug product is supplied for free, there is a growing understanding with policymakers, payers and patient organizations, that paid-for CUPs are justifiable. In Europe and other regions of the world (excluding the United States), it is recognized that CUP funding can provide an early source of biopharma revenues and incentivize the increased availability of potentially transformative treatments, especially for rare disorders and orphan diseases. Given the extensive therapeutic experience with mazindol, including off-label in narcolepsy patients, we believe that there is ample precedence to justify a funded CUP in selected European countries for a defined group of patients.
We intend to conduct either or both a cohort program and a named patient program, or NPP, each of which is highlighted below in a variety of European countries. Although we have yet to determine which countries, we will initiate CUPs in first, our current plan is to target the following countries in the following priorities (priority in each wave has yet to be determined):
| ● | First Wave: United Kingdom, Netherlands, Belgium, France, Italy and Switzerland; |
| ● | Second Wave: Latin America, the Czech Republic, Denmark and Spain; and |
| ● | Third Wave: China, Germany, Austria, Japan, Sweden and Taiwan. |
In addition to the potential benefit of generating revenues before Quilience market authorization from the regulatory agencies, the collection of data within the CUP is a key potential benefit for the overall Quilience evidence generation strategy, as we believe that a CUP program for Quilience would:
| ● | complement the clinical data package for regulatory submissions; |
| ● | support primary regulatory approvals with longer-term follow up effectiveness and safety data and patient lived experience evidence; |
| ● | support label expansions in broader populations than included in the Quilience late state trials (e.g., in juvenile narcolepsy); |
| ● | potentially accelerate regulatory approval in China if we were to seek regulatory approval for Quilience; |
| ● | enhance the evidence package for market access and pricing and reimbursement; |
| [1] | Central Disorders of Hypersomnolence (including but not limited to narcolepsy type 1 / type 2, IH, etc.) |
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| ● | provide qualitative live-experience data and information on the unmet needs from the patient (and caregiver) perspective that may contextualize the net therapeutic benefits offered by Quilience within the narcolepsy management paradigm; |
| ● | bridge patients from the end of Phase 2 and 3 clinical trials to commercialization (assure continued patient access); |
| ● | allow us to generate hypotheses for label expansions in broader populations (as compared to clinical trials); |
| ● | allow us to leverage real-world and patient-centric data collected (board populations, quality of life, satisfaction); and |
| ● | allow us to professionally address patient and physician requests (formal published policy and process). |
In addition to these potential benefits of a CUP program for Quilience, commercial objectives of such a program would include the ability to (i) generate pre-licensing revenues in selected countries, (ii) receive post-authorization revenues in non-priority countries for commercial use, (iii) potentially establish an early market presence with a key opinion lead, and center of excellence strategy and (iv) more rapid revenue uptake (than a non-CUP program) upon commercial availability (patients already on product and treated).
Nolazol for the Treatment of ADHD (Back-up Program Product Candidate)
Nolazol is a triple monoamine reuptake inhibitor and orexin receptor-2 partial agonist and its unique pharmacological profile is expected to yield important benefits compared to existing treatments of ADHD. Enhancing the function of the three neurotransmitters well-known to be implicated in ADHD, norepinephrine, dopamine and serotonin, along with its activity on the orexin-2 receptor, Nolazol may produce an optimal reduction in ADHD symptoms over available treatments.
Nolazol is supported by a positive pilot clinical trial with mazindol in 24 children with ADHD and a positive Phase 2 clinical trial in 85 adults with ADHD. The Phase 2 clinical trial in adults met all primary and secondary study endpoints and was well-tolerated. A robust effect on ADHD symptoms was demonstrated with a large placebo-adjusted effect size of 1.09 in the investigator-rated ADHD symptom scores.
Although more than 25 different products have been approved by the FDA since 1937 for the treatment of ADHD, many of which are no longer available, there still continues to be a large treatment gap with no optimal treatment currently available. Physicians, patients and their caregivers press for improved treatment options to address key shortcomings with currently available treatments, including the need for a more tolerable safety profile, more consistent efficacy with no rebound effect, and the need for lower risk of abuse, dependence, and misuse. Currently, doctors, patients, and caregivers must choose between treatments that may be effective, but come with significant safety liabilities, such as high potential for abuse and risk of diversion coupled with tight restrictions on writing and filling prescriptions; or treatments that are unscheduled, but are also typically less effective. We are seeking to develop Nolazol such that, if approved for marketing, it could be the drug product to close this treatment gap and address this unmet medical need.
Given the positive outcome of our Phase 2 trial in ADHD, we may initiate Phase 3 clinical trials if we receive FDA’s green light to proceed at a later stage.
ADHD Overview and Market Opportunity
ADHD is a chronic neurodevelopmental disorder affecting children, adolescents and adults and is characterized by an ongoing pattern of inattention and/or hyperactivity-impulsivity and is associated with clinically significant impairments in executive functioning. In addition, ADHD is one of the most commonly diagnosed neurodevelopmental disorders in school-age children and it often persists into adulthood. It is characterized by symptoms of inattention and/or hyperactivity-impulsivity, and affects cognitive, academic, behavioral, emotional, and social functioning. An estimated 8.4% of children and 5% of adults in the United States have a current diagnosis of ADHD, and if left untreated can lead to poor occupational and psychosocial outcomes. In the United States, the research firm IBISWorld has reported that the ADHD market is currently worth $9.7 billion and projected to reach a market value of $14.4 billion in 2023. Furthermore, based on a report by Grand View Research, Inc., ADHD is the 12th most prevalent therapeutic indication for dispensed prescriptions and is predicted to grow at a 6.4% compounded annual growth rate until 2030. Despite their CII classification and black box warnings and safety liabilities, revenues of the market leader Vyvanse, as reported by Shire, were $2.5 billion in 2019, and revenues of the leading methylphenidate product Concerta (Johnson & Johnson) were $622 million in 2020, as reported by Johnson & Johnson. Furthermore, based on a report from LifeSci Capital, it is estimated that CNS stimulants - amphetamine and methylphenidate containing products, represent approximately 90% of all ADHD drug sales.
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Across the lifespan, ADHD may impede cognitive functioning as well as mental health and development and can have a significant social impact on patient’s lives, causing disruption at school, work, and in relationships and can also be associated with risk-taking or criminal behavior and other far-reaching effects on wider society. Over the past eight years, ADHD diagnoses have increased 30% in the United States, a trend indicating the need to focus on the diagnosis and treatment for a growing number of patients.
The Centers for Disease Control and Prevention, or the CDC, reported that 6.1 million, or 9.4%, of children and adolescents in the United States have ever been diagnosed with ADHD and 5.4 million, or 8.4%, have a current diagnosis, and 62% take medication, while 47% receive behavioral therapy and 23% receive no treatment at all. Furthermore, the CDC reported in 2019 that among children aged 2-5 only 18% are receiving ADHD medication, in contrast to 60-70% of children aged 6-17. Additionally, ADHD is the second most impactful condition affecting children and adolescent health in the United States, as measured by the Blue Cross Blue Shield Health Index, and children diagnosed with ADHD struggle with paying attention, controlling impulses and being overly active. Social skills in children with ADHD often are significantly impaired. Problems with inattention may limit opportunities to acquire social skills or to attend to social cues necessary for effective social interaction, making it difficult to form friendships. Hyperactive and impulsive behaviors may result in peer rejection. The negative consequences of impaired social function, such as poor self-esteem, increased risk for depression and anxiety, may be long standing.
Once believed to only affect children and adolescents, ADHD is now well understood to be a lifespan disorder that persists into adulthood in up to 65% of patients affecting 1 out of 30 adults worldwide, as disclosed by the ADHD Institute, an educational platform developed and funded by Takeda, and, based on our own assessments of data from the U.S. census Bureau, there are approximately 11 million adults in the United States with ADHD. Research firm GlobalData reported that since 2015, the adult ADHD market has become larger and begun growing at a faster rate than the pediatric ADHD market. Adult ADHD is often characterized by recurrent problems with restlessness, impulsivity, problems with time management and finances, as well as problems regulating emotions. Rather than being hyperactive like children, adults with ADHD report experiencing an internal sense of fidgetiness and restlessness and with signs of inattention more apparent through problems communicating with others. Upon entering the job market, many adults also experience obstacles in employment, and are at increased risk to be terminated due to repeated tardiness or absenteeism. Such difficulties contribute to poorer employment outcomes and a lower likelihood of being employed in professional environments. Adults with ADHD often find it difficult to generate effective solutions to social problems and these deficits in social cognition can increase the likelihood of peer rejection, and social isolation, adding to struggles with depression and social anxiety.
Throughout an individual’s lifetime, untreated ADHD can increase the risk of psychiatric disorders, educational and occupational failure, accidents, criminality, social disability and addictions and ADHD treatment is usually initiated with stimulants, such as amphetamine and methylphenidate-based products. While these drugs may provide a generally effective treatment option for patients, they also have serious safety concerns and are misused recreationally with both diversion and abuse being a common and significant risk. As a result, they are controlled substances and classified under the CSA as CII stimulants. Consequently, they all carry an FDA imposed Black Box warning on the drug label to call attention to these serious or life-threating risks. Further, not all individuals respond optimally to or can tolerate CII stimulants and their use is contraindicated in numerous patients, including those with tics, anxiety and other certain psychiatric disorders, cardiovascular concerns, substance use disorder, or stimulant refusal. A few non-stimulant treatment options are available; however, their efficacy is not as robust, and their tolerability profile is not necessarily improved when compared to CII stimulants. In addition, the few non-stimulant treatments available are generally considered as second-line treatments and are often used in conjunction with schedule II (CII) simulants rather than as a therapy that uses one type of treatment, commonly referred to as a monotherapy.
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The availability of a treatment that has robust efficacy on par with CII stimulants and that is well tolerated with lower potential for abuse represents what we believe is an important unmet need to persons with ADHD. The magnitude of the treatment effect demonstrated in our Phase 2 study is comparable to what is typically seen with the leading CII stimulants, and, mazindol, the active molecule in Nolazol, is currently a CIV controlled substance under the CSA, meaning it has an already established low risk of abuse. We believe Nolazol, whose active ingredient is mazindol, a CIV stimulant, may be the transformative treatment for ADHD that physicians and patients have been waiting for, by providing a treatment with what we believe will be similar efficacy as CII stimulants, but with a low potential for abuse.
We have a robust method of use patent for Nolazol for the treatment of ADHD expiring in August 2028 in the United States and in December 2027 in Europe. Additionally, we have filed an international patent application under the PCT, for a proprietary controlled release formulation, and, if granted, may provide patent protection through 2037 in the United States.
Diagnostics and Patient Sub-Types
Healthcare providers use the guidelines in the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, or DSM-5, to help diagnose ADHD and this diagnostic standard helps ensure that people are appropriately diagnosed and treated for ADHD. The DSM-5 identifies three sub-types and each presentation is distinguished by a distinct set of symptoms that physicians use to diagnose the condition. The three presentations are: (1) Predominantly Inattentive; (2) Predominantly Hyperactive-Impulsive; and (3) Combined Presentation.
The diagnostic evaluation for ADHD includes a comprehensive medical, developmental, educational, and psychosocial evaluation. This comprehensive evaluation is necessary to confirm the presence, persistence, pervasiveness, and functional complications of core symptoms, exclude other explanations for core symptoms and identify coexisting emotional, behavioral, and medical disorders. In order to meet criteria for ADHD, core symptoms must also impair function in academic, social, or occupational activities.
Two-thirds of individuals with ADHD have at least one other neurodevelopmental, psychiatric, or other CNS disorder, including anxiety, depression, autism, and sleep disorders. Substance use disorder is a common comorbidity associated with ADHD and may have a direct underpinning in the pathophysiology of the disease, amplifying the need for treatment options with a lower risk of abuse.
Adults with ADHD, with a delayed diagnosis in adulthood, are often diagnosed after several attempts to find treatment for comorbid disorders, such as depression, substance abuse, sleep disturbances, or anxiety. The presentation in adults is typically related to problems with work, disorganization, and tendency to procrastinate, as well as anxiety, sleep disorders, and impulsivity.
We believe Nolazol could provide a transformative treatment option for all individuals with ADHD and further could draw substantial market share from patients who have failed or couldn’t tolerate stimulants; current patients, or their parents, with concerns with stimulant use; current patients seeking the convenience of a CIV product compared to a CII product, allowing for generally no limitations on quantity, the ability to refill, phone-in prescriptions, and less frequent office visits; individuals where abuse and/or diversion is a prominent concern; and individuals or parents of individuals diagnosed with ADHD who have avoided treatment due to stimulant concerns and the associated stigma.
Current Treatment Landscape and Treatment Limitations
Although there is no cure for ADHD, medications may help to reduce symptoms and improve functioning. The current treatment options for ADHD can be broadly classified as either amphetamine or methylphenidate-based stimulants or as non-stimulants. Based on data that we have collected, we believe that stimulants represent a majority of the ADHD drug market in the United States, with a market share of approximately 90%.
Amphetamine and methylphenidate-based products are all classified under the CSA as CII stimulants, due to their high potential for abuse and the risk of severe psychological or physical dependence. These drugs are heavily controlled under U.S. federal and state laws, and are subject to criminal sanctions for abuse, diversion and misuse and require a CII level prescription, and despite being a chronic disorder and need for daily medication, this limits the quantity to a 30-day supply and is also not refillable. Consequently, all CII stimulants contain Black Box warnings, similar to narcotics such as fentanyl and oxycodone, which are also CII substances. In addition, CII stimulants have the potential for numerous adverse effects, as indicated by their warnings of serious cardiovascular reactions such as sudden death, stroke, and heart attack, psychotic or manic symptoms in patients with no prior history, and are associated with peripheral vasculopathy, including Raynaud’s phenomenon. CII stimulants are also sleep-affecting drugs and shorten total sleep time, increase the time it takes to fall asleep, adversely impact the ability to stay asleep, and increase daytime sleepiness.
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The long-term use of prescription stimulants has been widely reported to cause drug tolerance, which is the loss of efficacy over time and requires a complete change in treatment, or an increased dose of the existing treatment, or the add-on of another medication to the existing treatment in order to achieve therapeutic effectiveness. This leads to an increased risk of developing serious adverse effects that are unrelated to ADHD. Another concern in treating patients with CII stimulants is the potential “rebound effect” that occurs when the medication wears off, resulting in the return of ADHD symptoms and which may also occur in an amplified form. In children especially, this often triggers increased irritability and/or aggressive behavior and the rebound in children and adults may be exacerbated by multiple drug administrations, often used to obtain the desired duration of effect or to address drug tolerance. Additionally, studies have highlighted that primary limitations of CII stimulants are intolerable adverse effects that interfere with patient adherence rates and sub-optimal efficacy with the onset of drug tolerance.
According to the 2002 practice parameter for the use of stimulant medications from the American Academy of Child & Adolescent Psychiatry, approximately 30% of patients do not respond adequately to or have dose-limiting adverse effects with CII stimulants. Additionally, certain patients, or parents of patients, prefer not to use CII stimulants due to their stigma and known abuse potential. There are a few non-stimulant treatments available, such as atomoxetine (Strattera®), clonidine (Kapvay®), and guanfacine (Intuniv®), that were developed to address this need; however, their efficacy is sub-optimal to stimulants and while unscheduled, their overall safety profile does not necessarily provide an improvement to CII stimulants.
Strattera, a norepinephrine reuptake inhibitor, was the first non-stimulant treatment option for ADHD and while its initial launch started strong, underscoring the demand for an alternative to CII stimulants, sales steadily declined as patients and physicians found it to not be nearly as effective as CII stimulants. It is now considered a second-line treatment and is typically used as an alternative to CII stimulants for patients who have a substance abuse problem, a family member(s) with a substance abuse problem, tics, or intolerable side effects with CII stimulants. Strattera carries a Black Box warning for increased risk of suicidal thoughts in children and adolescents and additional warning statements for liver damage. Moreover, Strattera takes four weeks to reach initial onset of action and six to ten weeks to achieve full clinical effectiveness, related both to the prolonged titration needed and the delay in the onset of action of the compound. Today Strattera (branded and generic version) has about 3.6% market share, despite initially climbing to nearly 20% following launch on the basis of being an alternative to CII stimulants.
Clonidine and Guanfacine are also non-stimulants that are alpha-2 adrenergic receptor agonists and were both initially approved for managing blood pressure. They have been approved for use in children and adolescents, generally in conjunction with CII stimulants as an add-on therapy. While they are used in children and adolescents, there is little study of their efficacy and safety in adults. As a monotherapy, they are usually reserved for children and adolescents who respond poorly after several trials of stimulants and Strattera, have unacceptable side effects with stimulants or Strattera, or have significant comorbid conditions limiting the treatment options to these products. These two drugs have not had significant commercial success, with a combined peak market share of about 5%.
Our Solution: Nolazol - Next-Generation ADHD Therapeutic
We believe a large market opportunity exists for a non-CII stimulant, such as Nolazol, that uses mazindol controlled release as its active ingredient; mazindol has been classified as a CIV stimulant, due to its low risk of abuse and tolerance.
Given its unique binding profile (specifically, as a partial OX2R agonist), in addition to its classification as a CIV stimulant, we believe Nolazol could be transformative for the ADHD treatment landscape. Nolazol is a triple monoamine reuptake inhibitor and also a partial agonist of the OX2R, which we believe is an important, unique and differentiating factor relative to other ADHD treatments. In our clinical studies conducted to date, Nolazol has been well-tolerated and there were no treatment-related serious adverse effects or discontinuations. In terms of abuse potential, Nolazol has an already established low risk of abuse, as previously determined by the DEA when mazindol, its active ingredient, was scheduled as a CIV substance, underscoring the awareness and agreement that Nolazol has a lower risk of abuse than CII stimulants. In addition, based on the current DEA classification of mazindol as a CIV stimulant, we expect that Nolazol will continue to be without a Black Box warning in the U.S., which is another important differentiator relative to both CII stimulants and the current non-stimulants in use today to treat ADHD.
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Our Phase 2 trial showed significant improvement in ADHD symptoms, met all primary and secondary study endpoints and was well-tolerated and with no clinically significant adverse effects over placebo. In light of its innovative mechanism of action and low potential for abuse, we believe Nolazol, if approved for marketing, could represent a highly differentiated alternative to the CII treatments in use today to treat ADHD.
Nolazol Clinical Trial Results
Phase 2 Clinical Trial
We completed a Phase 2 clinical trial in 2017 in the United States, in which Nolazol was well-tolerated and demonstrated statistically significant improvement over placebo. The clinical trial met the primary and all secondary endpoints and had a robust effect on ADHD symptoms with a large placebo-adjusted effect size of 1.09 in the investigator-rated ADHD symptom scores. We believe that the magnitude of this effect is comparable to currently leading CII stimulants and considerably larger than the available non-stimulant treatment options.
The table below summarizes the results of our Phase 2 clinical trial in adults in terms of adverse events.
Our Phase 2 clinical trial evaluated the efficacy, safety and tolerability of Nolazol in a randomized, double-blind, placebo-controlled, multi-center, parallel trial in 85 adults with a diagnosis of ADHD. Subjects were administered Nolazol or matching placebo once a day for six weeks, dosed flexibly (between 1mg/day and 3mg/day) during a three-week double-blind optimization period, followed by a three-week double-blind fixed dosing period.
Efficacy Results
The primary efficacy endpoint was the change from baseline in the total ADHD-RS score at Week 6, as compared to placebo, and measured by the clinician-administered ADHD Rating Scale with DSM-5 symptoms, or the ADHD-RS-5. ADHD-RS-5 is a standardized, “gold standard endpoint” validated test for measuring severity of ADHD symptoms and assessing response to treatment. The scale is based on the ADHD diagnostic criteria as defined in the DSM-5.
The primary endpoint was met, showing statistically significant improvement versus placebo, in favor of Nolazol. The LS scores from baseline were -18.9 for Nolazol and -5.7 for placebo, with a LS mean difference between Nolazol and placebo of -13.2 (95% CI, -18.7, -7.6). The results were found to be consistent across all sensitivity analyses, establishing that the large placebo-adjusted effect size of 1.09 was not biased by any of the statistical methods used.
In addition, Nolazol provided a significant reduction in ADHD-RS-5 scores starting as early as Week 1, which was also observed throughout the full treatment period. After six weeks of treatment, patients treated with Nolazol demonstrated more than three times the improvement in the ADHD-RS-5 total score symptoms as compared to placebo treated patients. The figures below summarize the results of the primary endpoint observed in our Phase 2 trial.
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A p-value is a conventional statistical method for measuring the statistical significance of experimental results. A p-value of less than 0.05 is generally considered to represent statistical significance, meaning that there is a less than 5% likelihood that the observed results occurred by chance. In the figure above and all subsequent figures where p-values are included, a p-value of less than 0.05 is represented by “*.” P-values of less than 0.01 or less than 0.001 are represented by “**” or “***” respectively, and are considered to have higher statistical significance.
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Secondary efficacy endpoints included patient response to treatment, as measured by the reduction of the ADHD-RS-5 score by at least 30% and by at least 50% from baseline, and as measured by the Clinical Global Impressions-Improvement, or CGI-I. The CGI-I is a standardized and validated assessment used by the clinician to rate the severity of a patient’s illness and improvement over time. There was a significant improvement in ADHD-RS-DSM5 scores by Week 6 for Nolazol compared with the placebo. At Week 6, 70% of the Nolazol-treated patients, compared with 21% of the placebo-treated patients, had at least a 30% reduction in their ADHD-RS-5 score (p < 0.001), and 55% of the Nolazol-treated patients, compared with 15.8% of the placebo-treated patients, had at least a 50% reduction in their ADHD-RS-5 score (p = 0.002). There were significantly more “responders,” defined as a ≥ 30% reduction from baseline in ADHD-RS-5 scores, present in those receiving Nolazol compared with placebo at the first assessment point Week 1, and at each subsequent assessment. Furthermore, there were significantly more “excellent” responders, defined as a ≥ 50% reduction from baseline in ADHD-RS-5 score, compared with placebo present by Week 2 and at each subsequent assessment point. The excellent response by Week 2 was also evident in the CGI-I analysis, which indicated significantly more CGI-I responders on Nolazol compared with placebo on Week 2 and at each subsequent visit (p ≤ 0.003). The sensitivity analyses resulted in a similar magnitude of difference between Nolazol and placebo for all responder definitions. The figure below summarizes the patient responder results.
Safety and Tolerability
Nolazol was well-tolerated and there were no deaths or serious adverse events reported and no discontinuations in the Nolazol treated group due to adverse events or lack of efficacy. Adverse events reported were mild to moderate and the more prevalent reported events in the Nolazol treated group, as compared to placebo, included constipation, dry mouth, nausea, fatigue, somnolence, middle insomnia and heart rate increased. Relative to placebo, on Week 6, the Nolazol treated group had a minimal increase in diastolic and systolic blood pressure, a small increase in heart rate, and no significant changes in electrocardiography, or ECG, parameters. There were no remarkable findings on physical examination, hematology, serum chemistry, or urinalysis values from baseline to Week 6 between Nolazol and placebo groups. Mean weight loss of the Nolazol group was 1.73 kg, compared to a mean weight increase for the placebo group of 1.07 kg.
Phase 1 Clinical Trial
We completed a Phase 1 randomized, open-label, cross-over clinical trial in the United States in 2016, which characterized the pharmacokinetics and evaluated the safety and tolerability of Nolazol following a single dose in the fasted and fed state in normal healthy adult subjects. Subjects received a single, fixed dose of Nolazol under fasted conditions in one dosing period and the same single, fixed dose 30 minutes prior to a high-fat breakfast in another dosing period. Nolazol demonstrated a predictable, dose-dependent, and linear pharmacokinetics profile. This study is intended to serve as the basis of our Phase 3 clinical trials, if any, by providing a preliminary understanding of the concentration-time profile of Nolazol under the fed and fasted conditions.
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Food administered 30 minutes after administration of Nolazol resulted in similar exposure and a slightly lower peak concentration compared to administration in the fasted state, while the time to reach the peak concentration was similar in the fasted and fed states. These results suggest that our Phase 3 trials will not need to include dosing restrictions in terms of meal timing relative to dose administration, which is an important feature for increased compliance in ADHD patients. A definitive food-effect study with the final formulation of Nolazol will be conducted during the Phase 3 program. The figure below shows the pharmacokinetic curve of Nolazol under the fed and fasted conditions utilized in this clinical trial.
Nolazol was well-tolerated and there were no deaths, serious adverse events or withdrawals due to adverse events. Adverse events were reported in 30% of the Nolazol-treated subjects and included dizziness and somnolence and there were no clinically significant changes in laboratory values, ECG, blood pressure, or heart rate.
Phase 2 Pediatric Clinical Trial
A Phase 2 open-label pilot study in France was conducted in 2015 by Eric Konofal, one of our founders and Chief Scientific Officer, and others while at AP-HP. This study evaluated the efficacy, safety, and tolerability of mazindol in 24 children, aged 9 - 12 years, and diagnosed with ADHD. All enrolled patents had a low rate of response to methylphenidate, which is a first-line treatment in children with ADHD. All patients received the same fixed dose of mazindol daily for seven days, followed by a three-week drug-free safety observation period. The mean change from baseline in the parent rated and clinician rated ADHD-RS-IV total score after 7 days of treatment was -24.1, with >90% improvement in ADHD symptoms from baseline (p<0.0001), pointing to a viable long-acting treatment option, assuming it is shown to be safe, as determined by applicable regulatory agencies. Additionally, the mean change in the parent rated and clinician rated ADHD-RS-IV total score from end of treatment (Week 1) to the final observation visit (Week 4) demonstrated statistical significance (p<0.0001), indicating significant alteration in the level of symptomology of ADHD after mazindol withdrawal. The figure below summarizes the results of the primary endpoint.
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Mazindol was well tolerated in children with ADHD. Adverse events included decreased appetite, headache and abdominal pain and there were no clinically significant changes in laboratory values, ECG, blood pressure, heart rate, or body weight. This clinical trial provided proof-of concept data, potential benefit, and supported the advancement into a more expansive Phase 2 trial.
Phase 3 Development Strategy
Having successfully met both the primary and secondary endpoints in our initial Phase 2 trial, we may plan to further the development of Nolazol as a follow-on or back-up candidate to support filing for marketing and commercialization approval initially in adults in the United States, followed by children and adolescents.
Our first Phase 3 clinical trial may aim to evaluate doses of Nolazol in approximately 260 adults with ADHD, with subjects randomized to receive Nolazol or placebo for 6 weeks. The primary endpoint being the change from baseline in the ADHD-RS-5 score, which was the primary endpoint in our Phase 2 trial. Our second Phase 3 clinical trial may target to evaluate doses of Nolazol in children and adolescents, with an embedded placebo-controlled sub-study in a laboratory classroom setting for the children age group. A laboratory classroom study provides a simulation of a real academic environment, including the potential for interaction and distraction among children, and allows for assessment by trained observers over the course of a typical extended school day.
Our Research Pipeline
In addition to our product candidates, Quilience and Nolazol, we have early and mid-stage compounds that we may seek to further develop in the future. We may seek to develop these other compounds, comprising of NCEs, as well as repurposed compounds, in order to build a pipeline of product candidates at various stages of development that further complement our rare hypersomnia and complex neurodevelopmental disorder franchises. Additionally, we intend to continue to invest in our discovery research and development programs, with the goal of adding what we believe to be promising new compounds and indications to our product candidate development pipeline.
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NLS-4
NLS-4 is a next-generation selective dopamine reuptake inhibitor. We believe that NLS-4 is the only wake-promoting compound without any rebound hypersomnia. This “hypnolytic effect” of NLS-4 is thought to be due to the compound’s ability to prevent increased sleep need following sleep loss as supported by the recently published pre-clinical results. With the promising results from the cutting-edge preclinical fatigue study in animals, and the apparent absence of CYP450 enzyme induction, NLS-4 appears to have a superior profile compared to the widely used drug modafinil, and potentially represents an important milestone in the development of this next generation wake-promoting agent.
On June 1, 2023, we presented final results from a preclinical study for NLS-4 at annual meeting of the American Society of Clinical Psychopharmacology (ASCP) in Miami. The aim of the study was to examine the effectiveness of NLS-4 in comparison with modafinil. NLS-4 is designed to be a more potent next generation modafinil that does not induce the hepatic toxicity associated with long-term modafinil use. In the study’s Long-COVID animal model, NLS-4 improved circadian rhythm dysregulation and CFS in subject animals. Based on the results, we believe that NLS-4 should improve recovery from CFS in humans at a dose that is four times lower than that used for modafinil.
Based on the results, we believe that NLS-4 offers promise to become a foundational treatment for the chronic fatigue associated with the symptoms of Long-COVID (also known as Myalgic encephalomyelitis/chronic fatigue syndrome, or ME/CFS). We intend to advance the clinical development of NLS-4, as the unmet medical need for improved fatigue treatments is growing with more patients surviving infection with COVID-19 and its variants.
ME/CFS is a debilitating chronic disease with a worldwide prevalence of 0.3–0.8% in the human population. Profound mental and physical fatigue and cognitive impairment are amongst the key symptoms of ME/CFS. ME/CFS is classified by the World Health Organization as a neurological disease. In a recent study published in the journal, Clinical Infectious Diseases, a team of researchers examined the risk factors and prevalence and impact of Long-COVID, among a representative sample of adults in the U.S. and reported that close to 19 million U.S. adults suffer from Long-COVID. According to a 2023 study by Nature Reviews Microbiology, at least 65 million individuals worldwide are estimated to have Long-COVID, with cases increasing daily.
Additional Pre-Clinical Compounds
NLS-3
NLS-3 (Levophacetoperane SR) is a repurposed reverse ester of methylphenidate, a well-documented psychostimulant marketed for treatment of ADHD since the end of the 1950s. Animal experiments and tox studies have demonstrated a very satisfactory safety benefit and more recently, using the behavioral sensitization test in C57BL/6 mice, it has been reported that NLS-3 (3 mg/kg) vs methylphenidate (6 mg/kg) or d-amphetamine (2 mg/kg) was not potentially addictive on this contextual sensitization and cross-sensitization to d-amphetamine test pointing-out this stimulant as less addictive than marketed Scheduled II drugs in ADHD.
NLS-8
NLS-8 (Melafenoxate) is a melatonin ML1A receptor agonist, improved scopolamine-induced amnesia. In a preclinical study to test the effects of NLS-8 on memory in a model of Alzheimer’s Disease, the scopolamine-induced amnesia in the novel object recognition test in mice. C57BL/6 male mice, 6 groups (N=16 mice/group), were subjected to two 12-min trials, 90-min apart, in the NOR test: a sample (acquisition) trial during which they were exposed to two identical objects, and a choice (retention) trial during which they were exposed to two different objects presented, the familiar object (presented at the sample trial), and the novel object. They received 30 min before the sample trial i.p. injections of vehicle (control group), of scopolamine, of scopolamine + donepezil (1 mg/kg) or of scopolamine + NLS-8 (50, 100 or 150 mg/kg). Scopolamine was injected at 1.2 mg/kg. The results of this pre-clinical study showed that NLS-8 improved amnesia induced by scopolamine suggesting that NLS-8 may improve memory and reduce cognitive symptoms of AD. These effects were significant at doses of 50 and 150 mg/kg and was close to significant at the dose of 100 mg/kg.
NLS-11
NLS-11 (Benedin) (formerly SCH-5472) is a norepinephrine and dopamine reuptake inhibitor and muscarinic M1, M2, M3 receptor antagonist. In a preclinical study, 57BL/6 male mice, 8 groups (N = 16 mice/group), were subjected to the effect of NLS-11 (0.1, 0.5, 1 mg/kg) and compared to those of vehicle and of donepezil (2 mg/kg). Long-term episodic memory was tested in the NOR test, using a 3-days interval between the acquisition session (called sample trial) and the retention session (called choice trial). The results of the study showed NLS-11 improved the recognition of the familiar object, i.e. improved memory and suggest that NLS-11 induced a long-term memory improvement which was significant and of the same extent to that induced by donepezil. At doses tested, NLS-11 did not reduce exploratory behavior, contrary to donepezil, suggesting that NLS-11 may induce less side effect than donepezil.
NLS-12
NLS-12 (Oxafuramine) is a norepinephrine and dopamine reuptake inhibitor and muscarinic M4 receptor antagonist, improved long-term episodic memory in mice. Donepezil was used as positive control drug. A preclinical study was conducted to observe the effects of NLS-12 on the memory in the novel object recognition test in mice. The dose-ranging study using C57BL/6 male mice: 8 groups (N = 16 mice/group) were subjected to the effect of NLS-12 (1, 4, 8 mg/kg) and compared to those of vehicle and of donepezil (2 mg/kg). Long-term episodic memory was tested in the NOR test, using a 3-days interval between the acquisition session (called sample trial) and the retention session (called choice trial). NLS-12 dose-dependently improved the recognition of the familiar object, i.e. improved memory. This effect was significant at 8 mg/kg and was not significantly different to that of donepezil. The recognition of the familiar object was not modified by NLS-12 (1 mg/kg) and was improved in a non-significant manner by NLS-12 (4 mg/kg). The results of this pre-clinical study suggest that NLS-12 induced a long-term memory improvement which was significant and of the same extent to that induced by donepezil.
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Aexon CNS Platform
Aexon conducts research on new compounds to address unmet needs in neurodegenerative disorders, defined by the breakdown of neurons over time. Alzheimer’s, Parkinson’s, Huntington’s, Narcolepsy and Amyotrophic Lateral Sclerosis are just a few examples of brain disorders that have no cure. Eric Konofal, MD, PhD, who works under a part-time consulting agreement for us as our Chief Scientific Officer, is the president and founder of Aexon, and owns 59% of Aexon Labs. Alexander Zwyer, our Chief Executive Officer, owns 35% of Aexon Labs. Mr. Zwyer holds no board or executive position at Aexon.
On March 20, 2024, we announced that we entered into an exclusive worldwide license agreement with Aexon Labs, Inc., a privately held U.S. company, under which we acquired full global development and commercialization rights to Aexon’s Dual Orexin Receptor Agonists platform, new molecular entities, highly selective dual oral orexin-1 and orexin-2 receptor agonists (OX1R and OX2R) with potential applications in the treatment of narcolepsy and idiopathic hypersomnia, as well as neuro-degenerative disorders such as Parkinson’s and Alzheimer’s disease. This license agreement represents a potentially leading next-generation, first-in-class, oral, dual orexin receptor agonist platform that is expected to address high unmet medical needs and has shown promising results in pre-clinical in vitro assays. NLSP has plans to initiate proof-of-concept preclinical development in the second half of 2024, subject to sufficient funding.
The possibility to acquire this novel and unique platform, consisting of over 300 compounds, bridges the present to the future treatment of sleep disorders as well as other neuro-degenerative disorders. Orexin receptor pathways play vital regulatory roles in many physiological processes and studies have shown that orexin receptor pathways are involved in pathological processes of neurological diseases such as obesity, narcolepsy, depression, ischemic stroke, drug addiction and Alzheimer’s disease. These new compounds, in addition to our current pipeline, including Mazindol ER for the treatment of narcolepsy, NLS-4 focused on idiopathic hypersomnia, long-COVID and chronic fatigue syndrome, and NLS-11, addressing Kleine-Levin Syndrome and neurodegenerative diseases, will further complement and strengthen our sleep franchise. NLS will be uniquely positioned to hold the key to unlock the challenges associated with rare sleep disorders now and in the future.
In addition, we initiated a comprehensive exploration of new opportunities that align with our core values and strengths, with the goal of diversifying our revenue streams, mitigating risks and creating lasting value for our stakeholders. As part of this process, the Company is considering a wide range of options with a focus on maximizing shareholder value, including strategic partnerships, out licensing assets of the Company, and other future strategic actions. Several strategic partnerships discussions are currently under way and in advanced stages of negotiations. As always, we continue to approach the sleep medicine market from a holistic perspective. According to Global Narcolepsy Drugs Market (By Therapeutic Type, Disease Type, End User, Regional Analysis), Pipeline Analysis, Key Company Profiles and Recent Developments - Forecast to 2030” the global sleep medicine market is estimated to increase to more than $100 billion by 2030, with narcolepsy accounting for over $6 billion by 2030.
License Agreements
Pegasus Advanced Research SAS License Agreement
In February 2015, Pegasus Advanced Research, then named NeuroLife-Sciences SAS, or Pegasus, a company owned by certain of our founders, who are also shareholders, including Eric Konofal, Eric-Jean Desbois, Bruno Figadere and our Chief Executive Officer, Alexander Zwyer, or the Pegasus Founders, entered into a license agreement with AP-HP, or the AP-HP License Agreement, to obtain a worldwide, sub-licensable license, covering four different compounds, which included the use of mazindol for the treatment of ADHD, or the Licensed Compounds. As part of the AP-HP License Agreement, Pegasus was given an option to purchase the Licensed Compounds. In February 2016, after the AP-HP License Agreement was assigned and transferred to NLS-1, pursuant to an Assignment and Transfer Agreement, or the ATA, NLS-1 purchased the Licensed Compounds from AP-HP for an aggregate consideration of approximately 2.65 million euros, including reimbursement of certain expenses. On April 1, 2017 and September 20, 2019, the parties entered into subsequent amendments of the ATA, or the First Amendment to the ATA and the Second Amendment to the ATA, respectively. Under the Second Amendment to the ATA, NLS agreed to pay Pegasus a royalty of 1.8% of annual net sales (including sublicensee sales) realized upon the commercialization of products developed on the basis of the Licensed Compounds during the terms of their respective patents; provided, however, that under certain circumstances, the rate of the royalty payment will decrease. For instance, if a competing generic product using mazindol for the treatment of ADHD were to become available during the term of the patents covering the Licensed Compounds, there would be no royalties paid to Pegasus.
Exclusive License Agreement with Eurofarma
In February 2019, we entered into the EF License Agreement, which provides Eurofarma with an exclusive, fee-bearing, non-transferrable (i) distribution right to distribute Nolazol in Latin America and an (ii) exclusive, fee-bearing, non-transferrable license to our patents and trademarks in connection with the commercialization, if any, of Nolazol in Latin America. The EF License Agreement is in effect until the later of either (i) ten years from the date of its execution, or until February 2029, or (ii) until the expiration of the last valid patent relating to Nolazol, subject to early termination under certain circumstances.
Pursuant to the terms of the EF License Agreement, we are responsible for obtaining regulatory approval to market and commercialize Nolazol in the United States and Eurofarma shall be responsible for obtaining regulatory approval in South America; provided, however, that Eurofarma shall inform us of any additional information that regulators in Latin America may require in order to seek marketing authorization which otherwise may not be required by the FDA, or the Supplemental U.S. Data. Although pursuant to the EF License Agreement we will undertake the efforts to generate the Supplemental U.S. Data, the parties have agreed to share the costs associated with generating such data. Eurofarma will be responsible for seeking and covering the costs relating to obtaining the required regulatory approvals in Latin America and, once approved on a country-by-country basis, for commercializing Nolazol in Latin America. Furthermore, the marketing approvals obtained in Latin America, if any, shall be owned by Eurofarma until the end of the term of the EF License Agreement.
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Upon the execution of the EF License Agreement, Eurofarma paid us $2.5 million. In accordance with the EF License Agreement, we are eligible to receive milestone payments as well as royalties from Eurofarma, which consist of the following:
Clinical Milestones
| Upon successful completion by us of Phase 3 clinical trials for the treatment of ADHD in adults in the United States | $ | 500,000 | ||
| Upon successful completion by us of Phase 3 clinical trials for the treatment of ADHD in children in the United States | $ | 500,000 |
Regulatory Milestones
| Upon price approval of the licensed product in Brazil by the relevant agency | $ | 1,000,000 | ||
| Upon receipt of marketing approval by the relevant agency of the licensed product in any other country in Latin America | $ | 1,000,000 |
Sales Milestones (single payments)
| Upon reaching annual net sales of $10 million | $ | 1,000,000 | ||
| Upon reaching annual net sales of $50 million | $ | 2,000,000 | ||
| Upon reaching annual net sales of $75 million | $ | 4,000,000 | ||
| Upon reaching annual net sales of $100 million | $ | 6,000,000 |
Royalties
| Annual net sales in Latin America | Royalties
in percent of Net Sales | |||
| Under $10 million | 7 | % | ||
| $10 million to less than $20 million | 8 | % | ||
| $20 million to less than $30 million | 9 | % | ||
| $30 million and above | 10 | % | ||
License Agreement with Novartis
On March 10, 2021, we entered into a License Agreement with Novartis Pharma AG or Novartis, whereby we obtained, on an exclusive basis in the U.S., all of the available data referred to and included in the original NDA for Sanorex® (mazindol) submitted to the FDA in February 1972. The agreement encompasses all preclinical and clinical studies, data used for manufacturing including stability and other chemistry manufacturing and controls data, formulation data and know-how for all products containing mazindol as an active substance, and all post-marketing clinical studies and periodic safety reports from 1973 onwards. Under the Agreement, we have obtained the same rights on a non-exclusive basis in all territories outside of the U.S, except for Japan, with the right to cross-reference the Sanorex NDA with non-U.S. regulatory agencies in the licensed territories. The Agreement includes the right to sublicense or assign the license to third parties, subject to such third parties meeting certain obligations. As consideration for the license, we agreed to pay Novartis $250,000 upon the signing of the agreement with milestone payments due as follows: (i) $750,000 payable following the end of a Phase II meeting with the FDA and subject to the FDA’s review and feedback on the preclinical data from Novartis, with the amount to be reduced to $375,000 in case certain toxicology studies must be repeated; (ii) $2 million following the earlier of FDA marketing authorization of Quilience or Nolazol; (iii) 1% of any upfront and milestone payments, if any, from any sublicensees and (iv) $3 million as a one-time payment upon our product candidate reaching $250 million in cumulative sales.
Intellectual Property
We have developed a robust patent portfolio in the United States, Europe, and other major countries (e.g., Canada, Australia, China, Japan, and Latin America countries). Our patent portfolio for Quilience and Nolazol currently includes issued patents in the United States and Europe covering the use of mazindol for treatment of ADHD and patent applications filed in major countries to protect our proprietary controlled release formulation (Notice of Allowance recently received for Europe and Canada) for treatment of ADHD and narcolepsy. One of our patents in the United States covering the use of mazindol for the treatment of ADHD received patent term adjustment, thereby extending the patent term of such patent to August 2028. Additionally, we received patent approval in Hong Kong covering the use of mazindol for the treatment of ADHD. This patent is expected to expire no earlier than 2037. We have successfully launched NPP and secured additional patent grants, that coupled with successfully entering into other expedited development programs, could allow Quilience to reach the market and patients sooner. This further supports our global strategy with key patents granted the following major markets: Hong Kong, Japan, South Korea, the U.S., Europe & Canada.
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The following table provides a description of our key patents and patent applications and is not intended to represent an assessment of claims, limitations or scope of those patents listed. In some cases, a jurisdiction is listed as both pending and granted for a single patent family. This is due to pending continuation or divisional applications of the granted case.
| Patent Name and Application Number | Pending Jurisdictions | Granted/Allowed Jurisdictions | Expiry Date | Type | ||||
| Mazindol
combination in the treatment of ADHD PCT/EP2007/053512 | United
States China | France United States Europe (AT, BE, BG, CH, DE, DK, ES, FI, FR, GB, GR, IS, IT, NL, PL, PT, RO, SE) Europe (divisional) (AT, BE, CH, DE, ES, FR, GB, IT, NL, PL, SE) Canada Australia Israel New Zealand Morocco | April
11, 2027 (August 22, 2028 for a U.S. patent receiving patent term adjustment of 499 days) | Method of use, composition (EP) | ||||
| Lauflumide
and the enantiomers thereof, method for preparing same and therapeutic uses thereof PCT/EP2012/050881 | France United States Europe (BE, CH, DE, ES, FR, GB, IT, NL) Canada Israel | January 20, 2032 | Method
of use (United States), compound (ex-U.S.) | |||||
| Phacetoperane
for the treatment of ADHD PCT/FR2012/052749 | United States | France United States Europe (AT, BE, CH, DE, DK, ES, FI, FR, GB, GR, IE, IT, NL, PT, TR) Japan China Israel Canada | November 29, 2032 | Method of use | ||||
| A
mazindol ir/sr multilayer tablet and its use for the treatment of ADHD* PCT/IB2017/000352 *includes narcolepsy and IH | United
States Europe Australia Brazil China Israel Japan New Zealand Hong Kong | United
States Europe (AT, BE, CH, DE, ES, FR, GB, IE, IT, LU, MC, NL, PT, PL, SE) Canada South Korea Mexico Japan | March
8, 2037 (July 16, 2037 for a U.S. patent receiving patent term adjustment of 130 days) | Formulation |
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| Patent Name and Application Number | Pending Jurisdictions | Granted/Allowed Jurisdictions | Expiry Date | Type | ||||
| Mazindol treatment for heroin dependence and substance use disorder PCT/IB2018/001138 | United States Europe Canada Brazil China Japan South Korea Mexico | September 6, 2038 | Method of use | |||||
Use
of iron for treating attention deficit hyperactivity disorder PCT/FR2004/001351 | United States Europe (CH, DE, ES, FR, GB, IT, SE) Canada | June 1, 2024 (December 8, 2029 for a U.S. patent receiving patent term adjustment of 2016 days) | Method of use | |||||
Oxafuramine, (1R)-N-ethyl-1-[(2R)-oxolan-2-yl]-2-phenylethanamine, hydrochloride and derivatives thereof for treating neurodegenerative diseases with Lewy Body Disease and/or Alzheimer’s Disease EP 21305945.4 | Europe | Not Applicable | Compound for use | |||||
Melafenoxate, 2-(1-adamantylamino)ethyl 2-(4-chlorophenoxy)acetate and derivatives thereof for treating circadian rhythm sleep disorders with or without neurodegenerative diseases EP 21305942.1 | Europe | Not Applicable | Compound for use | |||||
Benedin, Piperidine, 2-benzhydryl-3-hydroxy-N-methyl-, hydrochloride and derivatives thereof for treating neurological diseases associated with sleep disorders, Central Disorders of Hypersomnolence preferably Kleine-Levin Syndrome EP 21305946.2 | Europe | Not Applicable | Compound for use | |||||
Lauflumide and derivatives thereof for treating chronic fatigue syndrome and myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS) EP 21305944.7 | Europe | Not Applicable | Compound for use |
In addition to our patents and patent applications, we also rely on unpatented trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We seek to protect our ownership of know-how and trade secrets through an active program of legal mechanism including invention assignments, confidentiality agreements, material transfer agreements, research collaborations and licenses to protect our product candidates. For a more comprehensive discussion of the risks related to our intellectual property, please see Item 3.D. “Risk Factors - Risks Related to Our Intellectual Property.”
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Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies and intense competition. While we believe that our knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions, which may in the future develop products to treat those diseases that we currently or, in the future, seek to treat. Any product candidates that we successfully develop and commercialize may compete with existing therapies and new therapies that may become available in the future.
Many of our competitors have far greater marketing and research capabilities than us. All of these companies and institutions may have product candidates in development that are or may become superior to Quilience and Nolazol. Our commercial opportunity would be reduced significantly if our competitors develop and commercialize products that are safer, more effective, more convenient, have fewer side effects or are less expensive than either or both of Quilience or Nolazol. Public announcements regarding the development of competing drugs could adversely affect the commercial potential of either or both of Quilience and Nolazol.
Narcolepsy
We face competition from established pharmaceutical and biotechnology companies that currently market products for the treatment of symptoms in narcolepsy. There is no cure and many patients report that their medicines do not improve their complete range of symptoms. For the treatment of both EDS and cataplexy, we believe that currently our only competitors are Jazz Pharmaceuticals (Xyrem/Xywav®, sodium oxybate) and Harmony Biosciences (Wakix®, pitolisant). Although only indicated for EDS, our competitors also include Novartis (Ritalin®), Teva (Provigil®/Nuvigil®, Modafinil/Armodafinil, Axsome (Sunosi®, solriamfetol), Avadel (Lumryz®, once nightly sodium oxybate), as well as amphetamines, such as Adderall® and Dexedrine®. Other development stage compounds currently under development include TAK-861 (Takeda’s selective OXR2-agonist), AXS-12 (Axsome, reboxetine) and other early-stage OX2R agonist (Orexia, Alkermes, Jazz/Sumitomo, Harmony).
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The below table highlights the limitations of certain drug products approved for use in the United States by the FDA for treatment of EDS or cataplexy.
| Product | Cataplexy Approval | Risk
of Abuse Diversion |
Limitations | ||||||||
| Amphetamines
(Adderall, Dexedrine) |
No | High: CII | ● | “Grandfathered” approval only (pre-1938 indication) for Immediate Release (IR) | ● | Tolerance and rebound hypersomnolence | |||||
| ● | Short-acting | ||||||||||
| Methylphenidate (Ritalin) |
No | High: CII | ● | “Grandfathered” approval only (pre-1938 drug) for IR | ● | Tolerance and rebound hypersomnolence | |||||
| ● | Short-acting | ||||||||||
| Solriamfetol (Sunosi) |
No | Low: CIV | ● | Efficacy for controlling cataplexy not available | ● | Risk for drug induced high-blood pressure that can go undetected | |||||
| Modafinil
/Armodafinil (Provigil/Nuvigil) |
No | Low: CIV | ● | Potential for serious rash, including Stevens-Johnson syndrome | ● | Substrate, inducer, and inhibitor of CYP450 isoenzymes, which significantly increases the risks for drug-drug interactions | |||||
| ● | Cases of major fetal congenital malformations | ||||||||||
| Pitolisant (Wakix,) |
Yes | Not determined | ● | Pitolisant may reduce efficacy of oral contraceptives, and so | ● | Unclear efficacy; partially failed Phase 3 program | |||||
| alternative methods of contraception should be utilized | ● | Data suggests it’s only effective in 1/3 of patients | |||||||||
| Sodium
oxybate (Xyrem/Xywav, Lumryz) |
Yes | High: CIII, CI penalties for diversion | ● | Very short acting; requiring two nighttime doses | ● | Can take up to 3+ months for response | |||||
| ● | Not effective against EDS, so used in combination with stimulants or modafinil | ● | Known as the “date rape drug” | ||||||||
| ● | Because of the risks of depression, abuse, and misuse, Xyrem is available only through a restricted distribution program called the Xyrem REMS Program | ● | Xyrem is a CIII controlled substance as sodium salt of gamma hydroxybutyrate (GHB), a Schedule I controlled substance. Abuse or misuse of illicit GHB is associated with CNS adverse reactions (acting as a CNS depressant), including seizures, respiratory depression, decreased consciousness, coma, and death | ||||||||
| ● | Potential life-threatening adverse effects | ||||||||||
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ADHD
We face competition from established pharmaceutical and biotechnology companies that currently market a range of CII stimulants to treat ADHD. Our primary competitors include Takeda Pharmaceutical Company Ltd. (Vyvanse®, Adderall® and Mydayis®), Neos Therapeutics Ltd. (Adzenys® XR-ODT and Contempla® XR-ODT), Eli Lilly & Co. (Strattera®), Novartis AG (Focalin®) and Janssen Pharmaceutica N.V., a subsidiary of Johnson & Johnson (Concerta®). The below table provides a more in-depth breakdown of Nolazol against certain competing pharmaceutical products, based on the current scheduling of mazindol by the DEA.
Research and Development Strategy
Subject to obtaining sufficient funding, we aim to continue conducting research and development activities to expand the commercial potential of both Quilience and Nolazol, while continuing to examine the development of compounds that could serve as effective treatments for other CNS disorders. We sponsor and conduct clinical research activities with investigators and institutions to measure key clinical outcomes that are necessary in order for us to be able to file an NDA with the FDA and equivalent filings with other regulatory authorities. Our research and development efforts are focused primarily in the following areas and serve as a basis for future development, if any, of a more diverse product pipeline, of which certain product candidate leads, such as NLS-4 are in preclinical development stages. As we navigate the competitive landscape of our industry, while focusing on development of our product candidates, we also intend to continually pursue out-licensing agreements and asset sale transactions that we believe will allow us to drive greater value for our shareholders. Key elements of our research and development strategy include the following:
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| ● | Efficiently advance our lead product candidate, Quilience, and follow-on product candidate, Nolazol, through marketing approval. We plan to first advance the development of Quilience, followed by the development of NLS-4 (follow on). If successful, we plan to initially file for marketing approval in the United States and potentially also in the EU for Quilience and subsequently develop NLS-4 (NCE) for post-COVID chronic fatigue syndrome for global markets. |
| ● | Find partners for out-licensing and asset sale agreements. While we continue with our goal of progressing our product candidates, Quilience and Nolazol, on our own into further clinical development in order to initiate commercialization of such product candidates, we may seek to enter into transactions to sell or out-license Quilience, Nolazol or certain other product candidates or intellectual property that we develop. This strategy allows us to potentially create value for our shareholders ahead of our approval timelines. | |
| ● | Reduce clinical and regulatory risk, limit development costs, and accelerate time to market. Our product candidates, Quilience and Nolazol, incorporate a known molecule in a proprietary CR and ER formulation. The former immediate release formulation of mazindol has a well-established safety record from its long history of clinical use across the United States and several countries in Europe and, as a result thereof, a well-characterized safety profile that has allowed us to rapidly begin conducting clinical development of Nolazol and to generate supportive phase 2 data in a study conducted in 85 patients with ADHD in the United States in May 2017 and complete a Phase 2 study in patients with narcolepsy in the United States. We believe that this strategy also allows us to potentially seek FDA approval using the 505(b)(2) regulatory pathway for both product candidates. |
| ● | Develop products with differentiated pharmacological profiles. We are developing product candidates with dual mechanisms of action. For example, Quilience and Nolazol utilize a dual mechanism of action, resulting in a unique pharmacological profile targeting multiple neuronal pathways that are widely thought to be disrupted and lead to the disorders targeted by our product candidates. We believe that products with clearly differentiated features, as compared to currently available drug therapies, will be attractive to patients and physicians and will provide us with a competitive commercial advantage. |
| ● | Maximize the therapeutic potential of our existing targets and product candidates. Given the central physiological roles played by the distinct targets of our lead and follow-on product candidates, we believe that there is significant potential for us to address multiple indications and our goal is to expand the therapeutic and commercial potential of our existing product candidates to additional indications. For example, we plan to explore the development of Quilience for the treatment of IH, another rare CNS disorder for which Quilience received orphan drug designation in the U.S. and in Europe.
| |
| ● | Deploy our value-driven approach to broaden our sleep-related product portfolio. Our team has extensive experience in CNS research and a strong record of publication in peer-reviewed journals and we plan to develop additional product candidates to treat indications with a high unmet medical need, and may seek to in-license from or collaborate with third parties to develop product candidates that we believe are highly differentiated, promising therapeutic candidates that address major unmet clinical needs. Our scientifically rigorous approach to evaluating new opportunities includes a robust asset evaluation of key factors, including the unmet medical need, biological rationale, safety profile, as determined by applicable regulatory agencies, feasibility of clinical development, potential for accelerated development path, regulatory approval, intellectual property position, competitive landscape and commercial potential. |
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Manufacturing and Suppliers
We do not own or operate manufacturing or distribution facilities for the production of our product candidates and we currently rely, and expect to continue to rely, on third parties for the manufacturing, packaging, labelling and distribution of our product candidates for pre-clinical and clinical testing, as well as for future commercial manufacturing, if our product candidates receive marketing approval. We require all of our contract manufacturing organizations to conduct manufacturing activities in compliance with cGMP requirements and although we rely on manufacturers, we have engaged with consultants with significant technical, manufacturing, analytical, quality, regulatory, including cGMP, and project management experience to oversee our third-party manufacturers. This approach allows us to maintain a more efficient infrastructure while enabling us to focus our expertise on developing and commercializing our product candidates. Reliance on third-party providers may expose us to more risk than if we were to manufacture product candidates ourselves.
In December 2019, we entered into an agreement with Cambrex High Point for the production of our drug substance, pursuant to which, upon completion of purchase orders, Cambrex High Point may manufacture mazindol for us. We obtain our supply of the finalized drug product from another third-party manufacturer, CoreRx with whom we signed an agreement in February 2021. We do not currently have any contracts binding us to use supply or production services provided for under such agreements. We expect to continue to rely on third-party manufacturers to produce sufficient quantities of our product candidates and their component raw materials for use in our internal research efforts and clinical trials and in relation to any future commercialization of our product candidates. Our third-party manufacturers are responsible for obtaining the raw materials necessary to manufacture our product candidates, which we believe are readily available from more than one source. Additional third-party manufacturers are and will be used to formulate, fill, label, package and distribute investigational drug products and eventually our products, if and when our product candidates receive approval. This approach allows us to maintain a more efficient infrastructure while enabling us to focus our expertise on developing and commercializing our product candidates. We believe that our current supplier and manufacturers have the capacity to support both clinical supply and commercial-scale production, but we do not have any formal agreements at this time for such supply and production, and we may also elect to enter into agreements with additional or alternative parties in the future.
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Commercialization, Sales and Marketing
Given our stage of development, we do not currently have an established internal sales, marketing or distribution infrastructure. If our product candidates are approved for marketing, we intend to commercialize our product candidates either alone or in partnership with others, where appropriate, to maximize the value of our product candidates. We expect to build our commercial infrastructure using a focused and efficient approach, initially, establishing market access, sales and marketing capabilities in a targeted manner that is appropriate for the relevant product opportunity. We believe that this approach will allow us to effectively reach patients and physicians and to maximize the commercial potential of our product candidates.
In February 2019, we entered into the EF License Agreement with Eurofarma, a Brazilian pharmaceutical company with a presence in 20 Latin American countries, to develop and commercialize our product candidate, Nolazol, in Latin American countries. Eurofarma operates in the areas of medical prescription, over-the-counter, generic, hospital, bids, oncology, veterinary and services for third parties’ segments. In Brazil, their portfolio is composed of more than 330 brands, with around 1,000 presentations covering 28 medical specialties and 48 therapeutic classes. See “License Agreements - Exclusive License Agreement with Eurofarma” above for additional information.
C. Organizational Structure
We are a Swiss stock corporation organized under the laws of Switzerland. Our Swiss enterprise identification number is CHE-447.067.367. Our registered and principal executive offices are located at The Circle 6, Postfach, 8058 Zurich, Switzerland, our general telephone number is (41) 44 512 21 50 and our internet address is www.nlspharma.com.
In April 2021, we formed a wholly owned subsidiary, NLS Pharmaceutics Inc., a Delaware corporation. We did not have any other subsidiaries as of December 31, 2023.
D. Property, Plant and Equipment
Our principal executive office is located at The Circle 6, Postfach, 8058 Zurich, Switzerland, and consists of approximately 25 square meters (approximately 270 square feet) of shared office space under an indefinite term lease that may be terminated by either party with one-month prior notice.
We consider that our current office space is sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business; provided, however, that we may require additional space and facilities as our business expands.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report. This discussion and other parts of this annual report contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 3.D. “Risk Factors” and elsewhere in this annual report.
Overview
We are a clinical-stage biopharmaceutical company focused on the discovery and development of innovative therapies for patients with rare and complex CNS disorders with unmet medical needs. Our lead compound mazindol, a triple monoamine reuptake inhibitor and partial orexin receptor 2 agonist, in a proprietary ER formulation, is being developed for the treatment of narcolepsy (lead indication) and ADHD (follow-on indication). We believe that this dual mechanism of action will also enable Mazindol ER to provide potential therapeutic benefits in other rare and complex CNS disorders. CNS disorders are a diverse group of conditions that include neurological, psychiatric, and substance use disorders.
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Prior to our initial public offering in the United States, we primarily financed our operations through the proceeds from our private placements of debt and equity securities, an upfront payment from our collaboration partner and a Swiss Government COVID-19 loan that was repaid in full prior to our IPO. We have no products approved for commercialization and have never generated any revenue from product sales. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. It may be several years, if ever, before we complete pivotal clinical studies and have a product candidate approved for commercialization and we begin to generate revenues and royalties from product sales. We have also incurred significant operating losses. As of December 31, 2023, we have an accumulated deficit of $70.4 million.
As of December 31, 2023, our cash and cash equivalents were $0.9 million. We believe that our existing cash and cash equivalents will not be sufficient to fund our projected operating requirements for a period of one year from the issuance of the financial statements included elsewhere in this annual report. This raises substantial doubt about our ability to continue as a going concern.
Components of Operating Results
Licensing Agreement
In February 2019, we entered into the EF License Agreement to develop and commercialize our product candidate, Nolazol, in Latin American countries with Eurofarma. The EF License Agreement covers the grant of non-transferable licenses, without the right to sublicense, to Eurofarma to develop and commercialize Nolazol in Latin America. The EF License Agreement also specifies our obligation to advance development activities with respect to Nolazol in the United States. A joint steering committee will oversee the development and regulatory activities directed towards marketing approval, manufacturing and commercialization phases. We believe that our participation in the joint steering committee is not of material significance to the licenses in the context of the EF License Agreement on the whole and, as such, management has excluded these activities in the determination of its performance obligation(s) under the EF License Agreement. The EF License Agreement also provides that the parties shall enter into a separate manufacturing and supply agreement during the term of the EF License Agreement.
Under the EF License Agreement, we received a non-refundable, upfront payment, of $2,500,000 in 2019 and are further eligible to receive non-refundable milestone payments of up to $16,000,000, based on the achievement of milestones related to regulatory filings, regulatory approvals and the commercialization of Nolazol. The achievement and timing of the milestones depend on the success of development, approval and sales progress, if any, of Nolazol in the future. In addition, we are also eligible for tiered royalty payments.
Amounts expected to be recognized as revenues within the 12 months following the balance sheet date are classified as a current portion of deferred revenues in the balance sheets in our financial statements included elsewhere in this annual report. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenues, net of current portion. As of December 31, 2023, we have long-term deferred revenues of $2,500,000 which will be recognized when the development services of Nolazol are completed and the product candidate receives applicable regulatory approval in Latin America that allows Eurofarma to commence commercialization of Nolazol in accordance with the EF License Agreement.
Recent Financing Agreements
ATM Sales Agreement
On March 5, 2022, we entered into an ATM Sales Agreement, or the Sales Agreement, with Virtu Americas LLC, or Virtu, as sales agent. Initially we were eligible to sell up to $3.9 million pursuant to the Sales Agreement. On April 13, 2022, we reduced the amount that may be sold pursuant to the Sales Agreement to $230,000. As of December 31, 2023, we sold an aggregate of 22,000 common shares for gross proceeds of approximately $32,000. Currently, we are unable to utilize our ATM Sales Agreement until we conduct a bring down diligence process with Virtue.
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Under the Sales Agreement, common shares may be offered and sold pursuant to our shelf registration statement on Form F-3 (File No. 333-262489), declared effective by the SEC on February 11, 2022. In addition, under the Sales Agreement, sales of our common shares may be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act.
We will pay Virtu a commission rate of up to 3.0% of the gross proceeds from each sale of common shares and have agreed to provide Virtu with customary indemnification and contribution rights. We will also reimburse Virtu for certain specified expenses in connection with entering into the Sales Agreement. We have no obligation to sell any of the common shares under the Sales Agreement and may at any time suspend the offering of our common shares upon notice and subject to other conditions.
Private Placements
Effective as of September 30, 2022, we entered into a securities purchase agreement for the issuance in a private placement offering of (i) 5,194,802 common shares at a purchase price of $0.77 per share, and (ii) common warrants to purchase up to an aggregate of 2,597,401 common shares at an exercise of $0.70 per share. The common warrants were exercisable immediately and will have a term of 5 years. Mr. Hafner agreed to purchase 324,675 common shares in the offering and our Chief Medical Officer, Dr. George Apostol, agreed to purchase 1,298,701 common shares in the offering.
We also entered into an agreement, or the Placement Agent Agreement, with Laidlaw & Company (UK) Ltd. as sole placement agent, or the Laidlaw Placement Agent pursuant to which the Laidlaw Placement Agent agreed to serve as the placement agent for us in connection with the September 2022 Private Placement. We paid the Laidlaw Placement Agent a cash placement fee equal to 3.5% of the aggregate gross proceeds received for the securities sold in the September 2022 Private Placement.
At the closing of the offering, Lenders with an aggregate principal balance of $1.53 million plus all accrued interest, that were issued in August 2022, elected to convert into 2,516,429 common shares and the holders received the warrants to purchase up to 1,258,215 common shares with an exercise price of $0.70, that are exercisable six months after their issuance and will expire five years following the date that the warrants are initially exercisable, and are otherwise substantially similar to the form of the warrants issued in the September 2022 private placement. We obtained shareholder approval to increase our authorized share capital, which was required to permit the exercise of the warrants issued to the Lenders. In addition, a portion of the purchasers of the common warrants with the right to purchase up to 1,298,699 common shares agreed not to exercise their common warrants until such time as we had increased our authorized share capital. In October 2022, we conducted an extraordinary general meeting wherein our shareholders approved the increase in authorized share capital.
On December 6, 2022, we entered into a securities purchase agreement, or the December Purchase Agreement, with funds affiliated with BVF Partners L.P., or collectively, BVF, providing for the issuance in a private placement offering of (i) 5,747,126 common shares, par value CHF 0.02 per share, and (ii) pre-funded warrants to purchase 5,747,127 common shares, or the December Pre-Funded Warrants, at a purchase price of $0.87 per common share and $0.87 per December Pre-Funded Warrant, for aggregate gross proceeds of $10 million. The first closing of the offering, or the First Closing, occurred on December 13, 2022. The December Pre-Funded Warrants have an exercise price of CHF 0.02 per share.
In addition, we and BVF agreed that, until the 30th day following receipt of the official written minutes from the end of the Phase 2 meeting to be held by the Company with the FDA, or the Election Deadline, among other closing conditions, BVF shall have the right to purchase at a second closing, or the Second Closing, up to $20 million in units, or the Units, with each Unit consisting of one common share and/or pre-funded warrants to purchase one common share, as well as receive a warrant, or the Additional Warrants, to purchase up to 150% of the number of common shares and/or pre-funded warrant shares purchased in the Second Closing, at a purchase price of $1.50 per Unit. The Additional Warrants will have a term of five years, will have an exercise price of $2.03 per share and will be exercisable for pre-funded warrants if, at their expiration, BVF will be unable to purchase common shares due to its beneficial ownership limitation. To date, BVF has not committed to the closing of the second tranche.
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Pursuant to the December Purchase Agreement, we agreed to grant BVF the right to participate in future offerings of the Company’s securities for a period from the First Closing until the earlier of (i) the 30-month anniversary of the Initial Closing Date or (ii) until such time that BVF retains beneficial ownership of less than 9.9% of the issued and outstanding common shares. In addition, we agreed to grant BVF the right to nominate one member to the Company’s board of directors and shall continue to recommend to our shareholders to elect such member for a period from the First Closing until such time that BVF retains beneficial ownership of less than 9.9% of the issued and outstanding common shares. As of May 5, 2023, BVF has not nominated anyone to serve on the Company’s board of directors.
On April 27, 2023, we entered into an agreement with BVF to clarify the change of control provision in their December Pre-Funded Warrant.
On September 28, 2023, we entered into a short term loan agreement, or the Short Term Loan Agreement, with Ronald Hafner, the Company’s Chairman of the Board of Directors, or the Short Term Lender, providing for an unsecured loan to the Company in the aggregate amount of CHF 500,000, or the Short Term Loan. Pursuant to the Short Term Loan Agreement, the Short Term Loan bears interest at a rate of 10% per annum and matures on November 30, 2023. On November 15, 2023, the Company, entered into a series of short term loan agreements, or the Bridge Loan Agreements and together with the Short Term Loan Agreement, the Loan Agreements, with certain existing shareholders of the Company, including Ronald Hafner, the Company’s Chairman of the Board of Directors, Felix Grisard, Jürgen Bauer and Maria Nayvalt, or the Bridge Lenders and together with the Short Term Lender, the Lenders, providing for an unsecured loan to the Company in the aggregate amount of CHF 875,000.00 (approximately $1,000,000.00), or the Bridge Loan. Pursuant to the Bridge Loan Agreements, the Bridge Loans bear interest at a rate of 10% per annum and mature on the earlier of June 30, 2024 or a liquidity event with a strategic partner.
On March 18, 2024, we entered into an addendum to the Short Term Loan Agreement with the Short Term Lender, and a series of addendums to the Bridge Loan Agreements with the Bridge Lenders, each providing for an extension of the maturity date under the Loan Agreements to December 31, 2024.
On May 13, 2024, we entered into the second short term addendum, or the Second Short Term Addendum, to the Short Term Loan Agreement dated September 28, 2023, and a short term addendum, or the Short Term Addendum, to the Short Term Loan Agreement dated November 15, 2023, with the Short Term Lender providing for an extension of the maturity date under the Short Term Loan Agreements to June 30, 2025.
On March 20, 2024, we entered into a securities purchase agreement, or the March Purchase Agreement, providing for the issuance in a registered direct offering of 7,000,000 common shares, at a purchase price of $0.25 per share. The offering closed on March 22, 2024. In addition, pursuant to the March Purchase Agreement, the investors received unregistered warrants, or the Common Warrants, to purchase up to an aggregate of 3,500,000 common shares at an exercise of $0.25 per share in a concurrent private placement. The Common Warrants were immediately exercisable upon issuance and will expire five years following the date of issuance. The March Purchase Agreement contains customary representations and warranties and agreements of the Company and the investors and customary indemnification rights and obligations of the parties. Pursuant to the March Purchase Agreement, we agreed not to enter into any agreement to issue or announce the issuance or proposed issuance of any common shares or Common Share equivalents for a period of 45 days following the closing of the offering, subject to certain customary exceptions. We have also agreed that from the date of the March Purchase Agreement until one year after the closing date of the offering, we shall not enter into an agreement to effect any issuance by us or any of our subsidiaries of common shares or Common Share equivalents (or a combination of units thereof) involving a variable rate transaction. The offering resulted in gross proceeds to us of $1,750,000. We intend to use the net proceeds from the offering for working capital and general corporate purposes.
A. Operating Results
Operating Expenses
Our current operating expenses consist of two components - research and development expenses and general and administrative expenses.
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Research and Development Expenses, net
Our research and development expenses are expensed as incurred and consist primarily of costs of third-party clinical consultants who conduct clinical and pre-clinical trials on our behalf and expenses related to lab supplies, materials and facility costs.
Clinical trial costs are a major component of research and development expenses. We accrue and expense clinical trial activities performed by third parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites. We determine the actual costs through monitoring patient enrollment and discussions with internal personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.
Our research and development expenses have materially increased and will continue to increase in the future as we enter into the Phase 2/3 clinical development stage of our product candidates and initiate a number of new research initiatives that are complementary to our existing and planned research initiatives and thereby recruit additional research and development employees.
General and Administrative Expenses
General and administrative expenses include personnel costs, expenses for outside professional services, and all other general and administrative expenses. Personnel costs consist of salaries, cash bonuses and benefits. Outside professional services consist of legal fees (including intellectual property and corporate matters), accounting and audit services, IT and other consulting fees.
Finance Expense and Income
Other expenses include exchange rate differences and financial expenses related to credit card fees.
Interest expense relates to interest paid for our financing obligations.
Taxation
NLS Pharmaceutics is subject to corporate Swiss federal, cantonal and communal taxation in the Canton of Zurich, Switzerland.
We are entitled under Swiss laws to carry forward any losses incurred for a period of seven years and can offset our losses carried forward against future taxes. As of December 31, 2023, we had tax loss carryforwards totaling $40.9 million. There is no certainty that we will make sufficient profits to be able to utilize these tax loss carryforwards in full. As such, we have recorded a 100% valuation on these tax loss carryforwards.
The effective corporate income tax rate (federal, cantonal and communal) where we are domiciled is currently 10.6%.
Notwithstanding the corporate income tax, the corporate capital is taxed at a rate of 0.1% (cantonal and communal tax only, as there is no federal tax on capital).
Value Added Tax, or VAT, is charged on all qualifying goods and services by VAT-registered businesses. An amount of 7.7% of the value of the goods or services is added to all sales invoices and is payable to the Swiss tax authorities. Similarly, VAT paid on purchase invoices is reclaimable from the Swiss tax authorities.
Results of Operations
The numbers below have been derived from our audited financial statements included elsewhere herein. The discussion below should be read along with these financial statements and it is qualified in its entirety by reference to them.
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Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
| For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Research and development expenses | $ | 5,908,288 | $ | 8,976,643 | ||||
| General and administrative expenses | 5,898,775 | 6,505,721 | ||||||
| Operating loss | (11,807,063 | ) | (15,482,364 | ) | ||||
| Other income (expense), net | (219,812 | ) | 10,045 | |||||
| Interest expense | (119,920 | ) | (95,211 | ) | ||||
| Interest on related party loans | (25,233 | ) | (5,655 | ) | ||||
| Loss on extinguishment of convertible notes | - | (922,495 | ) | |||||
| Net loss | $ | (12,172,029 | ) | $ | (16,495,680 | ) | ||
Research and Development Expenses
Research and development activities are essential to our business and historically represented the majority of our costs incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using information from the clinical sites and our vendors. In addition to these arrangements, we expect that our total future research and development costs will increase over current levels in line with strategy to progress the development of our product candidates, as well as discovery and development of new product candidates.
The following table summarizes our research and development expenses during the years ended December 31, 2023 and 2022:
| For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Pre-clinical development | $ | 270,233 | $ | 443,357 | ||||
| Clinical development | 1,704,873 | 6,824,928 | ||||||
| Clinical manufacturing costs | 2,640,030 | 802,052 | ||||||
| License fee with Novartis | - | - | ||||||
| License fee with Aexon | 30,000 | |||||||
| Subcontractors | 1,228,804 | 888,661 | ||||||
| Other | 34,348 | 17,645 | ||||||
| Total | $ | 5,908,288 | $ | 8,976,643 | ||||
Our research and development expenses totaled $5,908,288 for the year ended December 31, 2023, representing a decrease of $3,068,355, or 34.2%, compared to $8,976,643 for the year ended December 31, 2022. The increase in CMC expenses was attributable to the increase of clinical manufacturing costs for the production of drugs intended for Phase 3 clinical trials. The significant decrease in clinical and pre-clinical expenses in 2023 was attributable to the fact that there were no active clinical trials in 2023, as compared to the clinical trials we conducted in 2022.
General and Administrative Expenses
Our general and administrative expenses totaled $5,898,775 for the year ended December 31, 2023, representing a decrease of $606,946, or 9.3%, compared to $6,505,721 for the year ended December 31, 2022. The decrease was attributable to decreases in insurance costs related to directors and officers insurance coverage for members of our board of directors and senior management, accounting services, legal counsel costs and costs of filing and maintenance of our new and existing patents.
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Operating Loss
As a result of the foregoing, our operating loss totaled $11,807,063 for the year ended December 31, 2023, representing a decrease of $3,675,301 or 23.7%, compared to $15,482,364 for the year ended December 31, 2022.
Other Income (Expense)
Other income (expense) consists of exchange rate differences and financial expenses related to our credit card fees. We recognized other expense of $219,812 for the year ended December 31, 2023, representing an increase of $229,857, or 2,288.3%, compared to other income $10,045 for the year ended December 31, 2022. The change is due to movements in the exchange rates.
Interest Expense
Interest expense consists of interest on notes payable and interest and imputed interest expenses on the convertible notes payable and certain previously outstanding convertible loans. Interest expense was $119,920, including $0 of imputed interest, for the year ended December 31, 2023 representing an increase of $24,709, or 26%, compared to expense of $95,211, including $67,008 of imputed interest, for the year ended December 31, 2022. The increase was due to interest due to vendors on outstanding invoices.
Interest on Related Party Loans
Interest on related party loans was $25,233 for the year ended December 31, 2023, representing an increase of $19,578, or 346.2%, compared to $5,655 for the year ended December 31, 2022. The increase was due to a series of short-term loan agreements with certain existing shareholders of the Company during these time periods.
Loss on Extinguishment of Convertible Notes
The loss on extinguishment of convertible notes for the year ended December 31, 2023 was not applicable due to the absence of any such transactions during that period. For the year ended December 31, 2022, a loss on extinguishment of convertible notes amounting to $922,495 occurred. This loss resulted from the extinguishment of short-term convertible notes with an aggregate principal and interest amount of $1,550,121 in exchange for 2,516,428 common shares with a fair value of $0.77 per share and an aggregate fair value of $1,937,650 and additional warrants with a fair value of $534,996.
Net Loss
As a result of the foregoing, our net loss totaled $12,172,029 for the year ended December 31, 2023, representing a decrease of $4,323,651, or 26.2%, compared to $16,495,680 for the year ended December 31, 2022.
For a comparison of the year ended December 31, 2022 to the year ended December 31, 2021, see our annual report on Form 20-F for the year ended December 31, 2022.
B. Liquidity and Capital Resources
Overview
During the year December 31, 2023, we funded our operations with $1,633,746 unsecured loans to the Company with certain existing shareholders of the Company, in the aggregate amount of CHF 1,375,000.00 (approximately $1,633,746). As of December 31, 2023, we had $897,680 in cash and cash equivalents.
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The table below summarizes our cash flows for the years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (9,684,466 | ) | $ | (13,879,371 | ) | ||
| Net cash used in investing activities | - | - | ||||||
| Net cash provided by financing activities | $ | 1,633,746 | $ | 17,396,669 | ||||
| Effect of exchange rate changes on cash and cash equivalents | - | (100 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | $ | (8,050,720 | ) | $ | 3,517,198 | |||
Operating Activities
Net cash used in operating activities was $9,684,466 during the year ended December 31, 2023 compared with net cash used in operating activities of $13,879,371 for the year ended December 31, 2022. The change in cash used in operating activities for the year ended December 31, 2023 was due to our reporting a net loss of $11,807,063 for the year ended December 31, 2023, compared with a net loss of $15,985,002 for the same period in 2022, driven by a $3,068,355 decrease in research and development costs for the year ended December 31, 2023.
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt and/or equity financings. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. This may raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our product candidates.
Investing Activities
We had no net cash from or used in investing activities in 2023 or 2022.
Financing Activities
Net cash provided by financing activities of $1,633,746 for the year ended December 31, 2023, consisted of $1,633,746 of net proceeds from short-term loan agreements with certain existing shareholders of the Company.
Net cash provided by financing activities of $17,396,669 for the year ended December 31, 2022, consisted of $16,547,137 of net proceeds from the issuance of common shares, pre-funded warrants and warrants, $1,530,000 in proceeds from the issuance of convertible notes payable $23,692 from the exercise of pre-funded warrants, offset in part by payments on the note payable of $704,160.
See “—Recent Financing Transactions” above for descriptions of our additional financing transactions in 2023 and 2022.
Current Outlook
During 2023, we financed our operations primarily through proceeds from sales of our common shares, warrants, the exercise of warrants and the issuance of convertible notes. We have incurred losses and generated negative cash flows from operations since inception in 2015. To date we have not generated revenues, and we do not expect to generate any significant revenue from the sale of our product candidates in the near future.
We expect to generate losses for the foreseeable future, and these losses could increase as we continue product development until we successfully achieve regulatory approvals for our product candidates and begin to commercialize any approved products. We are subject to all the risks pertinent to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect to incur additional costs associated with operating as a public company and we anticipate that we will need substantial additional funding in connection with our continuing operations. If we need to raise additional capital to fund our operations and complete our ongoing and planned clinical studies, funding may not be available to us on acceptable terms, or at all.
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As of December 31, 2023, our cash and cash equivalents were $0.9 million. We believe that our existing cash and cash equivalents will not be sufficient to fund our projected operating requirements for a period of one year from the issuance of the financial statements included elsewhere in this annual report. This raises substantial doubt about our ability to continue as a going concern. Additionally, our operating plans may change as a result of many factors that may currently be unknown to us including:
| ● | the progress and costs of the Company’s pre-clinical studies, clinical trials and other research and development activities; | |
| ● | the scope, prioritization and number of the Company’s clinical trials and other research and development programs; | |
| ● | any cost that the Company may incur under in- and out-licensing arrangements relating to its product candidate that it may enter into in the future; | |
| ● | the costs and timing of obtaining regulatory approval for the Company’s product candidates; | |
| ● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; | |
| ● | the costs of, and timing for, strengthening the Company’s manufacturing agreements for production of sufficient clinical and commercial quantities of its product candidates; | |
| ● | the potential costs of contracting with third parties to provide marketing and distribution services for the Company or for building such capacities internally; and | |
| ● | the costs of acquiring or undertaking the development and commercialization efforts for additional therapeutic applications of the Company’s product candidates and the magnitude of the Company’s general and administrative expenses. |
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our current investment policy is to invest available cash in bank deposits with banks that have a credit rating of at least A-. Accordingly, a substantial majority of our cash and cash equivalents is held in deposits that bear interest. Given the current low rates of interest we receive, we will not be adversely affected if such rates are reduced. Our market risk exposure is primarily a result of foreign currency exchange rates, which is discussed in detail in the following paragraph.
Foreign Currency Exchange Risk
Our results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. As discussed above, the vast majority of our liquid assets is held in U.S. dollars, and a certain portion of our expenses are denominated in CHF or EUR. For instance, during the year ended December 31, 2023, approximately 26% of our expenses were denominated in CHF, 7% in EUR and 1% in GBP. Changes of 5% and 10% in the U.S. dollar/CHF exchange rate would have increased/decreased our operating expenses by 1% and 2%, respectively. However, these historical figures may not be indicative of future exposure, as we expect that the percentage of our CHF denominated expenses will materially decrease in the near future, therefore reducing our exposure to exchange rate fluctuations.
We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
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JOBS Act Accounting Election
Under the JOBS Act, an EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not EGCs.
Option Plan
On December 14, 2021, the board of directors, adopted the Share Option Plan Regulation 2021, or the Option Plan. The purpose of the Option Plan is to retain, attract and motivate management, employees, directors and consultants by providing them with options to purchase our common shares. The board of directors allocated fifteen percent (15%) of our fully diluted shares to awards that may be made pursuant to the Option Plan.
C. Research and development, patents and licenses, etc.
For a description of our research and development programs and the amounts that we have incurred over the last two years pursuant to those programs, please see “Item 5.A. Operating Results - Operating Expenses - Research and Development Expenses, net” and “Item 5.A. Results of Operations - Comparison of the year ended December 31, 2023, to the year ended December 31, 2022- Research and Development Expenses, net.”
D. Trend information
We are not aware of any material recent trends besides those discussed elsewhere in this annual report.
E. Critical Accounting Estimates
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Revenue Recognition
The EF License Agreement provides for the development and commercialization of our product candidate, Nolazol, in Latin American countries with Eurofarma. The EF License Agreement is within the scope of Accounting Standards Codification, or ASC, 606, “Revenue from Contract with Customers,” or ASC 606.
Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.
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As of December 31, 2023, we have not recognized any revenue from the EF License Agreement as the upfront payment we received has been deferred. We have allocated the transaction price entirely to the single License Performance Obligation and recorded the $2,500,000 as deferred revenue that is expected to be recognized upon Brazilian or other Latin American market approval or, in the event marketing approval in the United States and/or Latin America is not achieved, whether by failure in clinical development or otherwise, when the Company’s performance obligations are contractually complete or the EF License Agreement is terminated.
Pension Obligations
We have a single insurance collective pension plan that is fully insured and operated by an insurance company which covers the employees. Both we and the participants provide monthly contributions to the pension plan that are based on the covered salary. A portion of the pension contribution is credited to employees’ savings accounts which earns interest at the rate provided in the plan. The pension plan provides for retirement benefits as well as benefits on long-term disability and death. The pension plan qualifies as a defined benefit plan in accordance with U.S. GAAP. As such, the cost of the defined pension arrangement is determined based on actuarial valuations. An actuarial valuation assumes the estimation of discount rates, estimated returns on assets, future salary increases, mortality figures and future pension increases. Because of the long-term nature of these pension plans, the valuation of these is subject to uncertainties.
Income Taxation
We incur tax loss carryforwards generating deferred tax assets against which a valuation allowance is recorded when it is not more likely than not that the tax benefit can be realized. Judgment is required in determining the use of tax loss carryforwards. Management’s current judgment is that it is not more likely than not that the tax benefits can be realized and a full valuation allowance is therefore recognized.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding our directors and senior management and directors as of May 14, 2024:
| Name | Age | Position | Initial Year of Appointment | |||
| Directors | ||||||
| Ronald Hafner(1)(3) | 60 | Chairman and Director | 2015 | |||
| Alexander Zwyer | 55 | Chief Executive Officer and Director | 2015 | |||
| Florence Allouche Aknin(3) | 57 | Director | 2023 | |||
| Claudio L. A. Bassetti(3) | 65 | Director | 2023 | |||
| Audrey Greenberg(2)(3) | 51 | Director | 2023 | |||
| Gian-Marco Rinaldi(1)(2)(3) | 55 | Director | 2021 | |||
| Elena Thyen-Pighin | 52 | Chief Financial Officer | 2023 | |||
| George Apostol | 51 | Chief Medical Officer and Global Head of Research and Development | 2022 | |||
| Eric Konofal | 56 | Chief Scientific Officer | 2021 |
| (1) | Member of Compensation, Nomination & Governance Committee |
| (2) | Member of the Audit Committee |
| (3) | Independent Director (as defined under Nasdaq rules) |
In general, members of our board of directors are elected by our shareholders and elected to serve for a one-year period.
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Ronald Hafner, Chairman of the Board of Directors
Ronald Hafner has been a member of our board of directors and served as Chairman of the board of directors since August 2015. Mr. Hafner has been a partner at Deloitte Consulting AG since January 2016 and since 2018 he has served as the chairman of Magnetic Rock, a private investment company. From 2015 to 2016, Mr. Hafner served as an independent director of the Pingar Group Ltd., a private company developing artificial intelligence software solutions. Prior to serving in these capacities, Mr. Hafner served as the Chief Executive Officer of Infosys Consulting AG. Prior to Lodestone Management Consultants AG’s acquisition by Infosys Ltd. in 2012, Mr. Hafner was Chief Executive Officer and partner of Lodestone Management Consultants AG, where he was responsible for the company’s global operations since founding the business in 2005. Mr. Hafner has an M.B.A. and master’s degree in economics from the University of Basel/Switzerland.
Alexander Zwyer, Chief Executive Officer and Director
Alexander Zwyer has served as our Chief Executive Officer and as a Director since our incorporation in August 2015. Mr. Zwyer has over 25 years of international business experience. In 2007, prior to, and until founding NLS in 2015, Mr. Zwyer founded a start-up in the high-end luxury food sector and served as its chief executive officer until 2015 when he successfully sold the company. From 1991 and until 2007, Mr. Zwyer served in various positions with Viforpharma AG (SWX: VIFN) (then known as Vifor (International) Inc.), most notably serving as Executive Vice President (chief operating officer), leading the company’s global regulatory affairs, medical affairs, sales and marketing as well as business development teams. Mr. Zwyer speaks seven languages fluently. Mr. Zwyer holds a B.B.A. in business administration from Oekral, Zurich, Switzerland and an executive M.B.A. from GSBA/Lorange Institute of Business, Zurich, Switzerland and an M.B.A. from University at Albany SUNY.
Gian-Marco Rinaldi, Director
Gian-Marco Rinaldi has served as a Director since June 2021. Mr. Rinaldi has over 25 years of international business experience. Since 2009, Mr. Rinaldi worked at Equity Partner Finad AG, Multi Family Office as an Advisor on financial matters with focus on Private Equity. From 2007 and until 2009, Mr. Rinaldi served in various positions with Clariden Leu, as a Managing Director. From 1995 and until 2000, Mr. Rinaldi served as Manager distressed assets in Corporate Banking for UBS. Mr. Rinaldi speaks three languages fluently. Mr. Rinaldi holds a Master of Advanced Studies at University of Applied Sciences Nordwestschweiz, Switzerland and a Master in law at University of Zurich, Switzerland.
Claudio L. A. Bassetti, Director
Claudio L. A. Bassetti received his Doctor of Medicine degree from the University of Basel and trained in Bern and Lausanne, with research fellowships in experimental neurophysiology and Sleep Medicine. In 2000, he was appointed professor of Neurology at the University of Zurich and in 2009, founded the Neurocenter of Southern Switzerland. He is currently Chair of the Neurology Department, Inselspital, Bern University Hospital and Dean, Medical Faculty, University of Bern. He has served as president of the European Neurological Society, European Sleep Research Society, and European Academy of Neurology, among other prominent appointments. He has authored over 560 publications and speaks six languages. A global leader in sleep medicine, he has pioneered studies in sleep disorders and stroke, as well as made fundamental contributions to the etiology, pathophysiology and management of narcolepsy.
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Florence Allouche Aknin, Director
Florence Allouche Aknin, a Doctor of Pharmacy and holding a Master’s in Business Administration, began her career as a biologist at AP-HP (Greater Paris Hospitals), managing the tech transfer office for 16 years and creating 75 start-ups. Dr. Allouche Aknin is an expert and mentor at the Paris incubators and has represented French technology internationally. She is a Professor of Pharmacy at the University Paris City and an elected member of the French National Academy of Pharmacy. She is also the President and Founder of Myrpharm Advisors, a start-up studio for the biopharmaceutical industry. In addition, in 2022, Dr. Allouch Aknin launched Sorbonne Venture, a €100M fund dedicated to health technology. She is also Chairwoman of the Board of Directors for PepKon, a French biotechnology company. Among her many awards, Dr. Allouche Aknin was elected “Woman of the Year 2017” by the French financial magazine La Tribune, Women’s trajectory Award 2018 by HEC Paris, and Mercure Entrepreneurs Award 2019 by HEC Paris.
Audrey Greenberg, Director
Audrey Greenberg is Co-founder of the Center for Breakthrough Medicines, where she currently serves as Chief Business Officer responsible for business development, corporate strategy, team attraction and engagement, and joint venture and investor relationships. Before launching CBM, she spent two decades working as a private equity executive, investment banker and public accountant. She has an MBA from the Wharton School and is a registered CPA. Audrey is recognized as one of the Top Trailblazers in Biotech with a strong track record of building life science companies through capital attraction, strategic relationships, novel technologies, and top-tier management teams. She has launched and scaled several startups now with multi-billion-dollar valuations. She has two decades of executive leadership expertise spanning across functions from Chief Financial Officer to Chief Strategy Officer to Chief Business Officer and is a renowned expert in Advanced Therapies, biomanufacturing, and building bioinnovation hubs. Audrey was recently recognized as one of the Most Influential Philadelphians, Philly Power 100, Woman of Influence, Titan 100, Healthcare Power Player, Power Woman, Life Science Revolutionary Trailblazer, and Young Industry All-star. Her companies have received awards including Deal of the Year (2x), Employer of the Year, Startup of the Year, DEI Initiative of the Year, Innovator of the Year, and the PRSA Ladle Award for Communications.
Elena Thyen-Pighin, Chief Financial Officer
Elena Thyen-Pighin holds extensive experience in leadership and management functions as both head of finance and human resources across a number of industries, including organizations similar to NLS. Based in Switzerland, Ms. Thyen-Pighin speaks 5 languages and has a strong and successful track record, most notably in accounting for both private and publicly listed enterprises. She earned a Bachelor of Science degree in Business and Administration from Eastern Switzerland University of Applied Sciences in St. Gallen (Switzerland).
Dr. George Apostol, Chief Medical Officer and Global Head of Research and Development
Dr. George Apostol was appointed the Chief Medical Officer and Global Head of Research and Development in September 2022. From 2020 to 2022, Dr. Apostol was the Executive Vice President, Head of Global Research and Development of Endo International plc where he led the transformation of the research and development, or R&D, organization from a generic-focused group into a dynamic specialty-pharmaceutical R&D organization. From 2020 to 2015, Dr. Apostol, was the Vice President of Global Development of Shire Inc. Dr. Apostol attended Carol Davila Medical School in Bucharest, Romania where he earned his M.D. degree, and the University of Minnesota, where he earned a Master of Science in Clinical Research. Following the end of his graduate studies, Dr. Apostol attended a post-doctorate drug development program at Eli Lilly & Co. in Indianapolis, Indiana. Subsequently, Dr. Apostol attained broad drug development expertise across early, middle and late phases while working in the global R&D as Global Head of R&D at Endo International plc from May 202 to January 2022; Vice President, Global Development at Shire from May 2015 to May 2020; Franchise Medical Head, Neuroscience-Europe from January 2014 to May 2015; Global Program Medical Director, Neuroscience from July 2009 to February 2014 during his tenure at Novartis; and Senior Medical Director, Global Pharmaceutical R&D from September 2005 to June 2009 at Abbott Laboratories.
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Eric Konofal, Chief Scientific Officer
Eric Konofal, MD, Ph.D. was appointed as our Interim Chief Scientific Officer in February 2021. Dr. Konofal is an IP expert and co-founder of NLS Pharmaceutics Ltd. Dr. Konofal has been active for more than 27 years in the field of sleep research, including narcolepsy and hypersomnia, as a clinician, scientific researcher, and drug hunter. From 2006 to date, Dr. Konofal serves as a senior medical consultant for the Pediatric Sleep Disorders Center and the Child and Adolescent Psychiatry Department at Robert Debré Hospital (APHP). Dr. Konofal received his medical doctorate and Ph.D. from the University Pierre–Marie Curie, Paris / France.
Family Relationships
There are no family relationships among any of our senior management and our directors.
Arrangements for Election of Directors and Members of Senior Management
There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our senior management or our directors were selected.
B. Compensation
Compensation
The following table presents in the aggregate all compensation we paid to all of our directors and senior management as a group for the year ended December 31, 2023. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing us with services during this period. For the year 2023, pursuant to Swiss law, we are required to provide the compensation report detailing the compensation (i) in a total amount and individual amount of our members of the board of directors (stating the name and function of the member concerned), (ii) in a total amount and the highest amount attributable to the senior management (stating the name and function of the member concerned) and (iii) name and function of senior management who received an additional amount (if any) to the general meeting of shareholders.
All amounts reported in the table below reflect the cost to the Company, in thousands, for the year ended December 31, 2023.
| Salary, Bonuses and Related Benefits | Pension, Retirement and Other Similar Benefits | Share Based Compensation | ||||||||||
| All directors and senior management as a group, consisting of 10 persons | $ | 1,631 | $ | 111 | $ | 272 | ||||||
In accordance with Swiss law, we are required to disclose the compensation granted to the board of directors and the senior management as follows: the total amount for the board of directors and the amount attributable to each member of the board of directors, stating the name and function of the member concerned, as well as the total amount for the senior management and the highest amount attributable to a member of the senior management, stating the name and function of the member concerned. The table below reflects the compensation granted during or with respect to the year ended December 31, 2023.
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All amounts reported in the table below reflect the cost to the Company, in thousands, for the year ended December 31, 2023.
| Salary, Bonuses and Related Benefits | Pension, Retirement and Other Similar Benefits | Share Based Compensation | ||||||||||
| Ronald Hafner | $ | 41 | $ | 3 | $ | - | ||||||
| Alexander Zwyer | $ | 863 | $ | 54 | $ | - | ||||||
| Myoung-Ok Kwon(1) | $ | 10 | $ | 1 | $ | - | ||||||
| Stig Løkke Pedersen(1) | $ | 10 | $ | 1 | $ | - | ||||||
| Chad Hellmann (2) | $ | 67 | $ | - | $ | - | ||||||
| George Apostol | $ | 350 | $ | 40 | $ | - | ||||||
| Gian-Marco Rinaldi | $ | 28 | $ | 2 | $ | - | ||||||
| Audrey Greenberg | $ | 15 | $ | 1 | $ | 136 | ||||||
| Anthony Walsh(3) | $ | 15 | $ | 1 | $ | 136 | ||||||
| Elena Thyen-Pighin | $ | 53 | $ | 8 | $ | - | ||||||
| Eric Konofal | $ | 179 | $ | $ | - | |||||||
| (1) | Resigned as a member of the Company’s board of directors on May 22, 2023. |
| (2) | Resigned as Chief Financial Officer on May 1, 2023. |
| (3) | Resigned as a member of the Company’s board of directors on April 3, 2024. |
Employment Agreements with Senior Management
We have entered into written employment agreements with our Chief Executive Officer and Chief Medical Officer, currently our only members of senior management. Our other members of the management team are not engaged as full-time employees as of December 31, 2023. We have entered into consulting or employment agreements with our other management and employees. All of these agreements contained provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law and, our assignment of inventions agreements with our senior management contain terms and conditions customary under Swiss law. In addition, our senior management are subject to our directors’ and officers’ liability insurance policy, which we obtained prior to the initial public offering. Members of our senior management are eligible for bonuses each year. The bonuses will be payable upon meeting objectives and targets that are set annually by our board of directors and compensation and governance committee, and, in certain circumstances, upon approval by our shareholders.
C. Board Practices
Board of Directors
On May 3, 2023, our board of directors resolved to consider increasing the size of the board of directors by two seats and seek U.S. based, industry experts as candidates to potentially serve as independent directors at our next annual general shareholders meeting.
Our board of directors is composed of six directors. Each director is elected for a one-year term. Messrs. Hafner, Rinaldi and Zwyer were reappointed at the annual shareholders’ meeting held on June 30, 2023. Audrey Greenberg and Anthony Walsh were elected to the board of directors at the annual shareholders’ meeting held on June 30, 2023. Claudio L.A. Bassetti and Florence Allouche Aknin joined the board of directors effective January 1, 2024. Mr. Walsh resigned from the board of directors on April 3, 2024.
Swiss law requires that any listed company exceeding two of the three thresholds specified in art. 727 para.1 no. 2 of the Swiss Code of Obligations, or the CO, in two successive financial years shall have each gender represented by at least 30% on the board of directors and 20% on the senior management team. If a company fails to comply, it must be disclosed in a statutory compensation report, including an explanation and a designation of measures to be taken to reconcile the failed compliance. For our board of directors, this rule will apply, subject to meeting the thresholds required under the CO, from the business year 2026, whereas for the senior management team from the business year 2031. The triggering thresholds are (i) a balance sheet total of CHF 20 million, (ii) sales revenue of CHF 40 million and (iii) an average of 250 full-time employees per year.
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Director Independence
Our board has reviewed the independence of our directors, applying the Nasdaq independence standards. Based on this review, the board determined that each of Florence Allouche Aknin, Claudio L. A. Bassetti, Audrey Greenberg, Ronald Hafner and Gian-Marco Rinaldi are “independent” within the meaning of the Nasdaq rules. In making this determination, our board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board deemed relevant in determining their independence. As required under applicable Nasdaq rules, our independent directors meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and senior management.
Committees of the Board of Directors
Our board of directors has established two standing committees, the audit committee, and the compensation, nomination and governance committee.
Audit Committee
Under Nasdaq rules, we are required to maintain an audit committee consisting of at least three members, all of whom are independent and are financially literate and one of whom has accounting or related financial management expertise. We have complied with this requirement in accordance with Nasdaq Listing Rule 5615(b)(1).
Our audit committee currently consists of Audrey Greenberg and Gian-Marco Rinaldi, each of whom meets the requirements for financial literacy under Nasdaq rules. Mr. Rinaldi serves as chairperson of the audit committee and our board of directors has determined that Mr. Rinaldi is an “audit committee financial expert” as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq Listing Rules.
The audit committee is governed by a charter that complies with Nasdaq rules. The audit committee has the responsibility to, among other things:
| ● | consider and make recommendations to the board of directors on our financial statements, review and discuss the financial statements with the senior management and the company’s external independent auditor and present its recommendations with respect to the financial statements to the board of directors prior to the approval of the financial statements at the general shareholders’ meeting; |
| ● | oversee our independent auditor and engage and determine compensation or termination of engagement of our auditor; |
| ● | determine and pre-approve the terms of certain audit and non-audit services provided by our auditor; |
| ● | review and monitor, if applicable, legal matters with significant impact and findings of regulatory authorities, receive reports regarding irregularities and legal compliance, and make recommendations to our board of directors if so required, and oversee our policies and procedures regarding compliance to applicable financial and accounting related standards, rules and regulations; and |
| ● | review and assess the independent auditor’s report, management letters and take notice of all comments of the independent auditor on accounting procedures and systems of control and review the independent auditor’s reports with senior management. |
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Compensation, Nomination and Governance Committee
The members of our compensation, nomination and governance committee are currently Ronald Hafner and Gian-Marco Rinaldi Diaz de la Cruz with Ronald Hafner serving as chairperson. The compensation, nomination and governance committee assists our board of directors in overseeing our cash compensation and equity award recommendations for our senior management along with the rationale for such recommendations, as well as summary information regarding the aggregate compensation provided to our senior management. Swiss law requires that we adopt a compensation committee, so in accordance with Nasdaq Listing Rule 5615(a)(3), we follow home country requirements with respect to the compensation committee. In accordance with Swiss Law, the compensation of our board of directors and senior management must be presented by the board of directors to our shareholders and our shareholders must vote on the proposed compensation. In addition, in accordance with Nasdaq Listing Rule 5615(a)(3), we follow home country requirements with respect to the nomination and governance committee. With respect to the nomination of persons to our board of directors, our home country rules do not require us to authorize a committee of our independent directors or alternatively hold a vote consisting of solely our independent directors in order to determine which persons shall be nominated for election by our shareholders.
As a result, our practice varies from the requirements of Nasdaq Listing Rule 5605(d) and 5605(e) which set forth certain requirements as to the responsibilities, composition and independence of compensation committees and the nomination of directors for election by shareholders, respectively. See “-Differences between Swiss Laws and Nasdaq Requirements.”
The members of the compensation, nomination and governance committee are elected annually by the shareholders’ meeting for a period until the completion of the next annual shareholders’ meeting and are eligible for re-election. Each member of the compensation, nomination and governance committee is elected individually. If there are vacancies on the compensation, nomination and governance committee and the number of members falls below the minimum of two, the board of directors shall appoint the missing member from among its members for the remaining term of office.
D. Employees.
As of May 14, 2024, we have four senior management members, of which our Chief Executive Officer,Chief Medical Officer and Chief Financial Officer are full-time employees, while the other member of the senior management is a consultant.. None of our employees is represented by labor unions or covered by collective bargaining agreements. We believe that we maintain good relations with our employees.
All of our employment and consulting agreements will include employees’ and consultants’ undertakings with respect to non-competition and assignment to us of intellectual property rights developed in the course of employment and confidentiality.
E. Share Ownership.
Option Plan
On December 14, 2021, the board of directors, adopted the Share Option Plan Regulation 2021. The purpose of the Option Plan is to retain, attract and motivate management, employees, directors and consultants by providing them with options to purchase our common shares. The board of directors allocated fifteen percent (15%) of our fully diluted shares to awards that may be made pursuant to the Option Plan. For more information, see “Item 7.A. Major Shareholders” below.
F. Action to Recover Erroneously Awarded Compensation.
Not applicable.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information regarding beneficial ownership of our common shares as of May 14, 2024 by:
| ● | each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our voting securities. |
| ● | each of our directors and senior management; and |
| ● | all of our directors and senior management as a group. |
Except as indicated in footnotes to this table, we believe that the shareholder named in this table has sole voting and investment power with respect to all shares shown to be beneficially owned by it, based on information provided to us by such shareholder. The shareholder listed below does not have any different voting rights from any of our other shareholders.
| No. of Shares Beneficially Owned (1) | Percentage Owned (1) | |||||||
| Holders of more than 5% of our voting securities: | ||||||||
| Magnetic Rock Investment AG(2) | 2,845,000 | 6.6 | % | |||||
| BVF Partners L.P.(3) | 11,494,252 | 26.5 | % | |||||
| Felix Grisard(4) | 3,242,889 | 7.5 | % | |||||
| Ronald Hafner* | 2,071,710 | 4.8 | % | |||||
| YA II PN, Ltd.(5) | 3,959,128 | 9.1 | % | |||||
| Lind Global Fund II LP(6) | 4,300,000 | 9.9 | % | |||||
| Directors and senior management who are not 5% holders: | ||||||||
| Alexander Zwyer* | 1,598,133 | 3.7 | % | |||||
| Eric Konofal | 1,103,659 | 2.5 | % | |||||
| Gian-Marco Rinaldi* | 268,725 | ** | ||||||
| George Apostol | 1,363,916 | 3.1 | % | |||||
| Herve Girsault | 25,000 | ** | ||||||
| All directors and senior management as a group (6 persons) | 6,431,143 | 14.8 | % | |||||
| * | Indicates director of the Company. |
| ** | Less than 1%. |
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person, even if not the record owner, has or shares the underlying benefits of ownership. These benefits include the power to direct the voting or the disposition of the securities or to receive the economic benefit of ownership of the securities. A person also is considered to be the “beneficial owner” of securities that the person has the right to acquire within 60 days by option or other agreement. Beneficial owners include persons who hold their securities through one or more trustees, brokers, agents, legal representatives or other intermediaries, or through companies in which they have a “controlling interest,” which means the direct or indirect power to direct the management and policies of the entity. The percentages shown are based on 43,385,218, common shares issued and outstanding as of May 14, 2024. |
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| (2) | Magnetic Rock Investment AG is a private company owned in equal part by each of its shareholders, Messrs. Bauer, Stein and Ödman. Ronald Hafner serves on the board of directors and is a 25% shareholder of Magnetic Rock Investment AG. |
| (3) | Includes pre-funded warrants to purchase up to 1,112,020 common shares and excludes additional pre-funded warrants to purchase up to 4,635,107 common shares which are subject to a beneficial ownership blocker. Based solely on the Form 13G filed on December 16, 2022, with respect to securities jointly held by Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS LP and MSI BVF SPV LLC, each with a principal address of 44 Montgomery Street, 40th Floor, San Francisco, California 94104 |
| (4) | Based solely on a Schedule 13G filed with the SEC on February 24, 2023. |
| (5) | Based solely on a Schedule 13G filed with the SEC on February 12, 2024. |
| (6) | Based solely on a Schedule 13G filed with the SEC on March 27, 2024. |
Significant Changes in Ownership by Major Shareholders
During the past three years, there have been decreases in their relative percentage of ownership of our major shareholders as a result of our initial public offering and other equity issuances and an addition of a major shareholder due to an investment made in the Company during 2023.
Record Holders
As of the date of this annual report, there was a total of 24 holders of record of our common shares, of which at least 6 have, to the best of our knowledge, a registered address in the United States.
We are not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and there are no arrangements known to us which would result in a change in control of the Company at a subsequent date.
B. Related Party Transactions
Employment Agreements
We have entered into written employment agreements with our Chief Executive Officer and Chief Medical Officer. Our other members of management are not engaged as full-time employees as of December 31, 2023.
All employment agreements that we enter into contain provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law and, our assignment of inventions agreements with our senior management will contain terms and conditions customary under Swiss law. In addition, our senior management are subject to our directors and officers insurance policy. Members of our senior management are eligible for bonuses each year. The bonuses will be payable upon meeting objectives and targets that are set annually by the board of directors and compensation, nomination and governance committee, and, in certain circumstances, upon approval by our shareholders.
Alexander Zwyer Employment Agreement
On April 9, 2021, we entered into a new employment agreement with Mr. Zwyer, effective as of May 1, 2021, relating to his service as our Chief Executive Officer. Pursuant to his employment agreement, we have agreed to pay Mr. Zwyer a base annual salary of CHF 410,400, and a bonus payment, subject to the discretion of the board of directors. The employment agreement also provides that either party may terminate the employment agreement with 12 months’ prior notice, and that Mr. Zwyer will be subject to a 12-month non-competition and non-solicitation clauses. The employment agreement also provides for standard confidentiality provisions as well as reimbursement for certain expenses.
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George Apostol Employment Agreement
On September 7, 2022, we entered into a new employment agreement with Mr. Apostol, effective as of September 7, 2022, relating to his service as our Chief Medical Officer and Global Head of Research and Development. Pursuant to his employment agreement, we have agreed to pay Mr. Apostol a base annual salary of CHF 340,000, and a bonus payment of up to CHF 68,000, subject to the discretion of the board of directors. The employment agreement also provides that either party may terminate the employment agreement with six months’ prior notice, and that Mr. Apostol will be subject to a 12-month non-competition and non-solicitation clauses. The employment agreement also provides for standard confidentiality provisions as well as reimbursement for certain expenses.
Eric Konofal Consulting Agreement
In February 2021, we entered into a consulting agreement with Mr. Eric Konofal, our current Chief Scientific Officer, pursuant to which we agreed to pay Mr. Konofal a daily rate of CHF 2,000 for his services. The consulting agreement may be terminated by either party upon 30 days’ written notice or immediately by us in the event of a material breach by Mr. Konofal that cannot be cured. The consulting agreement contains customary confidentiality provisions and provides for an 18-month non-solicitation clause as well as reimbursement for certain expenses. We entered into a new consulting agreement starting July 1, 2021 for the continuation of Mr. Konofal’s engagement with the Company in his current role.
Elena Thyen-Pighin Employment Agreement
On August 28, 2023, Ms. Elena Thyen-Pighin has been appointed as Chief Financial Officer, and Head of Finance and Human Resources effective September 1, 2023. Ms. Thyen-Pighin’s annual base compensation will be CHF 180,000 and as of January 1, 2024 as full-time employee the annual base compensation will be CHF 200,000. Ms. Thyen-Pighin was initially hired as the Registrant’s Head of Finance and Human Resources on May 20, 2023, with the intent to transition her to serve as permanent CFO.
Shareholders and Officer and Director Loans
See “Item 5. Operating and Financial Review and Prospects – Short Term Loans” for additional information.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION.
A. Consolidated Statements and Other Financial Information.
See “Item 18. Financial Statements.”
Legal Proceedings
From time to time we may become involved in legal proceedings that arise in the ordinary course of business. During the period covered by the financial statements contained herein, we were not subject to any material legal proceedings that has had a material adverse effect on our financial position, except as described below. No assurance can be given that future litigation will not have a material adverse effect on our financial position. When appropriate in management’s estimation, we may record reserves in our financial statements for pending litigation and other claims.
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Cambrex Corporation
On December 1, 2023, we received a letter from Cambrex Corporation, stating that as of December 1, 2023, we had an overdue balance for services completed under certain proposals by and between the Company, Cambrex High Point, Inc. and Avista Pharma Solutions, Inc. in the aggregate amount of $492,723,23.
Clinilabs, Inc.
On June 1, 2023, Clinilabs entered into a start-up agreement with us. On December 4, 2023, we received five credit notes and two invoices from Clinilabs pursuant to services performed by Clinilabs under the start-up agreement. Clinilabs demanded $793,112.46 from us for unpaid service fees.
CoreRX, Inc.
On December 11, 2023, we received a notice alleging several causes of action, including a failure to remit payment for services rendered by CoreRX. On December 11, 2023, we and CoreRX agreed to a structured payment plan in which we agreed to pay CoreRX a total amount of $1,007,700.50.
Dividends
We have never declared or paid any cash dividends on our common shares and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Under Swiss law, we may only pay dividends if we have sufficient distributable profits brought forward from the previous business years (“Gewinnvortrag”), or if we have distributable reserves (“frei verfügbare Reserven”), each as evidenced by our audited stand-alone statutory balance sheet prepared pursuant to Swiss law, and after allocations to reserves required by Swiss law and the articles of association have been deducted. Furthermore, the shareholders may resolve to pay an interim dividend (“Zwischendividende”) if we have sufficient distributable profits based on an interim account. The provisions applicable for dividends are also applicable for the interim dividends.
Under our amended and restated articles of association and in accordance with Swiss law, only our shareholders have the power to approve the payment of any dividends.
B. Significant Changes.
No significant change, other than as otherwise described in this annual report, has occurred in our operations since the date of our financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING.
A. Offer and Listing Details
Since January 30, 2021, our common shares and Warrants trade on Nasdaq under the symbols “NLSP” and NLSPW,” respectively.
B. Plan of Distribution
Not applicable.
C. Markets
Our common shares and Warrants trade on Nasdaq.
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D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
A copy of our amended and restated articles of association is attached as Exhibit 1.1 to this annual report. The information called for by this Item is set forth in Exhibit 2(d) to this annual report and is incorporated by reference into this annual report.
C. Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we are or have been a party, for the two years immediately preceding the date of this annual report:
| ● | ATM Sales Agreement, dated March 4, 2022 by and between NLS Pharmaceutics Ltd. and Virtu Americas LLC. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. | |
| ● | Securities Purchase Agreement, dated April 13, 2022, by and between NLS Pharmaceutics Ltd. and District 2 Capital Fund LP, Armistice Master Capital Fund Ltd, Ronald Hafner, and Lincoln Park Capital Fund LLC. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. | |
| ● | Placement Agent Agreement, dated April 13, 2022, by and between NLS Pharmaceutics Ltd. and A.G.P./Alliance Global Partners. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. | |
| ● | Short Term Note Agreement, dated August 19, 2022 by and between NLS Pharmaceutics Ltd. and Ronald Hafner, Michael Stein, Jürgen Bauer, Maria Nayvalt and Gian-Marco Rinaldi. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. | |
| ● | Securities Purchase Agreement, dated September 30, 2022 by and between NLS Pharmaceutics Ltd. and George Apostol, Ronald Hafner, Felix Grisard, Jurgen Bauer and Maria Nayvalt. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. | |
| ● | Securities Purchase Agreement, dated December 6, 2022 by and between NLS Pharmaceutics Ltd. and funds affiliated with BVF Partners L.P., or collectively, BVF. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. |
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| ● | Short Term Loan Agreement, dated September 28, 2023 by and between NLS Pharmaceutics Ltd., and Ronald Hafner. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. | |
| ● | Short Term Loan Agreements, dated November 15, 2023, by and between NLS Pharmaceutics Ltd., and certain existing shareholders of the Company, including Ronald Hafner, the Company’s Chairman of the Board of Directors, Felix Grisard, Jürgen Bauer and Maria Nayvalt. See Item 5. “Operating and Financial Review and Prospects – Recent Financing Agreements” for more information about this document. | |
| ● | License Agreement, dated March 19, 2024, by and between NLS Pharmaceutics Ltd. and Aexon Labs, Inc., a Delaware corporation. See Item 4. “Business Overview – Additional Pre-Clinical Compounds” for more information about this document. |
D. Exchange Controls
There are no Swiss governmental laws, decrees or regulations that restrict, in a manner material to us, the export or import of capital, including any foreign exchange controls, or that generally affect the remittance of dividends or other payments to non-residents or non-citizens of Switzerland who hold our common shares.
E. Taxation.
Switzerland Tax Consideration
This summary of material Swiss tax consequences is based on Swiss law and regulations and the practice of the Swiss tax administration as in effect on the date hereof, all of which are subject to change (or subject to changes in interpretation), possibly with retroactive effect. The summary does not purport to take into account the specific circumstances of any particular shareholder or potential investor and does not relate to persons in the business of buying and selling common shares or other securities. The summary is not intended to be, and should not be interpreted as, legal or tax advice to any particular potential shareholder/s, and no representation with respect to the tax consequences to any particular shareholder/s is made.
Current and prospective shareholders are advised to consult their own tax advisers in light of their particular circumstances as to the Swiss tax laws, regulations and regulatory practices that could be relevant for them in connection with the acquiring, owning and selling or otherwise disposing of common shares and receiving dividends and similar cash or in-kind distributions on common shares (including dividends on liquidation proceeds and stock dividends) or distributions on common shares based upon a capital reduction (“Nennwertrückzahlungen”) or reserves paid out of capital contributions (“Reserven aus Kapitaleinlagen”) and the consequences thereof under the tax laws, regulations and regulatory practices of Switzerland.
Taxation of NLS Pharmaceutics Ltd.
NLS is a Swiss company, subject to taxation in the Canton of Zurich as from December 10, 2021 onwards (formerly, Canton of Nidwalden). The Company is taxed at a current effective income tax rate of approximately 18.9% (including direct federal as well as cantonal/communal taxes). In addition, an annual capital tax rate of approximately 0.16% is levied on the net equity of the Company.
Based on a vote by eligible Swiss voters in Switzerland on May 19, 2019, Switzerland reformed certain elements of its corporate tax law which impact the taxation of NLS (including the abolition of the mixed company privilege at cantonal/communal level). These new federal regulations went into effect as of January 1, 2020. Regarding the implementation of certain measures on the cantonal level, a referendum was put up for a vote in the Canton of Nidwalden. Following a vote during the year ended December 31, 2020, the referendum passed and took effect in the Canton of Nidwalden. Transitional measures were implemented for companies that were previously under the abolished mixed company regime at cantonal/communal levels to prevent over-taxation on hidden reserves generated under said regime. NLS applied for the special tax rate solution that provides for a separate taxation over five years of the portion of the profit based on realization of hidden reserves and goodwill which were previously not taxed under the mixed company regime. After the company changed its registered office, the same transitional measure has been applied for and granted in the canton of Zurich.
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Swiss Federal Withholding Tax on Dividends and other Distributions
Dividend payments and similar cash or in-kind distributions on the common shares (including dividends on liquidation proceeds and stock dividends) that the Company makes to shareholders are subject to Swiss federal withholding tax (“Verrechnungssteuer”) at a rate of 35% on the gross amount of the dividend. The Company is required to withhold the Swiss federal withholding tax from the dividend and remit it to the Swiss Federal Tax Administration. Distributions based upon a capital reduction (“Nennwertrückzahlungen”) and reserves paid out of capital contribution reserves (“Reserven aus Kapitaleinlagen”) are not subject to Swiss federal withholding tax.
The redemption of common shares in the Company may under certain circumstances (in particular, if the common shares in the Company are redeemed for subsequent cancellation) be taxed as a partial liquidation for Swiss federal withholding tax purposes, with the consequence that the difference between the repurchase price and the nominal value of the shares (“Nennwertprinzip”) plus capital contribution reserves (“Reserven aus Kapitaleinlagen”) is subject to Swiss federal withholding tax.
The Swiss federal withholding tax is refundable or creditable in full to a Swiss tax resident corporate and individual shareholder as well as to a non-Swiss tax resident corporate or individual shareholder who holds the common shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland, if such person is the beneficial owner of the distribution and, in the case of a Swiss tax resident individual who holds the common shares as part of his private assets, duly reports the gross distribution received in his individual income tax return or, in the case of a person who holds the common shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland, recognizes the gross dividend distribution for tax purposes as earnings in the income statements and reports the annual profit in the Swiss income tax return.
If a shareholder who is not a Swiss resident for tax purposes and does not hold the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes in Switzerland, receives a distribution from the Company, the shareholder may be entitled to a full or partial refund or credit of Swiss federal withholding tax incurred on a taxable distribution if the country in which such shareholder is resident for tax purposes has entered into a treaty for the avoidance of double taxation with Switzerland and the further prerequisites of the treaty for a refund have been met. Shareholders not resident in Switzerland should be aware that the procedures for claiming treaty benefits (and the time required for obtaining a refund or credit) may differ from country to country.
Individual and Corporate Income Tax on Dividends
Swiss resident individuals holding the common shares as part of their private assets who receive dividends and similar distributions (including stock dividends and liquidation proceeds), which are not repayments of the nominal value (“Nennwertrückzahlungen”) of the common shares or reserves paid out of capital contributions (“Reserven aus Kapitaleinlagen”) are required to report such payments in their individual income tax returns and are liable to Swiss federal, cantonal and communal income taxes on any net taxable income for the relevant tax period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 70% of their value (“Teilbesteuerung”), if the investment amounts to at least 10% of nominal share capital of the Company. All Swiss cantons have introduced partial taxation measures at cantonal and communal levels.
Swiss resident individuals as well as non-Swiss resident individual taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital reduction (“Nennwertrückzahlungen”) and reserves paid out of capital contributions (“Reserven aus Kapitaleinlagen’) in their income statements for the relevant tax period and are liable to Swiss federal, cantonal and communal individual or corporate income taxes, as the case may be, on any net taxable earnings accumulated (including the payment of dividends) for such period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 70% (“Teilbesteuerung”), if the investment is held in connection with the conduct of a trade or business or qualifies as an opted business asset (“gewillkürtes Geschäftsvermögen”) according to Swiss tax law and amounts to at least 10% of nominal share capital of the Company. All cantons have introduced partial taxation measures at cantonal and communal levels.
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Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital reduction (“Nennwertrückzahlungen”) and reserves paid out of capital contributions (“Reserven aus Kapitaleinlagen”) in their income statements for the relevant tax period and are liable to Swiss federal, cantonal and communal corporate income taxes on any net taxable earnings accumulated for such period. Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland may be eligible for participation relief (“Beteiligungsabzug”) in respect of dividends and distributions based upon a capital reduction (“Nennwertrückzahlungen”) and reserves paid out of capital contributions (“Reserven aus Kapitaleinlagen”) if the common shares held by them as part of a Swiss business have an aggregate market value of at least CHF 1 million or represent at least 10% of the nominal share capital of the Company or give entitlement to at least 10% of the profits and reserves of the Company, respectively.
Recipients of dividends and similar distributions on the common shares (including stock dividends and liquidation proceeds) who neither are residents of Switzerland nor during the current taxation year have engaged in a trade or business in Switzerland and who are not subject to taxation in Switzerland for any other reason are not subject to Swiss federal, cantonal or communal individual or corporate income taxes in respect of dividend payments and similar distributions because of the mere holding of the common shares.
Wealth and Annual Capital Tax on Holding of Common Shares or Warrants
Swiss resident individuals and non-Swiss resident individuals holding the common shares and/or Warrants in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to report their common shares as part of their wealth and will be subject to cantonal and communal wealth tax to the extent the aggregate taxable net wealth is allocable to Switzerland.
Swiss resident corporate taxpayers and non-Swiss resident corporate taxpayers holding the common shares and/or Warrants in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be subject to cantonal and communal annual capital tax on the taxable capital to the extent the aggregate taxable capital is allocable to Switzerland.
Individuals and corporate taxpayers not resident in Switzerland for tax purposes and not holding the common shares and/or Warrants in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to wealth or annual capital tax in Switzerland because of the mere holding of the common shares and/or Warrants.
Capital Gains on Disposal of Common Shares or Warrants
Swiss resident individuals who sell or otherwise dispose of the common shares and/or Warrants realize a tax-free capital gain, or a non-tax deductible capital loss, as the case may be, provided that they hold the common shares, as part of their private assets. Under certain circumstances, the sale proceeds may be requalified into taxable investment income (e.g., if the taxpayer is deemed to be a professional securities dealer).
Capital gains realized on the sale of the common shares and/or Warrants held by Swiss resident individuals, as well as non-Swiss resident individuals and corporate taxpayers holding the common shares and/or Warrants in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be subject to Swiss federal, cantonal and communal individual tax, as the case may be. This also applies to Swiss resident individuals who, for individual income tax purposes, are deemed to be professional securities dealers for reasons of, inter alia, frequent dealing and debt-financed purchases. Capital gains realized by resident individuals who hold the common shares as business assets might be entitled to reductions or partial taxations similar to those mentioned above for dividends (“Teilbesteuerung”) if certain conditions are met (e.g., holding period of at least one year and participation of at least 10% of nominal share capital of the Company).
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Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares and/or Warrants in connection with the conduct of a trade or business, through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize such capital gain in their income statements for the relevant tax period. Corporate taxpayers may qualify for participation relief on capital gains (“Beteiligungsabzug”), if the common shares sold during the tax period represent at least 10% of the Company’s share capital or if the common shares sold give entitlement to at least 10% of the Company’s profits and reserves and were held for at least one year. The tax relief applies to the difference between the sale proceeds of common shares by the Company and the acquisition costs of the participation (“Gestehungskosten”).
Individuals and corporations not resident in Switzerland for tax purposes and not holding the common shares and/or Warrants in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to Swiss federal, cantonal and communal individual income or corporate income tax, as the case may be, on capital gains realized on the sale of the common shares and/or Warrants.
Gift and Inheritance Tax
Transfers of common shares and/or Warrants may be subject to cantonal and/or communal inheritance or gift taxes if the deceased or the donor or the recipient were resident in a Canton levying such taxes.
Swiss Issuance Stamp Duty
The Company is subject to paying to the Swiss Federal Tax Administration a 1% Swiss federal issuance stamp tax (“Emissionsabgabe”) on any increase of the nominal share capital of the Company (including capital surplus) or any other equity contributions received by the Company (with or without issuance of shares). Certain costs incurred in connection with the issuance of shares (if any) may be deductible. There are several exemptions from issuance stamp tax that may apply under certain circumstances (e.g., certain intercompany reorganizations).
Swiss Securities Transfer Tax
The purchase or sale (or other financial transfer) of the common shares, whether by Swiss residents or non-Swiss residents, may be subject to Swiss securities transfer tax of up to 0.15%, calculated on the purchase price or the proceeds if the purchase or sale occurs through or with a bank or other securities dealer in Switzerland as defined in the Swiss Federal Stamp Duty Act as an intermediary or party to the transaction unless an exemption applies.
Automatic Exchange of Information in Tax Matters
On November 19, 2014, Switzerland signed the multilateral competent authority agreement on the automatic exchange of financial account information, which is intended to ensure the uniform implementation of automatic exchange of information, or the AEOI.
The AEOI is being introduced in Switzerland through bilateral agreements or multilateral agreements. Switzerland has concluded a multilateral agreement with the EU on the AEOI in tax matters, or the AEOI Agreement. This AEOI Agreement entered into force as of January 1, 2017 and applies to all 28 member states as well as Gibraltar. Furthermore, on January 1, 2017, the multilateral competent authority agreement on the automatic exchange of financial account information and, based on such agreement, a number of bilateral AEOI agreements with other jurisdictions entered into force. The Federal Act on the International Automatic Exchange of Information in Tax Matters, or the AEOI Act, which is the primary legal basis for the implementation of the AEOI standard in Switzerland, entered into force on January 1, 2017 as well.
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Based on such multilateral agreements and bilateral agreements and the implementing laws of Switzerland, Switzerland collects data in respect of financial assets, which may include Shares, held in, and income derived thereon and credited to, accounts or deposits with a paying agent in Switzerland for the benefit of individuals resident in an EU member state or in a treaty state since 2017, and exchanges it since 2018. Switzerland has signed and is expected to sign further bi- or multilateral AEOI in tax matter agreements with other countries, which entered into force on January 1, 2018 or January 1, 2019 or will enter into force at a later date.
A list of such multilateral agreements and bilateral agreements of Switzerland in effect or signed and becoming effective can be found on the website of the State Secretariat for International Finance, or SIF.
On February 27, 2019, the Federal Council (“Bundesrat”) initiated the consultation on the revision of the AEOI Act and AEOI Ordinance. The consultation proposal takes account of recommendations from the Global Forum on Transparency and Exchange of Information for Tax Purposes. They concern, among other things, certain due diligence and registration obligations, the maintenance of a document retention obligation for reporting Swiss financial institutions, as well as definitions thereunder. Some exceptions have also been removed or adapted. The amendments to the AEOI Act and AEOI Ordinance entered into force on January 1, 2021. Further revisions of the AEOI Act and the AEOI Ordinance concerning the Common Reporting Standard are expected in June 2024 and to be implemented in 2026. It is expected that he amendments include a revision of the Common Reporting Standard (CRS) for financial accounts and the addition of a new Crypto-Asset Reporting Framework (CARF).
Swiss Facilitation of the Implementation of the U.S. Foreign Account Tax Compliance Act
Switzerland has concluded an intergovernmental agreement with the U.S. to facilitate the implementation of the Foreign Account Tax Compliance Act, or the FATCA. The agreement ensures that the accounts held by U.S. persons with Swiss financial institutions are disclosed to the U.S. tax authorities either with the consent of the account holder or by means of group requests within the scope of administrative assistance. Information will not be transferred automatically in the absence of consent, and instead will be exchanged only within the scope of administrative assistance on the basis of the double taxation agreement between the U.S. and Switzerland. On October 8, 2014, the Swiss Federal Council approved a mandate for negotiations with the U.S. on changing the current direct-notification-based regime to a regime where the relevant information is sent to the Swiss Federal Tax Administration, which in turn provides the information to the U.S. tax authorities. It is uncertain at this point when a corresponding agreement will be available.
Implementation of the OECD Global Minimum Tax in Switzerland
In light of the OECD Base erosion and profit shifting initiative, Switzerland has introduced by means of an ordinance the OECD global minimum tax rate for large multinational enterprises. The people and cantons approved the necessary constitutional amendment in a popular vote on June 18, 2023. During its meeting on December 22, 2023, the Federal Council decided to implement the minimum tax rate with the introduction of a supplementary tax in Switzerland from January 1, 2024. Based on such ordinance large multinational enterprises with global turnover of at least EUR 750 million which are effectively taxed below 15% will be liable to a national top-up tax (“Schweizerische Ergänzungssteuer”), in line with the OECD framework for the Qualified Domestic Minimum Top-up Tax (QDMTT) up to 15% minimum taxation.
Material U.S. Federal Income Tax Considerations for U.S. Holders
EACH PROSPECTIVE SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR SWISS TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
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Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S. Holder” arising from the purchase, ownership and sale of the common shares. For this purpose, a “U.S. Holder” is a holder of common shares or Warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnership that is not treated as a U.S. person under any applicable U.S. Treasury regulations) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust; or (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.
This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase our common shares or Warrants. This summary generally considers only U.S. Holders that will own our common shares or Warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax consequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, (including with respect to the TCJA), and the U.S./Switzerland Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our common shares by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.
This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. holder based on such holder’s particular circumstances and in particular does not discuss any estate, gift, generation-skipping, transfer, state, local, excise or foreign tax considerations. In addition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investment company, or other financial institution or “financial services entity;” (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our common shares or Warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S. Holder that holds our common shares or Warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trusts or grantor trusts; (8) a U.S. Holder that expatriates out of the United States or a former long-term resident of the United States; or (9) a person having a functional currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, common shares representing 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of partnerships (or other pass-through entities) or persons who hold common shares through a partnership or other pass-through entity are not addressed.
Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposing of our common shares, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.
Exercise or Expiry of Warrants
No gain or loss will be realized on the exercise of a Warrant. When a Warrant is exercised, the U.S. Holder’s cost of the common share acquired thereby will be equal to the U.S. Holder’s adjusted cost basis of the Warrant plus the exercise price paid for the common share. The expiry of an unexercised Warrant will generally give rise to a capital loss equal to the adjusted cost basis to the U.S. Holder of the expired Warrant. The holding period of the common share acquired through the exercise of a Warrant includes the holding period of the Warrant. See “Passive Foreign Investment Companies,” for the impact of the exercise of a Warrant on taxation of a U.S. Holder if we are a PFIC.
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Taxation of Dividends Paid on Common Shares
We do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “Passive Foreign Investment Companies” below and the discussion of “qualified dividend income” below, a U.S. Holder, other than certain U.S. Holders that are U.S. corporations, will be required to include in gross income as ordinary income the amount of any distribution paid on common shares (including the amount of any Swiss tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis for the common shares to the extent thereof, and then capital gain. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, U.S. Holders should expect that the entire amount of any distribution generally will be reported as dividend income.
In general, preferential tax rates for “qualified dividend income” and long-term capital gains are applicable for U.S. Holders that are individuals, estates or trusts. For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is a corporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has stated that the Switzerland/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.
In addition, our dividends will be qualified dividend income if our common shares are readily tradable on Nasdaq or another established securities market in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, as described below under “Passive Foreign Investment Companies.” A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our common shares for at least 61 days of the 121-day period beginning on the date which is 60 days before the ex-dividend date, or (2) to the extent the U.S. Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss on our common shares are not counted towards meeting the 61-day holding period. Finally, U.S. Holders who elect to treat the dividend income as “investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect to our common shares will be measured by the amount of the fair market value of any property distributed, and for U.S. federal income tax purposes, the amount of any Swiss taxes withheld therefrom. Cash distributions paid by us in CHF will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in such CHF for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the CHF into U.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such CHF arising from exchange rate fluctuations will be U.S. source ordinary exchange gain or loss.
Except as described below in “Passive Foreign Investment Companies,” ownership of the Warrants has no tax impact on U.S. Holders since holders of the Warrants do not receive distributions unless and until the Warrants are exercised and common shares are purchased. As described below, if we are a PFIC, ownership of the Warrants may impact the holding period of PFIC shares and impact elections under the PFIC tax rules.
Taxation of the Disposition of Common Shares and Warrants
Except as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of our common shares or the Warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis for the common shares and Warrants in U.S. dollars and the amount realized on the disposition in U.S. dollar (or its U.S. dollar equivalent determined by reference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale, exchange or other disposition of common shares and Warrants will be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the time of the disposition. Individuals who recognize long-term capital gains may be taxed on such gains at reduced rates of tax. The deduction of capital losses is subject to various limitations.
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Passive Foreign Investment Companies
Special U.S. federal income tax laws apply to U.S. taxpayers who own shares and warrants of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal income tax purposes for any taxable year that either:
| ● | 75% or more of our gross income (including our pro rata share of gross income for any company, in which we are considered to own 25% or more of the shares by value), in a taxable year is passive; or |
| ● | At least 50% of our assets, averaged over the year and generally determined based upon fair market value (including our pro rata share of the assets of any company in which we are considered to own 25% or more of the shares by value) are held for the production of, or produce, passive income. |
For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and from notional principal contracts. Cash is treated as generating passive income.
We do not believe that we will be a PFIC for the current taxable year although we have not determined whether we will be a PFIC in the future. The tests for determining PFIC status are applied annually, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of our common shares. Accordingly, there can be no assurance that we currently are not or will not become a PFIC.
If we currently are or become a PFIC, each U.S. Holder who has not elected to mark the shares to market (as discussed below), would, upon receipt of certain distributions by us and upon disposition of our common shares and Warrants at a gain: (1) have such distribution or gain allocated ratably over the U.S. Holder’s holding period for the common shares, as the case may be; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, when shares and warrants of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a step-up to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by the decedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.
A U.S. Holder of our Warrants is taxed in a manner similar to a U.S. holder of common shares if the holder realizes gain on the sale of the Warrants. If the holder of the Warrants exercises the Warrants to purchase common shares, the holding period over which any income realized is allocated includes the holding period of the Warrants. The U.S. Warrant holder is treated as a holder of PFIC stock taxable under the ordinary income allocation and interest charge regime described above.
The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the common shares while we are a PFIC, provided that we comply with specified reporting requirements. A U.S. Holder of our Warrants may not make a QEF election regarding our Warrants. Instead, each U.S. Holder who has made such a QEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary income and such U.S. Holder’s pro rata share of our net capital gains as long-term capital gain, regardless of whether we make any distributions of such earnings or gain. In general, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholder-by-shareholder basis and generally may be revoked only with the consent of the IRS. We do not intend to notify U.S. Holders if we believe we will be treated as a PFIC for any tax year. In addition, we do not intend to furnish U.S. Holders annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. Therefore, the QEF election will not be available with respect to our common shares.
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In addition, except with respect to the Warrants (unless exercised), the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a mark-to-market election. A U.S. Holder of our common shares which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the common shares to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the common shares and the U.S. Holder’s adjusted tax basis in the common shares. Losses are allowed only to the extent of net mark-to-market gain previously included income by the U.S. Holder under the election for prior taxable years.
U.S. Holders who hold our common shares and Warrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules.
Tax on Net Investment Income
U.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends on and gains from the sale or other disposition of our common shares), or in the case of estates and trusts on their net investment income that is not distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.
Tax Consequences for Non-U.S. Holders of Common Shares and Warrants
Except as provided below, an individual, corporation, estate or trust that is not a U.S. Holder referred to below as a non-U.S. Holder, generally will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our common shares.
A non-U.S. Holder may be subject to U.S. federal income tax on a dividend paid on our common shares (but not Warrants) or gain from the disposition of our common shares and Warrants if: (1) such item is effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United States and, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of a disposition of our common shares and Warrants, the individual non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the disposition and other specified conditions are met.
In general, non-U.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our common shares if payment is made through a paying agent, or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. related person, non-U.S. Holders may be subject to backup withholding, unless the non-U.S. Holder provides an applicable IRS Form W-8 (or a substantially similar form) certifying its foreign status, or otherwise establishes an exemption.
The amount of any backup withholding from a payment to a non-U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Information Reporting and Withholding
A U.S. Holder may be subject to backup withholding at a rate of 24% with respect to cash dividends and proceeds from a disposition of common shares. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not apply with respect to payments made to designated exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.
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Pursuant to recently enacted legislation, a U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our common shares, unless such common shares are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRS if the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable IRS guidance); and may be required to file a Report of Foreign Bank and Financial Accounts if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. You should consult your own tax advisor as to the possible obligation to file such information report.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will file reports with the SEC. The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC will also available to the public through the SEC’s website at www.sec.gov.
As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report containing financial statements audited by an independent registered public accounting firm, and may submit to the SEC, on a Form 6-K, unaudited half-yearly financial information.
We maintain a corporate website https://nlspharma.com/. Information contained on, or that can be accessed through, our website and the other websites referenced above do not constitute a part of this annual report. We have included these website addresses in this annual report solely as inactive textual references.
I. Subsidiary Information.
Our wholly owned subsidiary, NLS Pharmaceutics Inc., a Delaware corporation was incorporated on April 27, 2021.
J. Annual Report to Security Holders.
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our current investment policy is to invest available cash in bank deposits with banks that have a credit rating of at least A-. Accordingly, a substantial majority of our cash and cash equivalents is held in deposits that bear interest. Given the current low rates of interest we receive, we will not be adversely affected if such rates are reduced. Our market risk exposure is primarily a result of foreign currency exchange rates, which is discussed in detail in the following paragraph.
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. As discussed above, the vast majority of our liquid assets is held in USD, and a certain portion of our expenses are denominated in CHF or EUR. For instance, during the year ended December 31, 2023, approximately 26% of our expenses were denominated in CHF, approximately 7% in EUR and 1% in GBP. Changes of 5% and 10% in the USD/CHF exchange rate would have increased/decreased our operating expenses by 1% and 2%, respectively. However, these historical figures may not be indicative of future exposure, as we expect that the percentage of our CHF denominated expenses will materially decrease in the near future, therefore reducing our exposure to exchange rate fluctuations.
We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities.
Not applicable.
B. Warrants and rights.
Not applicable.
C. Other Securities.
Not applicable.
D. American Depositary Shares.
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
E. Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023. As of December 31, 2023, our disclosure controls and procedures were not effective as a result of our material weaknesses in our internal control over financial reporting.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive officer and principal financial officer, or persons performing similar functions, and effected by a company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of a company’s assets; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of the company’s management and directors; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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As described in Item 3.D. “Risk Factors,” as of December 31, 2023, we have material weaknesses in our internal control over financial reporting relating to the continued reliance of an outsourced accounting service provider and a lack of sufficient internal number of additionally trained professionals with an appropriate level of U.S. GAAP accounting knowledge to design and maintain controls over the preparation of financial statements and relating to a lack of maintaining appropriate segregation of duties.
Under the supervision of and with the participation of our principal executive officer and principal financial officer, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2023. The material weaknesses previously identified included failure to properly document the required dual approval and multiple approval signatures for expenses exceeding $250,000, reliance on a third-party accounting service provider that caused gaps in internal control compliance. To improve control and oversight of the operational creditor processes, we have brought the processes in-house. Specifically, this involved automating processes and integrating the correct approval workflows with the necessary parameters in the accounting system. This change strengthens our internal controls and ensures compliance with US GAAP.
(c) Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to an exemption for EGCs provided in the JOBS Act.
(d) Changes in Internal Control over Financial Reporting
During the year ended December 31, 2023, we have taken steps towards remediating the material weaknesses and to strengthen our internal control over financial reporting, by insourcing accounting processes. This measure was implemented to enhance the effectiveness and reliability of our financial reporting. We have appointed a Chief Financial Officer to lead the internal preparation of quarterly financial statements, enabling us to identify and evaluate accounting treatment of any new activity and publish our half-yearly and yearly financial statements. The implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to establish and maintain effective internal control over financial reporting.
ITEM 16. [RESERVED.]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Gian-Marco Rinaldi, a member of our audit committee is an audit committee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaq rules.
ITEM 16B. CODE OF ETHICS
Code of Business Conduct and Ethics
Pursuant to Swiss law, we adopted a code of business conduct and ethics which covers a broad range of matters including the handling of conflicts of interest, compliance issues and other corporate policies such as insider trading and equal opportunity and non-discrimination standards. Our code of business conduct and ethics is applicable to all our directors, senior management and employees. We have published our code of business conduct and ethics on our website, www.nlspharma.com. If we make any amendment to the code of business conduct and ethics or grant any waivers, including any implicit waiver, from a provision of the code, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC including the instructions to Item 16.B. of Form 20-F.
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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table provides information regarding fees billed by PricewaterhouseCoopers AG for all services, including audit services, for each of the last two fiscal years:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Audit fees (1) | $ | 332,690 | $ | 330,015 | ||||
| Audit-related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total | $ | 332,690 | $ | 330,015 | ||||
| (1) | Consists of fees billed for the audit of our annual financial statements, review of financial statements included in our services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements. |
Pre-Approval of Auditors’ Compensation
Our audit committee has a pre-approval policy for the engagement of our independent registered public accounting firm to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services in the categories of audit services, audit-related services and tax services that may be performed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general pre-approval, it will require specific pre-approval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to perform the prohibited non-audit functions defined in applicable SEC rules.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On May 15, 2024, PricewaterhouseCoopers AG notified us that PricewaterhouseCoopers AG will decline to stand for re-election as the independent registered public accounting firm of the Company, effective as of the date of the Company’s next annual meeting of shareholders, expected to occur no later than June 30, 2024. The Company has not yet engaged a new independent registered accounting firm.
The reports of PricewaterhouseCoopers AG on the financial statements for the fiscal years ended December 31, 2023 and 2022 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle except that the report of PricewaterhouseCoopers AG on our consolidated financial statements for the fiscal year ended December 31, 2023 contained an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern.
During the two fiscal years ended December 31, 2023 and 2022 and the subsequent interim period through May 15, 2024, (i) there were no disagreements (as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions) between the Company and PricewaterhouseCoopers AG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers AG, would have caused PricewaterhouseCoopers AG to make reference thereto in their reports on the financial statements for such years, and (ii) except for the material weaknesses in the Company’s internal control over financial reporting as disclosed in the Company’s annual report on Form 20-F for the years ended December 31, 2023 and 2022, there were no “reportable events” (as described in Item 16F(a)(1)(v) of Form 20-F).
We have requested that PricewaterhouseCoopers AG furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated May 15 is attached hereto as Exhibit 16.1 to this Form 20-F.
ITEM 16G. CORPORATE GOVERNANCE
Differences between Swiss Laws and Nasdaq Requirements
The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with various corporate governance practices. In addition, we are required to comply with Nasdaq. Under those rules, we may elect to follow certain corporate governance practices permitted under the Swiss law in lieu of compliance with corresponding corporate governance requirements otherwise imposed by Nasdaq rules for U.S. domestic registrants.
110
In accordance with Swiss law and practice and subject to the exemption set forth in Rule 5615 of the Nasdaq rules, as a foreign private issuer, we have elected to rely on home country governance requirements and certain exemptions thereunder rather than the Nasdaq rules, with respect to the following requirements:
| ● | Composition of the board of directors. Swiss law does not require that a majority of our board of directors consist of independent directors. Our board of directors therefore may include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we will not be subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors must regularly have scheduled meetings at which only independent directors are present. |
| ● |
Quorum. In accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.
According to Swiss law, for the approval of the management report and the annual financial statements, the Company’s auditor must be present at such a general meeting of shareholders, unless the general meeting of shareholders waives such attendance by unanimous decision. |
| ● | Proxy Solicitations. There are currently three types of institutional proxies under Swiss Law: (i) the independent proxy, (ii) the board proxy and (iii) the custodian proxy. According to Swiss Law, the solicitation of proxies by our board of directors or a custodian thereof is not permitted and only independent proxies are permitted for listed companies. The independent proxy has to be elected by the general meeting of shareholders, must only vote pursuant to the specific instructions of the shareholders and must abstain from voting in the absence of specific instructions. However, Swiss law does not have a regulatory regime for the solicitation of proxies and company solicitation of proxies is prohibited for public companies in Switzerland; thus our practice will vary from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies. |
| ● | Share Issuances. Pursuant to Swiss law, prior to our initial public offering, we opted out of shareholder approval requirements by way of including authorized and conditional share capital for the issuance of securities in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of the Company and certain private placements. Due to the revision of Swiss corporate law, effective January 1, 2023, or the Revision, we implemented the capital band (Kapitalband) in lieu of the existing authorized capital. To this extent, our practice varies from the requirements of Nasdaq Listing Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. |
| ● | Compensation, Nomination and Governance Committee. Swiss law requires that we adopt a compensation committee, so in accordance with Nasdaq Listing Rule 5615(a)(3), we will follow home country requirements with respect to the compensation committee. Under home country rules, the general meeting of shareholders has the authority to set up the basic principles of the compensation committee’s responsibilities in a company’s articles of association. In addition, the shareholders may decide to include in the articles of association a list of concrete responsibilities of the compensation committee. Unless the articles of association list concrete responsibilities of the compensation committee, the determination of the concrete responsibilities falls within the competence of the board of directors. Furthermore, the general meeting of shareholders must vote on the compensation report and the total of the remunerations of the board of directors, senior management and advisory committee. According to the doctrine, the strategic planning of the remuneration system and policy as well as the determination of the remuneration procedure is the inalienable task of the board of directors, unless a list of concrete responsibilities is included in the articles of association of the Company. Apart from that, the board of directors has the authority to determine whether the compensation committee shall have the decision-making power with regard to the individual salaries or whether it shall have only a request right to the board of directors. |
111
Furthermore, pursuant to Swiss law, both the number of committee members (the minimum and maximum number of compensation committee members) and the identity of the compensation committee members is determined by our shareholders. Our home country rules also do not require us to authorize a committee of our independent directors or alternatively hold a vote consisting of solely our independent directors in order to determine which persons shall be nominated for election by our shareholders. Our practice will therefore vary from the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of compensation committees, and from the independent director oversight of director nominations requirements of Nasdaq Listing Rule 5605(e). Furthermore, we are subject to the “Say on Pay” Rule in accordance with Swiss law. This means that the compensation of our board of directors and senior management must be presented by the board of directors to our shareholders and our shareholders must vote on the proposed compensation. Furthermore, pursuant to Swiss law, severance, certain compensations in connection with non-competes, advances, transaction premiums and similar payments to senior management and director are prohibited.
| ● | Code of Business Conduct and Ethics. Pursuant to Swiss law, we adopted a code of business conduct and ethics applicable to all of our directors, senior management and employees, which may not comply with the requirements of Nasdaq Listing Rule 5610. |
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
Not applicable.
ITEM 16K. CYBERSECURITY
Our board of directors recognizes the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees. The audit committee is involved in oversight of our IT general controls and cybersecurity. Our IT general controls cybersecurity policies, standards, processes and practices are fully integrated into our risk management program. In general, we seek to address IT general controls cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur. In that regard, we have a comprehensive IT policy that outlines our security risk measures. In addition, we have partnered with a professional IT service provider who specializes in security, endpoint protection, and monitoring. We also operate the “Microsoft Office 365 E3” plan.
Risk Management and Strategy
As part of the critical elements of our overall risk management approach, our cybersecurity program is focused on the following key areas:
| ● | Governance: As discussed in more detail under the heading “Governance,” the audit committee oversees our cybersecurity risk management and interacts with the Company’s Sarbanes-Oxley Act, or SOX, advisor and the Company’s Information Security advisor and other relevant members of management. |
| ● | Collaborative Approach: The Company has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner. |
112
| ● | Technical Safeguards: The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence. |
| ● | Recovery Planning: The Company has established and maintains comprehensive recovery plans that fully address the Company’s response to a cybersecurity incident, and such plans are tested and evaluated on a regular basis. |
| ● | Education and Awareness: The Company provides regular, mandatory training for personnel regarding cybersecurity threats as a means to equip the Company’s personnel with effective tools to address cybersecurity threats, and to communicate the Company’s evolving information security policies, standards, processes and practices. |
We engage in the periodic assessment and testing of our policies, standards, processes and practices that are designed to address cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, assessments, tabletop exercises, threat modeling, vulnerability testing, and other exercises focused on evaluating the effectiveness of our cybersecurity measures and planning. We are engaged with a subcontractor that monitors the IT system and cybersecurity, as part of their routine job functions. We regularly engage third parties to perform assessments on our cybersecurity measures, including information security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness. The results of such assessments, audits and reviews are reported to the Board, and we adjust our cybersecurity policies, standards, processes and practices as necessary based on the information provided by these assessments, audits and reviews
Governance
The audit committee interacts with the Company’s SOX advisor and the Company’s Information Security advisor and other relevant members of management. The Company’s Information Security advisor is responsible for assessing and managing cyber risk management, informs senior management regarding the prevention, detection, mitigation, and remediation of cybersecurity incidents and supervises such efforts. The Company’s Information Security advisor has experience selecting, deploying, and operating cybersecurity technologies, initiatives, and processes, and relies on threat intelligence as well as other information obtained from governmental, public or private sources. The audit committee receives updates on IT general controls, and a set of policies and procedures that govern how the Company’s IT systems operate and ensure the confidentiality, integrity, and availability of data as well as on cybersecurity risks, including prevention of data theft, unauthorized access, operational disruption, and data breaches. The audit committee also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. On an annual basis, the audit committee discusses our approach to IT general controls and cybersecurity risk management with the Company’s SOX advisor.
As of the date of this annual report, we do not believe that we have experienced any cybersecurity attack. Cybersecurity threats and cybersecurity incidents, if they occur, can materially affect or are reasonably likely to affect the Company, including its business strategy, results of operations or financial condition.
113
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements and related information pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements and the related notes required by this Item are included in this annual report beginning on page F-1.
ITEM 19. EXHIBITS
The following documents are filed as part of the annual report.
| * | Filed herewith |
| ** | Furnished herewith |
114
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on Form 20-F filed on its behalf.
| NLS Pharmaceutics Ltd. | ||
| Date May 15, 2024 | By: | /s/ Alexander Zwyer |
| Alexander Zwyer | ||
| Chief Executive Officer | ||
| By: | /s/ Elena Thyen-Pighin | |
| Elena Thyen-Pighin | ||
| Chief Financial Officer | ||
115
NLS PHARMACEUTICS LTD.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
F-1
NLS PHARMACEUTICS LTD.
FINANCIAL STATEMENTS
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
NLS Pharmaceutics Ltd.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of NLS Pharmaceutics Ltd. (the “Company”) as of December 31, 2023 and 2022, and the related statements of operations and comprehensive loss, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has generated operating losses and expects to continue to generate operating losses and negative operating cash flows and its existing cash and cash equivalents and access to existing financing arrangements will not be sufficient to fund operations, that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
May 15, 2024
We have served as the Company's auditor since 2021.
F-3
NLS PHARMACEUTICS LTD.
BALANCE SHEETS
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets (Note 3) | ||||||||
| Total current assets | ||||||||
| Property and equipment (Note 4) | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable, including related party of $ | $ | $ | ||||||
| Related party short-term loan of $ | ||||||||
| Other accrued liabilities, including related party expenses of $ | ||||||||
| Total current liabilities | ||||||||
| Deferred revenues (Note 9) | ||||||||
| Accrued pension liability (Note 10) | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| Shareholders’ equity: | ||||||||
| Common shares, CHF | ||||||||
| Treasury shares, CHF | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and shareholders’ equity / (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
F-4
NLS PHARMACEUTICS LTD.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | $ | $ | |||||||||
| General and administrative | ||||||||||||
| Total operating expenses | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Interest on related party loans | ( | ) | ( | ) | ( | ) | ||||||
| Loss on extinguishment of convertible notes | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive loss: | ||||||||||||
| Defined pension plan adjustments | ( | ) | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these financial statements.
F-5
NLS PHARMACEUTICS LTD.
STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
| Common Shares | Treasury | Additional Paid in | (Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||
| Shares | Amount | Shares | Capital | Deficit) | Loss | Total | ||||||||||||||||||||||
| BALANCE, JANUARY 1, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of common shares in initial public offering, net | ||||||||||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||||||
| Issuance of common shares to consultant | ||||||||||||||||||||||||||||
| Warrant exercises | ||||||||||||||||||||||||||||
| Issuance of common shares in equity transactions | ||||||||||||||||||||||||||||
| Issuance of common shares for partial commitment fee | ||||||||||||||||||||||||||||
| Capital increase for financing transactions | ( | ) | ||||||||||||||||||||||||||
| Defined pension plan adjustments | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of common shares direct offering, net | ||||||||||||||||||||||||||||
| Issuance of warrants, net | - | - | ||||||||||||||||||||||||||
| Issuance of pre-funded warrants, net | - | - | ||||||||||||||||||||||||||
| Issuance of common shares in At-The-Market (ATM) financing | - | |||||||||||||||||||||||||||
| Issuance of treasury shares | ( | ) | ||||||||||||||||||||||||||
| Exercise of pre-funded warrants | - | - | ||||||||||||||||||||||||||
| Issuance of common shares in private placement offerings, net | ||||||||||||||||||||||||||||
| Conversion of convertible notes payable | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Defined pension plan adjustments | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2022 | $ | $ | ( | ) | ( | ) | $ | |||||||||||||||||||||
| Issuance of treasury shares | ( | ) | - | - | - | - | ||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Defined pension plan adjustments | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-6
NLS PHARMACEUTICS LTD.
STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Cash Flows From Operating Activities: | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Periodic pension costs | ( | ) | ||||||||||
| Depreciation expense | ||||||||||||
| Stock-based compensation | ||||||||||||
| Provision of doubtful accounts | ||||||||||||
| Amortization of debt discounts | ||||||||||||
| Loss on conversion of convertible notes payable | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||||||
| Other receivables, net - related parties | ( | ) | ||||||||||
| Accounts payable | ( | ) | ||||||||||
| Interest payable | ( | ) | ||||||||||
| Other accrued liabilities | ( | ) | ||||||||||
| Other long term liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash Flows From Investing Activities: | ||||||||||||
| Purchases of property and equipment | ( | ) | ||||||||||
| Net cash used in investing activities | ( | ) | ||||||||||
| Cash Flows From Financing Activities: | ||||||||||||
| Proceeds from the issuance of common shares in initial public offering, net | ||||||||||||
| Proceeds from the issuance of common shares in ATM financing | ||||||||||||
| Proceeds from the issuance of common shares in registered direct offerings, net | ||||||||||||
| Proceeds from the issuance of common shares in private placement offerings, net | ||||||||||||
| Proceeds from the issuance of pre-funded warrants, net | ||||||||||||
| Proceeds from issuance of convertible notes payable | ||||||||||||
| Exercise of pre-funded warrants | ||||||||||||
| Payments on note payable | ( | ) | ||||||||||
| Proceeds from the issuance of warrants, net | ||||||||||||
| Exercise of warrants | ||||||||||||
| Proceeds from related party short term loan | ||||||||||||
| Payment on Swiss government loan | ( | ) | ||||||||||
| Payment on second credit facility | ( | ) | ||||||||||
| Payment on convertible loans | ( | ) | ||||||||||
| Payment on convertible loans – related party | ( | ) | ||||||||||
| Payment on bridge loan | ( | ) | ||||||||||
F-7
NLS PHARMACEUTICS LTD.
STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Payment of shareholder loans | ( | ) | ||||||||||
| Proceeds from the issuance of common shares in equity transactions, net | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of exchange rate on cash and cash equivalents | - | ( | ) | ( | ) | |||||||
| Change in cash and cash equivalents | ( | ) | ||||||||||
| Cash and cash equivalents at the beginning of period | ||||||||||||
| Cash and cash equivalents at the end of period | $ | $ | $ | |||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||
| Cash paid for interest | $ | $ | $ | |||||||||
| Issuance of note payable for prepaid insurance | $ | |||||||||||
| Deferred financing costs transferred to additional paid in capital | $ | $ | $ | |||||||||
| Issuance of common shares to consultant for payment of expenses | $ | $ | $ | |||||||||
| Issuance of common shares to Yorkville for partial payment of commitment fees | $ | $ | $ | |||||||||
| Debt discount on convertible loans | $ | $ | $ | |||||||||
| Debt discount on convertible loan – related party | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these financial statements.
F-8
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 1
Background:
NLS Pharmaceutics Ltd. (Nasdaq: NLSP, NLSPW) (the “Company”) is an emerging biopharmaceutical company engaged in the discovery and development of life-improving drug therapies to treat rare and complex central nervous system disorders, including narcolepsy, idiopathic hypersomnia and other rare sleep disorders, and of neurodevelopmental disorders, such as attention deficit hyperactivity disorder (“ADHD”). The Company’s lead product candidates are Quilience, to treat narcolepsy (type 1 and type 2), and Nolazol, to treat ADHD.
On February 2, 2021, the Company completed the
closing of its initial public offering (the “Initial Public Offering”) of
Going Concern
As of December 31, 2023, the Company had an accumulated
deficit of approximately $
As of December 31, 2023, the Company’s
cash and cash equivalents were $
F-9
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Accordingly, the accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern for a period within one year from the issuance of these financial statements and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in these financial statements do not necessarily purport to represent realizable or settlement values. These financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Note 2
Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates and be based on events different from those assumptions. As part of these financial statements, the Company’s significant estimates include the valuation allowance related to the Company’s deferred tax assets.
JOBS Act Accounting Election
The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, an EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company intends to take advantage of the exemptions until it is no longer an EGC.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company deposits its cash primarily in checking, money market accounts, as well as certificates of deposit. The Company generally does not enter into investments for trading or speculative purposes rather to preserve its capital for the purpose of funding operations.
Property and equipment
Property and equipment are recorded at cost, net of accumulated depreciation and any accumulated impairment losses. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful lives of property and equipment are five years for furniture and fixtures and three years for software.
Upon retirement or sale, the cost of disposed assets and their related accumulated depreciation are removed from the balance sheet. Any resulting net gains or losses on dispositions of property and equipment are included as a component of operating expenses within the Company’s statements of operating and comprehensive loss. Repair and maintenance costs that do not significantly add value to the property and equipment, or prolong its life, are charged to operating expense as incurred.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk include cash. At December 31, 2023 and 2022, substantially all of the cash balances are deposited in one banking institution. At various times, the Company has deposits in financial institutions which are in excess of federally insured limits.
Functional Currency
The Company has operations in Switzerland and the United States. The Company’s functional currency is the U.S. dollar (“USD”). The results of its non-USD based operations are translated to USD at the average exchange rates during the year. The Company’s assets and liabilities are translated using the current exchange rate as of the balance sheet date and shareholders’ equity is translated using historical rates. Foreign exchange transaction gains and losses are included in other income/expense in the Company’s results of operations.
Revenue Recognition
As of December 31, 2023, the Company has not recognized any revenue from its exclusive license agreement (the “EF License Agreement”), as the upfront payment the Company received has been deferred. The EF License Agreement is to develop and commercialize its product candidate, Nolazol, in Latin American countries with Eurofarma Laboratorios S.A (“Eurofarma”), a Brazilian pharmaceutical company. The EF License Agreement is within the scope of ASC 606, “Revenue from Contract with Customers” (“ASC 606”).
F-10
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.
Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral to or dependent on other goods or services in the contract.
The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration which is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.
The Company allocates the transaction price based on the estimated stand-alone selling price of each of the performance obligations. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in a contract with a customer. The Company utilizes key assumptions to determine the stand-alone selling price for service obligations, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Additionally, in determining the stand-alone selling price for material rights, the Company may reference comparable transactions, clinical trial success probabilities, and develop estimates of option exercise likelihood. Any variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.
The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress at each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Development and regulatory milestone payments are assessed under the most likely amount method and constrained if it is probable that a significant revenue reversal would occur. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license revenues in the period of adjustment. To date, the Company has not recognized any consideration related to the achievement of development, regulatory, or commercial milestone revenue resulting from the EF License Agreement.
F-11
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
For revenue related to sales-based royalties received from licensees, including milestone payments based on the level of sales, where the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any consideration related to sales-based royalty revenue resulting from any of the Company’s license agreement.
To the extent the Company receives payments, including non-refundable payments, in excess of the recognized revenue, such excess is recorded as deferred revenue until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.
Research and Development
Costs for research and development (“R&D”) of products, including vendor expenses and supplies and consultant fees, are expensed as incurred. Clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development arrangements, the obligations are recorded when the milestone results are probable of being achieved.
General and Administrative Expenses
General and administrative expenses include personnel costs, expenses for outside professional services, and all other allocated expenses. Personnel costs consist of salaries, cash bonuses and benefits. Outside professional services consist of legal fees (including intellectual property and corporate matters), accounting and audit services, IT and other consulting fees.
Fair Value Measurements
The Company measures and discloses fair value in accordance with ASC 820, “Fair Value,” which defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
Level 2 - pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 - pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The Company’s cash and cash equivalents are carried at fair value, determined according to the fair value hierarchy described above. The carrying value of the Company’s accounts payable and accruals approximates its fair value due to the short-term nature of these liabilities.
Debt Issuance Costs and Debt Discount
Debt issuance costs related to a recognized debt liability are presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and are amortized to interest expense over the term of the related debt using the effective interest method.
F-12
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
Due to the fact that the Company has a history of generating losses, and expects to generate losses in the foreseeable future, a full valuation allowance has been recorded.
The Company
accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, “Income Taxes (Accounting
for Uncertainty in Income Taxes),” which clarified the accounting for uncertainty in tax
positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only
if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of
the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be
challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that
is more than
Employee Benefits (including Post Retirement Benefits)
The Company operates the mandatory pension plan for its employees in Switzerland. The plan is generally funded through payments to insurance companies or trustee-administered funds. The Company has a pension plan designed to pay pensions based on accumulated contributions on individual savings accounts. However, this plan is classified as a defined benefit plan under ASC 960 “Plan Accounting – Defined Benefit Pension Plans.”
The net defined benefit liability is the present value of the defined benefit obligation at the balance sheet date minus the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method, which reflects services rendered by employees to the date of valuation, incorporates assumptions concerning employees’ projected salaries, pension increases as well as discount rates of highly liquid corporate bonds which have terms to maturity approximating the terms of the related liability.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, and the return on plan assets (excluding interest), are recognized immediately in Other Comprehensive Loss. Past service costs, including curtailment gains or losses, are recognized immediately as an allocation between research and development and general and administrative expenses within the operating results. Settlement gains or losses are recognized in either research and development and/or general and administrative expenses within the operating results. The Company determines the net interest expense (income) on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period or in case of any significant events between measurement dates to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in the statement of operations and comprehensive loss.
Stock-Based Compensation
The Company measures all stock-based awards granted based on the fair value on the date of the grant and recognizes compensation expense with respect to those awards over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues awards with only service-based vesting conditions and records the expense for these awards using the straight-line method. The Company recognizes forfeitures related to stock-based compensation awards as they occur and reverses any previously recognized compensation cost associated with forfeited awards in the period the forfeiture occurs.
F-13
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
The Company classifies stock-based compensation expense in the accompanying consolidated statements of operations and comprehensive loss in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model (“Black-Scholes”). Black-Scholes requires a number of assumptions, of which the most significant are share price, expected volatility, expected option term (the time from the grant date until the options are exercised or expire), risk-free rate and expected dividend rate. The grant date fair value of a common share is determined by the board of directors (the “Board of Directors”) considering, among other factors, the assistance of a valuation specialist and management. The grant date fair value of a common share is determined using the valuation methodologies, which utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, risk-free interest rate and discount for lack of marketability.
Earnings per Share
Basic net loss per common share is computed by
dividing the net loss applicable to common shareholders by the weighted-average number of common shares outstanding during the year. Diluted
loss per common share is computed similar to basic loss per share, except that the denominator is increased to include the number of additional
potential common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares
were dilutive. Potential common shares are excluded from the computation for a period in which a net loss is reported or if their effect
is anti-dilutive. The Company’s potential common shares consist of warrants, convertible promissory notes and convertible loans
with their potential dilutive effect considered using the treasury stock method. For the year ended December 31, 2023,
Treasury Shares
Treasury shares are purchased at cost and recognized as a deduction from equity. Income or loss from subsequent sales is presented in equity.
Segment Reporting
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on developing therapeutics for the treatment of neurobehavioral and neurocognitive disorders. All of the Company’s tangible assets are held in Switzerland.
Recently Issued Accounting Standards Not Yet Effective
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
F-14
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 3
Prepaid Expenses and Other Current Assets:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Vendor prepayments | $ | $ | ||||||
| VAT recoverable and other current assets | ||||||||
| Other short-term receivables | ||||||||
| Prepaid insurance | ||||||||
| Prepaid expenses | - | |||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
Note 4
Property and Equipment, net:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cost | ||||||||
| Furniture and fixtures | $ | $ | ||||||
| Software | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Deprecation and related amortization expense was
$
Note 5
Related party short-term Loans
On November 15, 2023, the Company entered into
a series of short term loan agreements (the “Short Term Loan Agreements”) with certain existing shareholders of the Company,
including Ronald Hafner, the Company’s Chairman of the Board of Directors, Felix Grisard, Jürgen Bauer and Maria Nayvalt, providing
for unsecured loans to the Company in the aggregate amount of CHF
On March 18, 2024, the Company entered into an addendum to the Short Term Loan Agreement with the Short Term Lender, or the Short Term Loan Addendum, and a series of addendums to the Short Term Loan Agreements with the Short Term Lenders, or the Short Term Loan Addendums each providing for an extension of the maturity date under the Loan Agreements to December 31, 2024.
F-15
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 6
Other Accrued Liabilities:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Professional consultants’ expenses | $ | $ | ||||||
| Vendor liabilities | ||||||||
| Related party expenses | ||||||||
| Interest short term loan | ||||||||
| Accrued board fees | ||||||||
| Accrued bonus | ||||||||
| Other accrued expenses | ||||||||
| Total other accrued liabilities | $ | $ | ||||||
Note 7
Note Payable
In January 2022, the Company entered into a note
payable of $
Note 8
Short-term Convertible Notes
On August 19, 2022, the
Company entered into a short-term note agreement providing for unsecured loans in the aggregate amount of $
Pursuant to the note
agreement, the interest rate was
In
addition, pursuant to the note agreement,
On October 7, 2022, the
Company and the noteholders agreed to convert the notes concurrently with the Company’s October 2022 financing. The total principal
balance plus all accrued interest were converted into
F-16
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 9
Deferred Revenues:
In February 2019, the Company entered into the EF License Agreement, to develop and commercialize its product candidate, Nolazol, in Latin American countries with Eurofarma, a Brazilian pharmaceutical company. The EF License Agreement covers the grant of non-transferable licenses, without the right to sublicense, to Eurofarma to develop and commercialize Nolazol in Latin America. The EF License Agreement also specifies the Company’s obligation to advance ongoing development activities with respect to Nolazol in the United States. A joint steering committee will oversee the development and regulatory activities directed towards marketing approval, manufacturing and commercialization phases. The Company believes its participation in the joint steering committee is not of material significance to the licenses in the context of the EF License Agreement on the whole and, as such, management has excluded these activities in the determination of its performance obligation(s) under the EF License Agreement.
The EF License Agreement provides that the parties shall enter into a separate manufacturing and supply agreement during the term of the EF License Agreement.
Under the EF License Agreement, the Company received
a non-refundable, upfront payment, of $
The Company identified the licenses granted to Eurofarma and its obligation to advance development activities with respect to Nolazol in the United States as the material promises under the EF License Agreement. For purposes of identifying the Company’s performance obligations under the EF License Agreement, management believes that while the exclusive licenses were granted to Eurofarma at the outset of the EF License Agreement, the grant of those licenses does not singularly result in the transfer of the Company’s broader obligation to Eurofarma under the EF License Agreement.
The Company is obligated under the EF License Agreement to advance its development activities in the United States and those activities precede Eurofarma’s necessary regulatory approvals for commercialization of Nolazol, in Latin American countries. The Company intends to apply its proprietary know-how to the ongoing development activities in the United States involving its intellectual property relating to Nolazol. These development activities are specific to the Company and the Company believes they are not capable of being distinct in the context of the EF License Agreement on the whole.
The licenses provided to Eurofarma are not transferable and without the right to sublicense therefore Eurofarma is not presently able to monetize its investment in Nolazol as clinical development in the United States or any Latin American countries has yet to be completed and Eurofarma has yet to seek or obtain regulatory approval in any Latin American country. The licenses to Eurofarma represent rights to use the Company’s intellectual property with respect to Nolazol for which revenue is recognized at a point in time which is when Eurofarma is able to use and benefit from the licenses. The licenses are considered of limited value without the Company’s development activities with respect to Nolazol in the United States. As such, the licenses are not capable of being distinct until after successful clinal development and regulatory approval and alone do not have standalone functionality to Eurofarma. Management has determined that the licenses, while capable of being distinct, are not distinct as they do not have stand-alone value to Eurofarma without the Company’s planned development activities in the United States and the approval for sale in Latin America.
Bundled together with the Company’s development activities of Nolazol in the United States, the licenses granted under the EF License Agreement will enable Eurofarma to seek regulatory approvals and ultimately seek to commercialize Nolazol in Latin America. Therefore, management believes the licenses bundled together with the Company’s development activities in the United States constitute a single distinct performance obligation under the EF License Agreement for accounting purposes, or (the “License Performance Obligation”).
The Company has initially estimated a total transaction
price of $
F-17
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
The Company has allocated the transaction price
entirely to the single License Performance Obligation and recorded the $
Amounts expected to be recognized as revenue within the 12 months following
the balance sheet date are classified as a current portion of deferred revenue in the accompanying condensed balance sheets. Amounts not
expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of
current portion. As of December 31, 2023, and 2022, the Company has long-term deferred revenues of $
Note 10
Pension Liability:
The Company joined a collective pension plan operated by an insurance company as of 2016 which covers the employees in Switzerland.
Both the Company and the participants provide monthly contributions to the pension plan which are based on the covered salary. The respective saving parts of premiums are credited to employees’ accounts. In addition, interest is credited to employees’ accounts at the rate provided in the plan. The pension plan provides for retirement benefits as well as benefits on long-term disability and death.
| 2023 | 2022 | 2021 | ||||||||||
| Service cost | $ | $ | $ | |||||||||
| Interest cost | ||||||||||||
| Expected return on assets | ( | ) | ( | ) | ( | ) | ||||||
| Effect of settlement, curtailment, plan amendment | ( | ) | ( | ) | ||||||||
| Actuarial loss outside corridor recognized | ||||||||||||
| Past service cost recognized in year | ||||||||||||
| Administrative expenses | ||||||||||||
| Net periodic pension cost | $ | $ | ( | ) | $ | |||||||
| 2023 | 2022 | |||||||
| Projected benefit obligation, beginning of period | $ | $ | ||||||
| Service cost | ||||||||
| Interest cost | ||||||||
| Transfers-in and (-out), net | ( | ) | ||||||
| Actuarial (gain)/ loss | ( | ) | ||||||
| Currency conversion adjustments | ( | ) | ( | ) | ||||
| Projected benefit obligation, end of period | $ | $ | ||||||
| Plan assets, beginning of period | $ | $ | ||||||
| Actual return on plan assets | ( | ) | ||||||
| Employer contributions | ||||||||
| Participant contributions | ||||||||
| Transfers-in and (-out), net | ( | ) | ||||||
| Administration expenses | ( | ) | ( | ) | ||||
| Currency conversion adjustments | ( | ) | ( | ) | ||||
| Plan assets, end of period | $ | $ | ||||||
| Accrued pension liability | $ | $ | ||||||
F-18
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
As of December 31, 2023 and 2022, the Company
recorded an of $
The pension assets are measured at fair value and are invested in a collective pension foundation with pooled investments. Plan assets mainly consist of cash and cash equivalents, equity funds, equity securities, corporate bonds, government bonds, and real estate funds classified as Level 1 and Level 2 under the fair value hierarchy.
The Company records net gains/losses, consisting
of actuarial gains/losses, curtailment gains/losses and differences between expected and actual returns on plan assets, in other comprehensive
income/loss. Such net gains/losses are amortized to the statements of operations to the extent that they exceed
| 2023 | 2022 | |||||||
| Net loss, beginning of period | $ | $ | ||||||
| Other gain/loss during the period | ( | ) | ||||||
| Other prior year gain/loss recognized in period | ( | ) | ||||||
| Effect of settlement, curtailment | ( | ) | ||||||
| Amortization of pension related net loss | ||||||||
| Net loss, end of period | ||||||||
| Prior service cost, beginning of period | ||||||||
| Amortization of prior service cost | ( | ) | ( | ) | ||||
| Prior service cost end of period | ( | ) | ( | ) | ||||
| Total unrecognized pension cost, end of period | $ | $ | ||||||
| 2023 | 2022 | |||||||
| Discount rate | % | % | ||||||
| Rate of increase in compensation level | % | % | ||||||
| Interest credit rate on savings accounts | % | % | ||||||
| Expected long-term rate of return on plan assets | % | % | ||||||
| Inflation rate | % | % | ||||||
The assumption of the expected long-term rate of return on plan assets was based on the long-term historical rates of returns for the different investment categories which were adjusted, where appropriate, to reflect financial market developments.
The accumulated benefit obligation as of December
31, 2023, and 2022 amounted to $
The investment risk is borne by the insurer and the reinsurer respectively, and the investment decision is taken by the board of trustees of the collective insurance.
F-19
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 11
Commitments and Contingencies:
Commitments
On March 10, 2021, the Company entered into a
license agreement with Novartis Pharma AG (“Novartis”), whereby the Company obtained, on an exclusive basis in the U.S., all
of the available data referred to and included in the original new drug application (“NDA”)
for Sanorex® (mazindol) submitted to the U.S. Food and Drug Administration (“FDA”) in February 1972. The agreement encompasses
all preclinical and clinical studies, data used for manufacturing including stability and other chemistry manufacturing and controls data,
formulation data and know-how for all products containing mazindol as an active substance, and all post-marketing clinical studies and
periodic safety reports from 1973 onwards. Under the agreement, the Company has obtained the same rights on a non-exclusive basis in all
territories outside of the U.S. except for Japan, with the right to cross-reference the Sanorex NDA with non-U.S. regulatory agencies
in the licensed territories. The Agreement includes the right to sublicense or assign the license to third parties, subject to such third
parties meeting certain obligations. As consideration for the license, the Company paid Novartis $
Litigation
The Company may become involved in miscellaneous litigation and legal actions, including product liability, consumer, commercial, tax and governmental matters, which can arise from time to time in the ordinary course of the Company’s business. Litigation and legal actions are inherently unpredictable, and excessive verdicts can result in such situations.
On December 1, 2023, the Company received a letter from Cambrex Corporation, stating that as of December 1, 2023 the Company has an overdue balance for services completed under certain proposals by and between the Company, Cambrex High Point, Inc. and Avista Pharma Solutions, Inc. in the aggregate amount of $.
On June 1, 2023, Clinilabs, Inc., or Clinilabs,
entered into a start-up agreement with the Company. On December 4, 2023, the Company received five credit notes and two invoices from
Clinilabs pursuant to services performed by Clinilabs under the start-up agreement. Clinilabs demanded $
On December 11, 2023, the Company received a notice
alleging several causes of action, including a failure to remit payment for services rendered by CoreRX, Inc. or CoreRX. On December 11,
2023, the Company and CoreRX agreed to a structured payment plan in which the Company agreed to pay CoreRX a total amount of $
COVID-19
The Company has implemented a comprehensive response strategy designed to manage the ongoing impact of the COVID-19 pandemic on its employees, patients and its business. The prolonged nature of the pandemic is negatively impacting the Company’s business in a varied manner due to the emergence of the Delta and Omicron variants and other variants with increased transmissibility, even in some cases in vaccinated people, limited access to health care provider offices and institutions and the willingness of patients or parents of patients to seek treatment. The Company expects that its business, financial condition, results of operations and growth prospects may continue to be negatively impacted by the pandemic on a limited basis that may vary depending on the context. However, the Company has begun to observe, and expect to continue to observe, a gradual normalization in patient and healthcare provider practices, as providers and patients have adapted their behaviors and procedures to the evolving circumstances and as COVID-19 vaccines continue to be administered. The extent of the impact on the Company’s clinical development and regulatory efforts, its corporate development objectives and the value of market for its common shares will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. Such developments include continued spread of the Delta and Omicron variants in the U.S., Switzerland and other countries and the potential emergency of other SARS-CoV-2 variants that may prove especially contagious or virulent, the ultimate duration and severity of the pandemic, governmental “stay-at-home” orders and travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Switzerland and other countries, and the effectiveness of vaccination programs and other actions taken globally to contain and treat the disease.
F-20
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 12
Share Capital and Public Offerings:
Common Shares:
As of December 31, 2023, the Company had
On December 13, 2022, the Company closed a private
placement offering with funds affiliated with BVF Partners L.P. (“BVF”), providing for the issuance of (i)
The Company engaged Laidlaw & Company (UK)
Ltd. (“Laidlaw”) to serve as the placement agent for the Company in connection with the above-described offering. The Company
agreed to pay Laidlaw a cash placement fee of $
In addition, the Company and BVF agreed that until
the 30th day following receipt of the official written minutes from the end of the Phase 2 meeting to be held by the Company with the
FDA (the “Election Deadline”), among other closing conditions, BVF shall have the right to purchase at a second closing up
to $
On October 7, 2022,
The Company engaged Laidlaw to serve as the placement
agent for the Company in connection with the above-described offering. The Company paid Laidlaw a cash placement of USD
At the closing of the October 2022 offering, the
Company’s existing convertible short-term notes, with an aggregate principal balance of $
F-21
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
On April 25, 2022, the Company closed a registered
direct offering with healthcare focused institutional investors alongside participation from Mr. Hafner, for the purchase and sale of
(i)
In a concurrent private placement, the
Company issued the investors, who also participated in the registered direct offering, warrants to purchase up to
On March 5, 2022,
Warrants:
| Balance at January 1, 2023 | ||||
| Issuances | ||||
| Exercises | ( | ) | ||
| Balance at December 31, 2023 |
The intrinsic value of
exercisable but unexercised in-the-money common share warrants at December 31, 2023 was $
Treasury Shares:
In the first half of
2023, the Company created treasury shares from its authorized capital in order to use them for its Standby Equity Distribution Agreement
(the “SEDA”) that has been executed with YA II PN, Ltd., as discussed above. On December 31, 2023, the Company held
Option Plan:
On December 14, 2021, the Board of Directors adopted
the Share Option Plan Regulation 2021 (the “Option Plan”). The purpose of the Option Plan is to retain, attract and motivate
management, employees, directors and consultants by providing them with options to purchase our common shares. The Board of Directors
allocated fifteen percent (
F-22
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
The exercise prices, vesting and other restrictions
of the awards to be granted under the Option Plan are determined by the Board of Directors, except that no stock option may be issued
with an exercise price less than the fair market value of the common shares at the date of the grant or have a term in excess of
| Number
of Options | Weighted Average Exercise Price | |||||||
| Balance at December 31, 2022 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ||||||||
| Expired/cancelled | ( | ) | $ | |||||
| Balance at December 31, 2023 | $ | |||||||
| Options vested and exercisable | ||||||||
| Options expected to vest | ||||||||
The weighted average
remaining contractual life of each of the options outstanding, options vested and exercisable and options expected to vest at December
31, 2023 was
| Non-Vested Options | Weighted Average Grant date Fair Value | |||||||
| Balance at December 31, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Balance at December 31, 2023 | $ | |||||||
The aggregate intrinsic
value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s
common shares for those stock options that had exercise prices lower than the fair value of the Company’s common shares. The share
price as of December 31, 2023, was $
Stock-based
compensation expense for the year ended December 31, 2023, was $
F-23
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 13
Income Taxes:
The Company has Swiss tax loss carryforwards of
$
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net benefit from tax loss carryforwards | $ | $ | ||||||
| Deferred revenues | ||||||||
| Other, net | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred taxes | $ | $ | ||||||
The Company recorded a valuation allowance in 2023 and 2022 to reduce the net deferred taxes, as the Company deemed it to be more likely than not that the future deferred tax assets would not be realized in the future based on the lack of sufficient positive evidence in the jurisdictions related to the realization of the deferred tax assets.
The effective tax rate was
| 2023 | 2022 | 2021 | ||||||||||
| Current tax | $ | $ | $ | |||||||||
| Deferred income tax (benefit) | ( | ) | ( | ) | ( | ) | ||||||
| ( | ) | ( | ) | ( | ) | |||||||
| Change in valuation allowance | ||||||||||||
| Total income tax expense | $ | $ | $ | |||||||||
The Company files income tax returns in Switzerland.
The Company’s income tax position in Switzerland is finally assessed up to the year ended December 31, 2020, so the years ended
December 31, 2021, 2022 and 2023 are open for examination. Currently the Company does not have any open tax assessments.
| 2023 | 2022 | 2021 | ||||||||||
| Statutory tax rate | % | % | % | |||||||||
| Effect of temporary differences | ( | )% | ( | )% | ( | )% | ||||||
| Change in valuation allowance on deferred tax assets | ( | )% | ( | )% | ( | )% | ||||||
| Effective tax rate | % | % | % | |||||||||
The Company had generated approximately $
As of December 31, 2023, and 2022, there were no unrecognized tax benefits. If such matters were to arise, the Company would recognize interest and penalties related to income tax matters in income tax expense. The Company did not incur any material interest or penalties in connection with income taxes during the years ended December 31, 2023, and 2022.
F-24
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 14
Related party consulting agreements:
The Company entered into consulting agreements with several of its senior management.
In October 2019, the Company entered into a collaboration
agreement with Adya Consulting, a company founded and managed by the Company’s then Chief Operating Officer, Silvia Panigone. Pursuant
to the collaboration agreement, the Company agreed to pay Adya Consulting a one-time fee of CHF
In January 2017, and as subsequently amended in
October 2020, the Company entered into a consulting agreement with CHG BioVenture SA, an entity controlled by Mr. Hervé Girsault,
the Company’s current Head of Business Development. Pursuant to the consulting agreement, the Company agreed to pay CHG BioVenture
SA a monthly fee of CHF
The Company has entered into a new consulting
agreement starting May 1, 2021, for the continuation of Mr. Girsault’s engagement with the Company in his current role. Pursuant
to the new agreements,
In February 2021, the Company entered into a consulting
agreement with Mr. Eric Konofal, the Company’s current Chief Scientific Officer, pursuant to which the Company agreed to pay Mr.
Konofal a daily rate of CHF
In March 2021, the Company entered into a consulting
agreement with Mr. Subhasis Roy, the Company’s former Interim Chief Financial Officer, pursuant to which the Company agreed to
pay Mr. Roy a daily rate of CHF
In March 2021, the Company entered into a consulting
agreement with Mr. Carlos Camozzi, the Company’s current Interim Medical Director, pursuant to which the Company agreed to pay Mr.
Camozzi an hourly rate of CHF
F-25
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
In June 2022, the Company entered into a consulting
agreement with Mr. Chad Hellmann, the Company’s then Chief Financial Officer, pursuant to which the Company agreed to pay Mr. Hellmann
an annual salary of $
In December 2022, the Company entered into a consulting
agreement with Ms. Marianne Lambertson, the Company’s current Head of Corporate Communications & Investor Relations, pursuant
to which the Company agreed to pay Ms. Lambertson a monthly retainer of $
In December 2022, the Company entered into a consulting
agreement with Ms. Astrid Sommer, the Company’s Head of Human Resources, pursuant to which the Company agreed to pay Ms. Sommer
a fixed monthly retainer of $
In December 2022, the Company entered into a consulting
agreement with Mr. Thomas Curatolo, the Company’s current Head of U.S. Commercialization, pursuant to which the Company agreed to
pay Mr. Curatolo a monthly retainer of $
Note 15
Subsequent Events:
Management has evaluated subsequent events that have occurred through the date these financial statements were issued.
As previously reported, on November 15, 2023,
the Company, entered into a series of short term loan agreements, or the Short Term Loan Agreements and together with the Short Term Loan
Agreement, the Loan Agreements, with certain existing shareholders of the Company, including Ronald Hafner, the Company’s Chairman
of the Board of Directors, Felix Grisard, Jürgen Bauer and Maria Nayvalt, or the Short Term Lenders and together with the Short Term
Lender, the Lenders, providing for an unsecured loan to the Company in the aggregate amount of CHF
On March 18, 2024, the Company entered into an addendum to the Short Term Loan Agreement with the Short Term Lender, or the Short Term Loan Addendum, and a series of addendums to the Short Term Loan Agreements with the Short Term Lenders, or the Short Term Loan Addendums each providing for an extension of the maturity date under the Loan Agreements to December 31, 2024.
On May 13, 2024,
F-26
NLS PHARMACEUTICS LTD.
NOTES TO THE FINANCIAL STATEMENTS
On March 19, 2024, the Company entered into
an exclusive license agreement (the “Aexon Agreement”), with Aexon Labs Inc. a Delaware corporation
(“Aexon”). Pursuant to the Aexon Agreement, Aexon granted the Company an exclusive, royalty-bearing license (the
“License”), with the right to grant sublicenses in multiple tiers according to the terms of the Aexon Agreement. Subject
to earlier termination of the Aexon Agreement in accordance with its terms, the term of the Aexon Agreement is from the effective
date of the Aexon Agreement to the latest of (i) the Company’s termination of the commercialization of one or more
pharmaceutical or therapeutic products, or any combination thereof, in the use of such compounds for narcolepsy and other neuro
degenerative disorders in the last region and country in which commercialization had actually begun, and (ii) the expiration of the
last-to-expire Valid Claim (as defined in the Aexon Agreement) of a patent identified in the Aexon Agreement and patents owned by
Aexon as of the date of the Aexon Agreement, that covers such pharmaceutical or therapeutic product for the use of such compounds
for narcolepsy and other neuro degenerative disorders in the respective country or region in which it was used. Pursuant to the
terms of the Aexon Agreement, the Company agreed to pay Aexon a royalty on a country-by-country basis of
The Company must exercise its exclusive option
for the License no later than March 31, 2024, and make an upfront payment of $
On March 20, 2024, the Company entered into a
securities purchase agreement, or the Purchase Agreement, providing for the issuance in a registered direct offering of
F-27
Exhibit 2.1
Description of Rights of Each Class of Securities
Type and Class of Securities
As of December 31, 2023, NLS Pharmaceutics Ltd., or the Company, had a share capital of CHF 713,435.60 divided into 35,671,780 registered shares with a nominal value of CHF 0.02 each, or the Common Shares.
As part of the initial public offering of the Company in February 2021 on the Nasdaq Capital Market, the Company conducted a share capital increase. As of February 5, 2021, the Company has a registered share capital of CHF 235,826.50 divided into 11,791,325 registered shares with a nominal value of CHF 0.02 each, or the Common Shares. In addition, 277,000 warrants have been exercised whereby the aforementioned share capital increases to CHF 241,366.50 divided into 12,068,325 Common Shares with a nominal value of CHF 0.02 each. For the avoidance of doubt, the additional 277,000 Common Shares have been issued, and the share capital has been updated in the Commercial Register of the Canton of Nidwalden as of October 19, 2021.
Registration Number and Purposes and Objects of the Company
The Company is registered with the Commercial Register of the Canton of Zurich, Switzerland, registration number CHE-447.067.367. The purpose of the Company is the research and development of pharmaceutical, chemical, medical-technical, bio-technical and similar related products, the acquisition, holding and granting of licenses and other intellectual properties as well as to provide various services in this regard.
Articles of Association
Ordinary Capital Increase, Authorized and Conditional Share Capital
Under Swiss law, we may increase our share capital (Aktienkapital) with a resolution of the general meeting of shareholders (ordinary capital increase) that must be carried out by the board of directors within six months in order to become effective. In the case of subscription and increase against payment of contributions in cash, a resolution passed by an absolute majority of the shares represented at the general meeting of shareholders is required. In the case of subscription and increase against contributions in kind or to fund acquisitions in kind, when shareholders’ statutory pre-emptive rights are withdrawn or where transformation of reserves into share capital is involved, a resolution passed by two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal amount of the shares represented is required.
Under the Swiss Code of Obligations, or the CO, our shareholders, by a resolution passed by two-thirds of the votes represented at a general meeting of shareholders and the absolute majority of the nominal amount of the shares represented, may empower our board of directors to issue shares of a specific aggregate nominal amount up to a maximum of 50% of the share capital in the form of:
| ● | capital band (“Kapitalband”) to be utilized by the board of directors within a period determined by the shareholders but not exceeding five years from the date of the shareholder approval; or |
| ● | conditional capital (“bedingtes Kapital”) for the purpose of issuing shares in connection with, among other things, (i) option and conversion rights granted in connection with warrants and convertible bonds of the Company or one of our subsidiaries or (ii) grants of rights to employees, members of our board of directors or consultants or our subsidiaries or other persons providing services to the Company or a subsidiary to subscribe for new shares (conversion or option rights). |
Our Capital Band
The articles of association authorize our board of directors to increase the share capital (within a period of no more than five years) and set forth the nominal amount by which the board of directors may increase the share capital (such authorized capital may not exceed one-half of the existing share capital).
Under our current version of the articles of association dated April 9, 2024, our board of directors is authorized until February 15, 2028, to increase our share capital by a maximum aggregate amount of CHF 356,717.80 through the issuance of not more than 17,835,890 common shares, which would have to be fully paid-in, each with a par value of CHF 0.02 per common share. Increases in partial amounts are permitted. The board of directors determines the timing, issue price, the type of contributions and the date on which the dividend entitlement commences.
The articles of association also explicitly set forth the events for which a restriction or exclusion of the pre-emptive rights from the current shareholders is permitted.
Within the limits of Swiss law, a general meeting of shareholders may increase or alter the capital band granted to the board of directors.
To affect any capital increase based on our capital band, the Company will have to follow the relevant procedures under Swiss law. In particular, the Company’s board of directors will have to issue a capital increase report (“Kapitalerhöhungsbericht”), approve a notarized confirmation resolution (“Feststellungsbeschluss”) on the capital increase and the articles of association, and obtain (i) duly executed subscription form(s) covering the subscription of the relevant number of new shares, (ii) a report of an audit firm relating to the withdrawal of the pre-emptive rights, as well as (iii) a banking confirmation confirming the payment of the aggregate nominal value of the respective number of new shares to a special Swiss bank account, all in accordance with Swiss law. The Company’s board of directors will subsequently have to file the relevant documentation accompanied by an application form with the competent commercial register. Any issuance of common shares based on such filing(s) is subject to the recording of the respective capital increase(s) in the commercial register in accordance with Swiss law and its publication in the electronic Swiss Official Gazette of Commerce (“Schweizerisches Handelsamtsblatt”).
Our Conditional Share Capital
Conditional Share Capital for Shareholders’ Options
As per our current version of the articles of association, our nominal share capital may be increased by a maximum aggregate amount of CHF 314,535.80 through the issuance of not more than 15,726,790 common shares, which would have to be fully paid-in, with a nominal value of CHF 0.02 each, by the exercise of option and conversion rights granted in connection with warrants and convertible bonds of the Company or one of our subsidiaries. Shareholders will not have pre-emptive subscription rights in such circumstances. The holders of convertible bonds are entitled to the new shares upon the occurrence of the applicable conversion feature. Warrants that have been exercised in the meantime are not yet reflected in the articles of association of the Company by means of an increase of the issued share capital and the respective reduction of the conditional share capital.
When issuing convertible bonds, the board of directors is authorized to withdraw or to limit the advance subscription right of shareholders to subscribe to the convertible bond issuance:
| ● | for the purpose of financing or refinancing the acquisition of enterprises, divisions thereof, or of participations or of newly planned investments of the Company; or |
| ● | if the issuance occurs in domestic or international capital markets, including private placements. |
To the extent that the advance subscription rights are withdrawn, (i) the convertible bonds are to be issued at market conditions; (ii) the term to exercise the option or conversion rights may not exceed ten years as of the date of the convertible bond issue and twenty years for conversion rights; and (iii) the exercise price for the new shares must at least correspond to the market conditions at the time of the convertible bond issuance. The exercise of the conversion or option rights and the waiver of these rights shall be in writing or electronically. The electronic exercise or waiver does not require a qualified electronic signature.
2
Conditional Share Capital for Employee and Advisory Options
Our nominal share capital may, to the exclusion of the pre-emptive subscription rights of shareholders, be increased out of the conditional share capital of the Company by a maximum aggregate amount of CHF 42,182 through the issuance of not more than 2,109,100 common shares, which would have to be fully paid-in, with no less than the nominal value of CHF 0.02 each, by the exercise of option or conversion rights that have been granted to employees, members of the board of directors or consultants of the Company or of one of our subsidiaries, if any, or other persons providing services to the Company or a subsidiary, if any, through one or more equity incentive plans created by the board of directors. If this conditional share capital is not sufficient for our future equity incentive plan, then we intend to rely on the capital band, which we will have to dedicate for that purpose, or, alternatively, if such conditional or capital band is not sufficient, then we intend to seek shareholder approval for the equity incentive plan(s) that we may seek to implement. The exercise of the conversion or option rights and the waiver of these rights shall be in writing or electronically. The electronic exercise or waiver does not require a qualified electronic signature.
Pre-emptive Rights
Pursuant to the CO, shareholders have pre-emptive rights (“Bezugsrechte”) to subscribe for new issuances of shares. With respect to conditional capital in connection with the issuance of conversion rights, convertible bonds or similar debt instruments, shareholders have advance subscription rights (“Vorwegzeichnungsrechte”) for the subscription of conversion rights, convertible bonds or similar debt instruments.
A resolution passed at a general meeting of shareholders by two-thirds of the votes represented and the absolute majority of the nominal value of the shares represented may authorize our board of directors to withdraw or limit pre-emptive rights and/or advance subscription rights in certain circumstances. If pre-emptive rights are granted, but not exercised, the board of directors may allocate the pre-emptive rights as it elects.
With respect to our capital band, the board of directors is authorized by our articles of association to withdraw or to limit the pre-emptive rights of shareholders, and to allocate them to third parties or to us, in the event that the newly issued shares are used for a purpose set forth in our articles of association.
Uncertificated Securities
Our shares are uncertificated securities (“Wertrechte,” within the meaning of the CO) and, if and when administered by a financial intermediary (“Verwahrungsstelle,” within the meaning of the Federal Act on Intermediated Securities, or FISA), qualify as intermediated securities (“Bucheffekten,” within the meaning of the FISA). In accordance with art. 973c of the CO, we maintain a non-public register of uncertificated securities (“Wertrechtebuch”).
If registered in our share register, a shareholder may at any time request from us a written confirmation with respect to such person’s shares. The Company may issue certificates representing one or several shares at any time. Shareholders are not entitled, however, to request the printing and delivery of certificates.
Participation Certificates and Profit-sharing Certificates
The Company has not issued any non-voting equity securities, such as participation certificates (“Partizipationsscheine”) or profit sharing certificates (“Genussscheine”), nor has it issued any preference shares (“Vorzugsaktien”).
No Additional Capital Contributions
Under Swiss law, shareholders are not obliged to make any capital contribution in excess of the subscription amount, which can be under no circumstance less than the nominal value per share.
3
General Meeting of Shareholders: Meetings and Powers
The general meeting of shareholders is our supreme corporate body. Under Swiss law, an annual, ordinary general meeting of shareholders must be called on an annual basis and we may hold extraordinary general meetings of shareholders in addition to any annual general meeting. Under Swiss law, an ordinary general meeting of shareholders must be held annually within six months after the end of a corporation’s financial year. In our case, this means on or before the 30th day of June.
The following (non-exhaustive) powers are vested exclusively in the general meeting of shareholders:
| ● | adopting and amending our articles of association; | |
| ● | electing the members of the board of directors, the chairman of the board of directors, the members of the compensation, nomination and governance committee, the auditors and the independent proxy holder (a person annually elected by the general meeting of shareholders and who may represent our shareholders at a general meeting of shareholders as a proxy solicitor); |
| ● | approving the annual report, the annual statutory financial statements and the consolidated financial statements, and deciding on the allocation of profits as shown on the balance sheet, in particular with regard to dividends and bonus payments to members of the board of directors; |
| ● | approving the compensation of members of the board of directors and executive management, which under Swiss law is not necessarily limited to the executive officers; |
| ● | discharging the members of the board of directors and executive management from liability with respect to their tenure in the previous financial year; |
| ● | dissolving the Company with or without liquidation; and |
| ● | deciding matters reserved to the general meeting of shareholders by law or our articles of association or that are presented to it by the board of directors. |
An extraordinary general meeting of shareholders may be called by a resolution of the board of directors or, under certain circumstances, by our auditor, liquidator or bondholder (or the representatives of convertible bondholders), if any. In addition, in accordance with the CO, the board of directors is required to convene an extraordinary general meeting of shareholders if shareholders representing at least 5 percent of our share capital or votes request such general meeting of shareholders in writing. Such request must set forth the items to be discussed and the proposals to be acted upon. According to the CO, if the most recent annual accounts indicate that the assets less the liabilities no longer cover half of the sum of the share capital, the statutory capital reserve not to be repaid to the shareholders and the statutory retained earnings, the board of directors shall take measures to rectify the loss of capital. It shall take, where necessary, further measures to restructure the company or shall convene an extraordinary general meeting to request the approval of such measures if they fall within the competence of the general meeting.
Voting and Quorum Requirements
Shareholder resolutions and elections (including elections of members of the board of directors) require the affirmative vote of the absolute majority of shares represented at the general meeting of shareholders, unless otherwise stipulated by law.
4
A resolution of the general meeting of the shareholders passed by two-thirds of the votes represented at the meeting and the absolute majority of the nominal value of the shares represented is required for:
| ● | any amendment of the Company’s objectives; |
| ● | the consolidation of shares, insofar as this does not require the consent of all shareholders concerned; |
| ● | the introduction of shares with preferential voting rights; |
| ● | any restriction on the transferability of registered shares; |
| ● | creating of capital band or conditional share capital; |
| ● | a capital increase funded by equity, against contributions in kind or for the purpose of funding acquisitions in kind and the granting of special privileges; |
| ● | the conversion of participation certificates into shares; |
| ● | any restriction or cancellation of the subscription right (i.e., pre-emptive rights); |
| ● | the change of the currency of the Company’s share capital; |
| ● | the introduction of the casting vote of the chairperson in the general meeting; |
| ● | a relocation of the seat (registered office) of the Company; |
| ● | the delisting of the Company’s equity securities; |
| ● | a provision in the articles of association concerning the holding of the general meeting abroad; |
| ● | the introduction of an arbitration clause in the articles of association; and |
| ● | the dissolution of the Company. |
The same voting requirements apply to resolutions regarding transactions among corporations based on Switzerland’s Federal Act on Mergers, Demergers, Transformations and the Transfer of Assets, or the Merger Act (including a merger, demerger, or conversion of a corporation).
In accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. Additionally, before a resolution to approve the management report and consolidated accounts can be passed, our auditor must also be present at such general meeting of the shareholders, unless the general meeting of the shareholders waives such attendance by unanimous decision of those present. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.
5
Notice
General meetings of shareholders must be convened by the board of directors at least twenty days before the date of the meeting. The general meeting of shareholders is convened by way of a notice appearing in our official publication medium, currently the Swiss Official Gazette of Commerce. Registered shareholders may also be informed by letter, facsimile or electronic mail. The notice of a general meeting of shareholders must state the items on the agenda, the proposals to be acted upon and, in case of elections, the names of the nominated candidates. Except in the limited circumstances listed below, a resolution may not be passed at a general meeting without proper notice. This limitation does not apply to proposals to convene an extraordinary general meeting of shareholders, the initiating of a special audit or the election of an auditor upon request of a shareholder. No previous notification is required for proposals concerning items included in the agenda or for debates that do not result in a vote. The notice period for a general meeting of shareholders may be waived if all shareholders are present or represented at such meeting (“Universalversammlung”).
Agenda Requests
Pursuant to Swiss law, Shareholders may request that items be placed on the agenda, provided they together hold at least 0.5 per cent of the share capital or of the votes in the Company. To be timely, the shareholder’s request must be received by us at least 30 calendar days in advance of the meeting. The request must be made in writing and contain, for each of the agenda items, the following information:
| ● | a brief description of the business desired to be brought before the ordinary general meeting of shareholders and the reasons for conducting such business at the ordinary general meeting of shareholders; |
| ● | the name and address, as they appear in the share register, of the shareholder proposing such business; and |
| ● | all other information required under the applicable laws and stock exchange rules. |
In accordance with Swiss law, a business report, compensation report (as prepared by our board of directors) and an auditor’s report must be made available no later than 20 days prior to the ordinary general meeting of shareholders. If the documents are not electronically accessible, any shareholder may request that they be sent to them in good time.
Voting Rights
The right to vote, and the other rights of share ownership, may only be exercised by shareholders (including any nominees) or usufructuaries (a person who has the right to enjoy the use and advantages of another’s property short of the destruction or waste of its substance), who are entered in our share register at cut-off date determined by the board of directors, as authorized by our articles of association and Swiss law. Those entitled to vote in the general meeting of shareholders may be represented by the independent proxy holder (annually elected by the general meeting of shareholders), another registered shareholder or third person with written authorization to act as proxy or the shareholder’s legal representative. The chairman of the board of directors has the power to decide whether to recognize a power of attorney.
Dividends and Other Distributions
Our board of directors may propose to shareholders that a dividend or other distribution be paid but cannot itself authorize the distribution. Dividend payments require a resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. In addition, our auditor must confirm that the dividend proposal of our board of directors conforms to Swiss statutory law and our articles of association.
6
Under Swiss law, we may pay dividends if we have sufficient distributable profits brought forward from the previous business years (“Gewinnvortrag”), or if we have distributable reserves (“frei verfügbare Reserven”), each as evidenced by our audited stand-alone statutory balance sheet prepared pursuant to Swiss law, and after allocations to reserves required by Swiss law and the articles of association have been deducted. The general meeting may also resolve to pay an interim dividend based on an interim account. The external auditor must review the interim account before the general meeting passes the resolution. The provisions governing dividends apply.
Under our articles of association and in accordance with Swiss law, only our shareholders have the power to approve the payment of any dividends.
Distributable reserves are generally booked either as “free reserves” (“freie Reserven”) or as “reserve from capital contributions” (“Reserven aus Kapitaleinlagen”). Under the CO, 5 percent of the annual profit shall be assigned to the statutory retained earnings (“gesetzliche Gewinnreserve”). The statutory retained earnings (“gesetzliche Gewinnreserve”) shall be increased until, when taken together with the statutory capital reserve (“gesetzliche Kapitalreserve”), they reach one half of the share capital specified in the commercial register. The CO permits us to accrue additional general reserves. Further, a purchase of our own shares (whether by us or a subsidiary) reduces the distributable reserves in an amount corresponding to the purchase price of such own shares. Finally, the CO, under certain circumstances, requires the creation of revaluation reserves which are not distributable.
Distributions out of issued share capital (i.e. the aggregate nominal value of our issued shares) are not allowed and may be made only by way of a share capital reduction. Such a capital reduction requires a resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. The resolution of the shareholders must be recorded in a public deed and a special audit report must confirm that claims of our creditors remain fully covered despite the reduction in the share capital recorded in the commercial register. The share capital may be reduced below CHF 100,000 only if and to the extent that at the same time the statutory minimum share capital of CHF 100,000 is reestablished by sufficient new fully paid-up capital.
If the share capital is reduced, the board of directors shall notify the creditors that they may request security by registering their claims. The notice must be published in the Swiss Official Gazette of Commerce. Applications to register claims must be made in writing, specifying the amount of and legal grounds for the claim. The company must secure the creditors’ claims to the extent that the previous cover has been reduced by the capital reduction, provided the creditors request it to do so within 30 days of publication in the Swiss Official Gazette of Commerce. The obligation to secure claims lapses if the company meets the claim or proves that there is no risk that the claim will not be met as a result of reducing the share capital. If the audit confirmation is available, it may be presumed that there is no risk that the claim will not be met.
Our board of directors determines the date on which the dividend entitlement starts. Dividends are usually due and payable shortly after the shareholders have passed the resolution approving the payment; however, the shareholders, upon request of the board of directors, may resolve at the general meeting of shareholders to defer the due date of the dividend payments (e.g., in quarterly or other installments).
Transfer of Shares
Shares in uncertificated form (“Wertrechte”) may only be transferred by way of assignment. Shares that constitute intermediated securities (“Bucheffekten”) may only be transferred when a credit of the relevant intermediated securities to the acquirer’s securities account is made in accordance with the relevant provisions of the FISA.
Voting rights may be exercised only after a shareholder has been entered in our share register (“Aktienbuch”) with his, her or its name and address (in the case of legal entities, the registered office) as a shareholder with voting rights. Any acquirer of our shares who is not registered in our share register as a shareholder with voting rights will, assuming the acquirer holds our shares as of the record date, still be entitled to dividends and other rights with financial value with respect to such shares.
7
Inspection of Books and Records
Under the CO, a shareholder has a right to inspect our share register with respect to his own shares and otherwise to the extent necessary to exercise his shareholder rights. No other person has a right to inspect our share register. Our books and correspondence may be inspected with the express authorization of the general meeting of shareholders or by resolution of the board of directors and subject to the safeguarding of our business secrets.
Special Audit
If the shareholders’ inspection rights, as outlined above, prove to be insufficient in the judgment of the shareholder, any shareholder may propose to the general meeting of shareholders that specific facts be examined by a special audit in a special investigation. If the general meeting of shareholders approves the proposal, a company or any shareholder may, within 30 calendar days after the general meeting of shareholders, request the competent court in Kloten (Zurich), where our registered office is located, to appoint a special auditor. If the general meeting of shareholders rejects the request, one or more shareholders representing at least 5 percent of the share capital or votes may within three months’ request that the court appoint a special auditor. The court will issue such an order if the petitioners can demonstrate that the board of directors, any member of the board of directors or our executive management infringed the law or our articles of association and thereby caused damages to the Company or our shareholders.
Compulsory Acquisitions; Appraisal Rights
Business combinations and other transactions that are governed by the Swiss Merger Act (i.e. mergers, demergers, transformations and certain asset transfers) are binding on all shareholders. A statutory merger or demerger requires approval of two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal value of the shares represented.
If a transaction under the Swiss Merger Act receives all of the necessary consents, there are no appraisal rights and all shareholders are compelled to participate.
Swiss corporations may be acquired by an acquirer through the direct acquisition of the share capital of the Swiss corporation. The Swiss Merger Act provides for the possibility of a so-called “cash-out” or “squeeze-out” merger if the acquirer controls 90% of the outstanding shares. In these limited circumstances, minority shareholders of the corporation being acquired may be compensated in a form other than through shares of the acquiring corporation (for instance, through cash or securities of a parent corporation of the acquiring corporation or of another corporation). Following a statutory merger or demerger, pursuant to the Merger Act, shareholders can file an appraisal action against the surviving company. If the consideration is deemed inadequate, the court will determine an adequate compensation payment.
In addition, under Swiss law, the sale of “all or substantially all of our assets” (“faktische Liquidation”) by us may require the approval of two-thirds of the number of shares represented at a general meeting of shareholders and the absolute majority of the nominal value of the common shares represented. Whether a shareholder resolution is required depends on the particular transaction, including whether the following test is satisfied:
| ● | a core part of our business is sold without which it is economically impracticable or unreasonable to continue to operate the remaining business; | |
| ● | our assets, after the divestment, are not invested in accordance with our statutory business purpose; and |
| ● | the proceeds of the divestment are not earmarked for reinvestment in accordance with the Company’s business purpose but, instead, are intended for distribution to our shareholders or for financial investments unrelated to our business. |
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Board of Directors
Pursuant to Swiss law and according to our articles of association, the board of directors shall consist of three or more members, none of which need to be shareholders.
Swiss law requires that any listed company exceeding two of the three thresholds specified in art. 727 para.1 no. 2 of the CO in two successive financial years shall have each gender represented by at least 30% on the board of directors and 20% on the executive management team. If a company fails to comply, it must be disclosed in the remuneration report, including an explanation and a designation of measures to be taken to reconcile the failed compliance. For our board of directors, this rule will apply, subject to meeting the thresholds required under the CO, from the business year 2026, whereas for the executive management from the business year 2031. The triggering thresholds are (i) a balance sheet total of 20 million CHF, (ii) sales revenue of 40 million CHF and (iii) an average of 250 full-time per year.
The members of our board of directors are elected by the general meeting of shareholders for a term of one year. A year within the meaning of this provision is the period between two ordinary general meetings of shareholders. If a member of the board of directors retires or is replaced, his successor shall continue in office until the end of his predecessor’s term. Each member of our board of directors must be elected individually.
Powers
Our board of directors has the following non-delegable and inalienable powers and duties:
| ● | the overall management of the company and the issuing of all necessary directives; | |
| ● | determination of our appropriate management organization, including the power to define responsibilities and duties of our corporate bodies as well as our internal hierarchy; |
| ● | the organization of the accounting, financial control and financial planning systems as required for management of the Company; | |
| ● | the appointment and dismissal of persons entrusted with managing and representing the Company; |
| ● | overall supervision of the persons entrusted with managing the Company, in particular with regard to compliance with the law, articles of association, operational regulations and directives; | |
| ● | compilation and issuance of an annual report, preparation for the general meeting and implementation of its resolutions; | |
| ● | notification to the court in the event that the Company is over-indebted; and |
| ● | preparing the remuneration report. |
According to Article 17 of our articles of association, the board of directors may assign the preparation and the implementation of its resolutions or the supervision of business transactions with regard to the non-transferable and inalienable duties to committees or individual members. In the event that our board of directors assigns duties in accordance with our articles of association and Swiss law, the board of directors shall design and implement reporting policies describing how such an assignment would be carried out by a committee or individual member.
Based on Article 18 of our articles of association, our board of directors may completely or partially delegate the power to manage the Company to one or more of its members (managing directors) or to third persons (managers).
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Indemnification of Executive Management and Directors
According to Swiss Law and our articles of association, the general meeting of shareholders has the authority to grant discharge to the members of the board of directors from liability. The effect of the resolution of release (discharge) by the general meeting of shareholders is effective only for disclosed facts and only as against the Company and those shareholders who approved the resolution or who have since acquired their shares in full knowledge of the resolution. The right of action of other shareholders lapses twelve months after the resolution of release.
In addition, under general principles of Swiss employment law, an employer may be required to indemnify an employee against losses and expenses incurred by such employee in the proper execution of their duties under the employment agreement with the employer.
Conflict of Interest, Management Transactions
The CO provides that the members of the board of directors and the executive management shall inform the board of directors immediately and comprehensively of any conflicts of interest affecting them. The board of directors shall take the measures required to safeguard the company’s interests. Our directors and executive officers are personally liable to us for a breach of these provisions. In addition, Swiss law contains provisions under which directors and all persons engaged in the Company’s management are liable to the Company, each shareholder and the Company’s creditors for damages caused by an intentional or negligent violation of their duties. Furthermore, Swiss law contains a provision under which payments made to any of the Company’s shareholders or directors or any person associated with any such shareholder or director, other than payments made at arm’s length, must be repaid to the Company if such shareholder or director acted in bad faith.
Principles of the Compensation of the Board of Directors and the Executive Management
Pursuant to Swiss law, our shareholders must annually approve the compensation of the board of directors and the persons whom the board of directors has, fully or partially, entrusted with the management of the Company. The board of directors must issue, on an annual basis, a written compensation report that must be reviewed together with a report on our business by our auditor. The compensation report must disclose all compensation, loans and other forms of indebtedness granted by the Company, directly or indirectly, to current or former members of the board of directors and executive management to the extent related to their former role within the Company or not on customary market terms.
The disclosure concerning compensation, loans and other forms of indebtedness must include the aggregate amount for the board of directors and the executive management as well as the particular amount for each member of the board of directors and executive officer, specifying the name and function of each respective person.
Certain forms of compensation are prohibited for members of our board of directors and executive management, such as:
| ● | severance payments provided for either contractually or in the articles of association (compensation due until the termination of a contractual relationship does not qualify as severance payment); | |
| ● | advance compensation; |
| ● | compensation paid on conditions other than the customary market conditions connected with a previous activity as a corporate body of the Company; |
| ● | compensation related to a ban on competition that exceeds the average remuneration for the last three financial years, or compensation related to a ban on competition that is not justified on business grounds; |
| ● | joining bonuses that do not compensate for a verifiable financial disadvantage; |
| ● | incentive fees for the acquisition or transfer of corporations or parts thereof by the Company or by companies being, directly or indirectly, controlled by us; |
| ● | loans, other forms of indebtedness, pension benefits not based on occupational pension schemes and performance-based compensation not provided for in the articles of association; and |
| ● | equity securities and conversion and option rights awards not provided for in the articles of association. |
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Compensation to members of the board of directors and executive management for activities in entities that are, directly or indirectly, controlled by the Company is prohibited if the compensation (i) would have been prohibited if it was paid directly by the Company, (ii) is not provided for in the articles of association or (iii) has not been approved by the general meeting of shareholders.
The general meeting of shareholders votes on the compensation received directly or indirectly by the board of directors, the executive management and the advisory board (“Beirat”). The general meeting of shareholders must vote annually on the compensation of its board of directors, executive management and the advisory board, and accordingly, at such a meeting, the vote of the general meeting of shareholders shall have a binding effect.
In the event that the general meeting of shareholders votes prospectively on the compensation of the executive management, the articles of association may provide for an additional amount for the compensation of the members of the executive management appointed after the vote.
The additional amount may only be used if the total amount of the compensation of the executive management decided by the general meeting of shareholders is not sufficient for the compensation of the new members until the next vote of the general meeting of the shareholders.
The general meeting of shareholders shall not vote on the additional amount of compensation.
Borrowing Powers
Neither Swiss law nor our articles of association restrict in any way our power to borrow and raise funds. The decision to borrow funds is made by or under the direction of our board of directors, and no approval by the shareholders is required in relation to any such borrowing.
Repurchases of Shares and Purchases of Own Shares and Other Limitations on the Rights to Own Securities
The CO limits our right to purchase and hold our own shares. We and our subsidiaries may purchase shares only if and to the extent that (i) freely disposable equity capital is available in the required amount; and (ii) the combined nominal value of all such shares does not exceed 10% of the share capital. Pursuant to Swiss law, where shares are acquired in connection with a transfer restriction set out in the articles of association, the foregoing upper limit is 20%. We currently do not have any transfer restriction in our articles of association. If we own shares that exceed the threshold of 10% of our share capital, the excess must be sold or cancelled by means of a capital reduction within a reasonable time.
Shares held by us or our subsidiaries are not entitled to vote at the general meeting of shareholders but are entitled to the economic benefits applicable to the shares generally, including dividends and pre-emptive rights in the case of share capital increases.
Swiss law and/or our articles of association do not impose any restrictions on the exercise of voting or any other shareholder rights by shareholders residing outside of Switzerland.
Notification and Disclosure of Substantial Share Interests
The disclosure obligations generally applicable to shareholders of Swiss corporations under the Swiss Financial Market Infrastructure Act do not apply to us since our shares are not listed on a Swiss exchange. Similarly, the Swiss takeover regime imposes a duty on any person or group of persons who acquires more than one-third of a company’s voting rights to make a mandatory offer for all of the company’s outstanding listed equity securities. However, these protections are applicable only to issuers that list their equity securities in Switzerland and, because our common shares are listed exclusively on Nasdaq, is not applicable to us.
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Debt Securities
Not applicable.
Warrants and Rights
The Company has warrants that are registered under Section 12 of the Securities Exchange Act of 1934, as amended. The Company issued 5,542,168 of such warrants in February 2021 in conjunction with its initial public offering. The warrants entitle the registered holder to purchase common shares at a price equal to $4.15 per share, subject to adjustment as discussed below, immediately following the issuance of such warrants and terminating at 5:00 p.m., New York City time, five years after their issuance. Warrants that have been exercised in the meantime are not yet reflected in the articles of association of the Company by means of an increase of the issued share capital and the respective reduction of the conditional share capital.
The exercise price and number of common shares issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend or recapitalization, reorganization, merger or consolidation. Except by virtue of such holder’s ownership of our common shares, the holder of warrants does not have rights or privileges of a shareholder, including any voting rights, until the holder exercises such warrant.
The warrants were issued in registered form under a warrant agency agreement between a warrant agent, VStock Transfer LLC, and us. The warrants were initially being represented only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
Other Securities
The Company does not have any other securities that are registered under Section 12 of the Securities Exchange Act of 1934, as amended.
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Exhibit 4.17
AMENDMENT NO. 1 TO PRE-FUNDED WARRANT
This AMENDMENT NO. 1 TO PRE-FUNDED WARRANT (this “Amendment”) is effective as of April 26, 2023 by and between NLS PHARMACEUTICS LTD., a corporation incorporated under the laws of Switzerland (the “Company”) and the holders of certain Pre-Funded Warrants (as herein defined) as set forth on Appendix A annexed hereto (the “Holder”). Each of the Company and the Holder shall be referred to collectively as the “Parties” and individually as a “Party.”
W I T N E S S E T H:
WHEREAS, the Company issued the Holder a pre-funded warrant (the “Pre-Funded Warrant”) to purchase shares of the Company’s common shares, CHF 0.02 par value per share, in the amounts set forth on Appendix A, pursuant to the terms of a private placement offering which closed on December 14, 2022;
WHEREAS, the Parties desire to clarify certain provisions of the Pre-Funded Warrant as set forth below.
NOW, THEREFORE, in consideration of the mutual promises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Parties agree with the others as follows:
1. Unless otherwise defined herein, all terms and conditions used in this Amendment shall have the meanings assigned to such terms in the Pre-Funded Warrant.
2. Section 3(d) of the Pre-Funded Warrant is hereby deleted in its entirety and replaced with the following:
“d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person or group of Persons whereby such other Person or group acquires 50.1% or more of the outstanding Common Shares or 50.1% or more of the voting power of the common equity of the Company, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50.1% or more of the outstanding Common Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires 50.1% or more of the outstanding Common Shares (not including any Common Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(d) on the exercise of this Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Common Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(d) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Common Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Common Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Common Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall be added to the term “Company” under this Warrant (so that from and after the occurrence or consummation of such Fundamental Transaction, each and every provision of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly and severally), and the Successor Entity or Successor Entities, jointly and severally with the Company, may exercise every right and power of the Company prior thereto and the Successor Entity or Successor Entities shall assume all of the obligations of the Company prior thereto under this Warrant and the other Transaction Documents with the same effect as if the Company and such Successor Entity or Successor Entities, jointly and severally, had been named as the Company herein.”
3. Except as herein amended, the Pre-Funded Warrant shall remain in full force and effect.
4. Further Assurances. Each Party hereto, without additional consideration, shall cooperate, shall take such further action and shall execute and deliver such further documents as may be reasonably requested by the other Party hereto in order to carry out the provisions and purposes of this Amendment.
5. Counterparts. This Amendment may be signed in counterparts with the same effect as if the signature on each counterpart were upon the same instrument. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
6. Headings. The headings of Articles and Sections in this Amendment are provided for convenience only and will not affect its construction or interpretation.
7. Waiver. Neither any failure nor any delay by any party in exercising any right, power or privilege under this Amendment or any of the documents referred to in this Amendment will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege.
8. Severability. The invalidity or unenforceability of any provisions of this Amendment pursuant to any applicable law shall not affect the validity of the remaining provisions hereof, but this Amendment shall be construed as if not containing the provision held invalid or unenforceable in the jurisdiction in which so held, and the remaining provisions of this Amendment shall remain in full force and effect. If the Amendment may not be effectively construed as if not containing the provision held invalid or unenforceable, then the provision contained herein that is held invalid or unenforceable shall be reformed so that it meets such requirements as to make it valid or enforceable.
9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the choice of law principles thereof. Any disputes arising from this Amendment shall be resolved pursuant to Section 5(e) of the Pre-Funded Warrant.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to Pre-Funded Warrant to be duly executed as of the day and year first above written.
| Company: | ||
| NLS PHARMACEUTICS LTD. | ||
| By: | ||
| Name: | Alex Zwyer | |
| Title: | CEO | |
| By: | ||
| Name: | Chad Hellmann | |
| Title: | CFO | |
| Holder: | ||
| Name: | ||
| Title: | ||
Appendix A
| Warrant Holder | Common Shares | |||
| Biotechnology Value Fund LP | 3,039,339 | |||
| Biotechnology Value Fund II LP | 2,349,230 | |||
| Biotechnology Value Trading Fund OS LP | 267,088 | |||
| MSI BVF SPV LLC | 91,470 | |||
Exhibit 4.18
NLS/AEX
CONFIDENTIAL
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement (the “Definitive Agreement”) is made effective as of March 19, 2024 (the “Effective Date”) by and between Aexon Labs Inc. a Delaware corporation (“Licensor” or “Aexon Labs”), with its principal place of business at 16192 Coastal Hwy, Lewes 19958, DE USA and NLS Pharmaceutics Ltd., a company organized under the laws of Switzerland (“Licensee” or “NLS Pharmaceutics”), with its principal place of business at The Circle 6 I P.O Box, 8058 Zurich Airport Switzerland. Licensee and Licensor are sometimes referred to in this Agreement individually as a “Party” and together as the “Parties.
Whereas, Licensor and Licensee are each in the business of discovering and developing, Pharmaceutical products (the “Products) in Health Medicine in order to be commercialized;
Whereas, Licensor and Licensee have executed an exclusive Option Agreement on November 28, 2023 granting Licensee an exclusive option to obtain an exclusive license of all the assets owned or controlled by Licensee, which shall include all the compounds (the “Compounds”) and all the Products (the “Products”) owned or controlled by Licensee, for the potential treatment of narcolepsy and other neuro degenerative disorders, and for all future indications (the “Field”) in accordance with the terms of the exclusive Option Agreement;
Whereas, Licensee must exercise its exclusive Option for an exclusive License Agreement by no later than March 31, 2024, and make the Upfront payment of One Hundred and Seventy Thousands U.S. Dollars (US $170’000), as the Option Agreement shall automatically become null and void on April 1, 2024 after which date the Parties shall have no further obligations to each other, provided that article 8.2 e) 2) hereunder is not triggered by the Parties
Whereas, Licensee has confirmed its interest to exercise its Exclusive Option and to obtain the right to Develop and to Commercialize the Licensed Products in the Field and in the Territory (each as hereinafter defined) and Licensor desires to grant such rights, in each case upon the terms and conditions set forth herein;
Now, Therefore, in consideration of the foregoing premises and the mutual covenants herein contained, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Certain Defined Terms. Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:
| a) | “Affiliate” means, with respect to a specified Party, any Person that directly or indirectly controls, is controlled by or is under common control with, such Party. As used in this definition, “control” (and, with correlative meanings, the terms “controlled by” and “under common control with”) means, in the case of a corporation, the ownership of fifty percent (50%) or more of the outstanding voting securities thereof or, in the case of any other type of entity, an interest that results in the ability to direct or cause the direction of the management and policies of such party or the power to appoint fifty percent (50%) or more of the members of the governing body of the party. |
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| b) | “Agreement” means this Agreement and its appendices. |
| c) | “Applicable Laws” means all statutes, ordinances, regulations, rules or orders of kind whatsoever of any Governmental Authority that may be in effect from time to time and applicable to the relevant activities contemplated by this Agreement. |
| d) | “Business Day” means a day other than Saturday, Sunday or any day on which banks located in the United States are authorized or obligated to close. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. |
| e) | “Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31. |
| f) | “Calendar Year” means the period starting on January 1 and ending on December 31. |
| g) | “cGMP” means all applicable current Good Manufacturing Practices including, as applicable: (i) the principles detailed in the U.S. Current Good Manufacturing Practices, 21 C.F.R. Parts 4, 210, 211, 601, 610 and 820; (ii) European Directive 2003/94/EC and Eudralex 4; (iii) the principles detailed in the ICH Q7 guidelines, including any standards and requirements pertaining to timeline, quality and manufacturing costs; and (iv) the equivalent Applicable Laws in any relevant country or region, each as may be amended and applicable from time to time. |
| h) | “Clinical Trial” means any clinical testing of a Licensed Product in human subjects. |
| i) | “Commercial Milestone Event” means each event described in Section 9.2(d). |
| j) | “Commercialization” means any and all activities directed to the launch, marketing, detailing, manufacturing, promotion and securing of pricing and reimbursement of any product(s), whether before or after Regulatory Approval has been obtained, including: (i) pre-launch marketing research, preparation of marketing materials and labels for finished goods; (ii) post-launch marketing, promoting, detailing, research, customer service, administering, offering for sell and commercially selling product(s) after Regulatory Approval; (iii) manufacturing, making or have made, importing, building inventory, warehousing, distributing, and transporting product(s) for commercial sale; (iv) activities required to perform the foregoing in accordance with all Applicable Laws and Regulatory Approvals; and (v) interacting with Regulatory Authorities regarding any of the foregoing. “Commercialize” means the performance of any of the foregoing Commercialization activities. |
| k) | “Compound” means the active pharmaceutical ingredient, together with any salt, hydrate, solvate, ester, metabolite, isomer, enantiomer, stereoisomer, polymorph, free acid form, free base form, pro-drug (including ester pro-drug) form, or other form or modification of any of the foregoing that is intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body of humans. |
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| l) | “Confidential Information” means all confidential, non-public or proprietary information of the Disclosing Party or its Affiliates, regardless of its form or medium as provided to the Receiving Party or its Affiliates in connection with this Agreement; provided that, Confidential Information shall not include any information that the Receiving Party can show by competent written evidence: (i) was already known to the Receiving Party at the time it was disclosed to the Receiving Party by the Disclosing Party without an obligation of confidentiality and not through a prior disclosure by the Disclosing Party; (ii) was or becomes generally known to the public through no act or omission of the Receiving Party in violation of the terms of this Agreement; (iii) was lawfully received by the Receiving Party from a Third Party without restriction on its disclosure and without, to the reasonable Knowledge of the Receiving Party, a breach by such Third Party of an obligation of confidentiality to the Disclosing Party; or (iv) was independently developed by the Receiving Party without use of or reference to the Confidential Information of the Disclosing Party. The terms of this Agreement that are not publicly disclosed through a press release, through a governmental securities commission, a stock exchange or interdealer quotation system, or by filings to financial regulatory authorities shall be the Confidential Information of both Parties, as applicable. |
| m) | “Develop” or “Development” means the conduct of any and all activities directed to non-clinical, pre-clinical, or clinical research and development relating to pharmaceutical products, including Licensed Product discovery, identification, research, engineering, characterization, development, modification, optimization, Licensed Product metabolism and pharmacokinetics, toxicology, pharmacology, statistical analysis and report writing, formulation development and optimization, quality assurance/quality control, chemistry, manufacturing and control activities, Clinical Trials, and all other activities necessary to seek, obtain, and maintain Regulatory Approval. Development does not include Commercialization but may include Manufacturing to the extent applicable. |
| n) | “Field” means the use of the Compounds for narcolepsy and other neuro degenerative disorders, and for all future indications. |
| o) | “Force Majeure Event” means any of the following events: (i) acts of God; (ii) floods, fires, earthquakes, explosions, or other natural disasters; (iii) wars, invasions, hostilities (whether war is declared or not), terrorist threats or acts, riots, or other civil unrest; (iv) governmental authority, proclamations, orders, laws, actions, or requests; (v) embargoes or blockades in effect on or after the date of this Agreement; (vi) epidemics, pandemics, or other national or regional public health states of emergency; or (vii) strikes, labor stoppages or slowdowns, or other industrial disturbances, beyond the reasonable control of the Parties. |
| p) | “GCP” means all applicable Good Clinical Practice standards for the design, conduct, performance, monitoring, auditing, recording, analyses and reporting of Clinical Trials, including, as applicable: (i) as set forth in the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use Harmonized Tripartite Guideline for Good Clinical Practice (CPMP/ICH/135/95) and any other guidelines for good clinical practice for trials on medicinal products in the Territory; (ii) the Declaration of Helsinki (2004) as last amended at the 52nd World Medical Association in October 2000 and any further amendments or clarifications thereto; (iii) U.S. Code of Federal Regulations Title 21, Parts 50 (Protection of Human Subjects), 56 (Institutional Review Boards) and 312 (Investigational New Drug Application), as may be amended from time to time; and (iv) the equivalent Applicable Laws in a jurisdiction, each as may be amended and applicable from time to time and in each case, that provide for, among other things, assurance that the clinical data and reported results are credible and accurate and protect the rights, integrity, and confidentiality of trial subjects. |
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| q) | “GLP” means all applicable Good Laboratory Practice standards, including, as applicable, as set forth in the then current good laboratory practice standards promulgated or endorsed by the U.S. Food and Drug Administration (the “FDA”) as defined in 21 C.F.R. Part 58, or the equivalent Applicable Laws in a jurisdiction, each as may be amended and applicable from time to time. |
| r) | “Governmental Authority” means any court, commission, authority, department, ministry, official or other instrumentality of, or being vested with public authority under any law of, any country, region, state or local authority or any political subdivision thereof, or any association of countries. |
| s) | “GSP” means all applicable Good Supply Practice standards, including, as applicable, as set forth in the then current good supply practice standards promulgated or endorsed by the FDA as defined in Good Supply Practice for Pharmaceutical Products or the equivalent Applicable Laws in the Territory, each as may be amended and applicable from time to time. |
| t) | “IND” means an investigational new drug application in the United States. |
| u) | “Improvements” means improvements to the Licensed Technology. |
| v) | “Know-How” means any proprietary scientific or technical information, inventions, results and data of any type whatsoever, in any tangible or intangible form whatsoever, including databases, safety information, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data including pharmacological, medicinal chemistry, biological, chemical, biochemical, toxicological and clinical test data, analytical and quality control data, stability data, studies and procedures, and manufacturing process and development information, results and data. |
| w) | “Knowledge” means, as applied to a Party, the actual knowledge of a particular fact or other matter of the person with primary responsibility for the applicable subject matter (whether an officer, employee or consultant of such Party). |
| x) | “Licensed Know-How” means: (i) the Know-How identified on Exhibit A attached hereto and made a part hereof; and (ii) any and all Know-How owned by Licensor as of the Effective Date or at any time during the Term that is necessary or reasonably useful for the Development, Manufacturing or Commercialization of the Licensed Product in the Field and in the Territory. |
| y) | “Licensed Patents” means: (i) the Patents identified on Exhibit B attached hereto and made a part hereof; and (ii) any and all Patents owned by Licensor as of the Effective Date or at any time during the Term that Cover the Development, Manufacturing or Commercialization of Licensed Products in the Field in the Territory. |
| z) | “Licensed Product” means one (1) or more pharmaceutical or therapeutic products, or any combination thereof, containing, delivering, related to, derived from, or synthesizing the Compound alone or in combination with other ingredients in any form or formulation. |
| aa) | “Licensed Technology” means Licensed Know-How and Licensed Patents. |
| bb) | “Licensee IP” means any and all Know-How and Patents owned or controlled by Licensee or its Affiliates as of the Effective Date or during the Term that are necessary or useful for the Development, Manufacturing or Commercialization of Licensed Products in the Field in the Territory, including Licensee’s New Technology and Improvements. |
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| cc) | “Manufacture” or “Manufacturing” or “Manufactured” means all operations involved in the manufacturing, filling and finishing, quality control testing (including in-process, release and stability testing, if applicable), assay, storage, releasing, packaging and labeling. |
| dd) | “Milestone Event” means a Regulatory Milestone Event or a Commercial Milestone Event. |
| ee) | “Milestone Payment” means Commercial Milestone Payments and Regulatory Milestone Payments. |
| ff) | “Net Amounts” means, with respect to any Licensed Product, the list price of the Licensed Product, after pharmaceutical products industry standard discounts, for sale or other disposition by Licensee or any of its Affiliates or Related Licensee Parties to Third Parties for use in the Field in the Territory. For purposes of calculating Net Amounts, a Licensed Product will be deemed to be sold when billed or invoiced. All calculations of Net Amounts must be in accordance with U.S. generally accepted accounting principles and based on, or valued as if based on, bona fide arm’s length transactions and not on any bundled, loss-leading, or other blended or artificial selling or transfer price. Transfers of the Licensed Products to an Affiliate or Related Licensee Party for internal use (but not resale) by such Affiliate or Related Licensee Party shall be treated as Net Amounts by Licensee at Licensee’s list price. Net Amounts do not include Net Amounts or transfers by Licensee to its Affiliates or Related Licensee Parties for resale; provided that the Net Amounts calculation will include the Net Amounts invoiced by such Affiliate or Related Licensee Party on the resale of such Licensed Products. |
| gg) | “NDA” means a New Drug Application, Biologics License Application, Worldwide Marketing Application, Regulatory Approval application or similar application or submission for Regulatory Approval of a Licensed Product filed with a Regulatory Authority to obtain marketing approval for a biological or pharmaceutical product in that country or in that group of countries. |
| hh) | “New Technology” means any invention, process, method, composition of matter, article of manufacture, discovery or finding, patentable or otherwise, works of authorship (whether or not copyrightable) and Know-How invented, created, conceived, developed or otherwise made by a Party or its Affiliates’ employees, agents or independent contractors as a result of a Party (or the Parties jointly) exercising its or their rights or carrying out its or their obligations under this Agreement, including all rights, title and interest in and to the Intellectual Property rights therein. |
| ii) | “Patents” means: (i) all national, regional and international patents and patent applications, including any provisional patent application: (ii) any patent application claiming priority from such patent application or provisional patent applications, including divisions, continuations, continuations-in-part, additions; (iii) any patent that has issued or in the future issues from any of the foregoing patent applications, including any utility or design patent or certificate of invention; and (iv) re-issues, renewals, extensions, substitutions, re-examinations or restorations, registrations and revalidations, and supplementary protection certificates and equivalents to any of the foregoing. |
| jj) | “Patent Prosecution” means the responsibility and authority for: (i) preparing, filing and prosecuting applications (of all types) for any Patent; (ii) managing any interference, opposition, re-issue, reexamination, invalidation proceedings, revocation, nullification, or cancellation proceeding relating to the foregoing; (iii) deciding to abandon Patent(s) (subject to the provisions of Section 13.3(b)); (iv) listing in regulatory publications (as applicable); (v) patent term extension; and (vi) settling any interference, opposition, revocation, nullification or cancellation proceeding. |
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| kk) | “Person” means any individual, sole proprietorship, corporation, joint venture, limited liability company, partnership, limited partnership, limited liability partnership, trust or any other private, public or governmental entity. |
| ll) | “Public Official” means: (i) any officer, employee or representative of any regional, federal, state, provincial, county or municipal government or government department, agency or other division; (ii) any officer, employee or representative of any commercial enterprise that is owned or controlled by a government, including any state-owned or controlled veterinary or medical facility; (iii) any officer, employee or representative of any public international organization, such as the African Union, the International Monetary Fund, the United Nations or the World Bank; and (iv) any person acting in an official capacity for any government or government entity, enterprise or organization identified above. |
| mm) | “Regulatory Approval” means, with respect to a drug or medical device in a region or a country, the approvals from the necessary Governmental Authority or Regulatory Authority to import, market and sell such Licensed Product in such region, including pricing approvals. |
| nn) | “Regulatory Authority” means any applicable Governmental Authority responsible for granting Regulatory Approvals for drugs and medical devices, including the FDA, the EMA and any corresponding national or regional regulatory authorities. |
| oo) | “Regulatory Materials” means: (i) any filing, application, or submission with any Regulatory Authority, including authorizations, approvals or clearances arising from the foregoing, including Regulatory Approvals, and all correspondence or communication with or from the relevant Regulatory Authority, as well as minutes of any material meetings, telephone conferences or discussions with the relevant Regulatory Authority; and (ii) all pre-clinical, clinical, regulatory, Manufacturing and Commercialization data; in each case of (i) and (ii), with respect to a Licensed Product. |
| pp) | “Regulatory Milestone Event” means each event described in Section 9.2(c). |
| qq) | “Related Licensee Parties” means Licensee’s Sublicensees permitted under Section 2.2 of this Agreement, including all tiers of Sublicensees. Notwithstanding the foregoing, in no event shall Licensor be considered a Related Licensee Party. |
| rr) | “Sublicensee” means a pharmaceutical company having been granted under the Licensed Technology a sublicense by the Licensee for the right to Manufacture, Develop, Distribute and Commercialize the Licensed Products in certain Region(s) in accordance with the terms of a sub-license agreement executed between the Licensee and the Company. |
| ss) | “Territory” means all regions and countries in the world. Each of the regions and countries in the Territory shall be deemed a “Region.” |
| tt) | “Third Party” means a Person other than a Party or its Affiliates. |
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| uu) | “U.S. Dollars” means United States dollars, the lawful currency of the United States. |
| vv) | “Valid Claim” means: (i) a claim of an issued and unexpired Patent right that has not been revoked or held unenforceable, unpatentable, or invalid by a decision of a court or other Governmental Authority of competent jurisdiction that is not appealable or has not been appealed within the time allowed for appeal, and that has not been abandoned, disclaimed, denied, or admitted to be invalid or unenforceable through reissue, re-examination, inter partes review, post-grant review, or disclaimer or otherwise; or (ii) a claim of a pending patent application that has not been cancelled, withdrawn, or abandoned or finally rejected by an administrative agency action that is not appealable or has not been appealed within the time allowed for appeal. |
ARTICLE II. LICENSES
Section 2.1. License Grants. Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee an exclusive (even as to Licensor and its Affiliates), royalty-bearing license with the right to grant sublicenses (the “Sublicenses”) in multiple tiers in accordance with Section 2.2 hereunder, under the Licensed Technology solely to Develop, Manufacture, and Commercialize Licensed Products in the Field in the Territory during the Term.
Section 2.2. Sublicenses. Licensee shall have the right to grant Sublicenses, through multiple tiers under the license rights granted in Section 2.1 to its Affiliates and, subject to the prior written approval of Licensor in each instance, not to be unreasonably withheld, to other Third Parties (also referred to as Related Licensee Parties); provided that in each case (including in case of Sublicenses to Affiliates and all subsequent Sublicense tiers):
| a) | the grant of any such Sublicense shall not relieve Licensee of its obligations under this Agreement, and Licensee shall remain fully liable for the acts and omissions of its Related Licensee Parties and all subsequent tiers of Sublicensees. Any such permitted Sublicenses shall contain all provisions necessary to ensure each Related Licensee Party and subsequent tiers of Sublicensees comply with Licensee’s ongoing obligations under this Agreement, and Licensee shall undertake to enforce the provisions of any such Sublicense. Any such permitted Sublicenses shall also be consistent with and expressly made subject to and in accordance with, and not prejudicial to the rights of Licensor under the terms and conditions of this Agreement; |
| b) | each Sublicense shall include indemnification and defense provisions by each Related Licensee Party and all subsequent tiers of Sublicensees in favor of Licensor, its Affiliates, and their officers, directors, shareholders and employees, together with provisions for protection of Confidential Information at least as stringent as those contained in this Agreement; and |
| c) | a complete and accurate copy of any Sublicense agreement executed by and between Licensee and a Sublicensee shall be provided to Licensor. |
Section 2.3. No Implied Licenses; Negative Covenant. Except as set forth herein, Licensee shall not acquire any license or other Intellectual Property interest, by implication or otherwise, under any Know-How, trademarks, Patents or other Intellectual Property rights of Licensor. Licensee shall not and shall not permit any of its Affiliates or Related Licensee Parties to, use or exploit any Licensed Technology licensed to it by Licensor outside the scope of the licenses granted to it under this Agreement.
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ARTICLE III.
TECHNOLOGY TRANSFERS AND ASSISTANCE
Section 3.1. Transfer of Licensed Know-How. Licensor shall transfer to Licensee the Licensed Know-How listed in Exhibit A promptly following the Effective Date. From time to time during the Term, at Licensee’s sole cost and expense, Licensor shall provide Licensee with additional Licensed Know-How that comes to Licensor’s attention or is reasonably requested by Licensee and has not previously been provided to Licensee.
Section 3.2. Assistance by Licensor. At Licensee’s written request and sole cost and expense, Licensor’s JDC (as defined in Section 4.1 below) representative shall reasonably cooperate with Licensee, taking into account and considering Licensor’s capacity and available resources, to provide assistance or perform activities as may be necessary or useful for: (a) the transfer to Licensee of the Licensed Know-How in the Territory, or any portion thereof; or (b) at Licensor’s discretion, the Development, Manufacturing and Commercialization of Licensed Products in the Territory, including seeking of Regulatory Approval for Licensed Products in the Territory, or any portion thereof; provided that Licensee shall pay Licensor and reimburse Licensor for the costs and expenses incurred in connection with the provision of such assistance.
ARTICLE IV.
DEVELOPMENT
Section 4.1. Development Plan. Within thirty (30) days following the Effective Date, through the coordination of a Joint Development Committee (“JDC”), Licensee: (a) shall prepare a written plan outlining Development activities to be undertaken with respect to the Licensed Products, which shall include a budget that shall specify the amount anticipated to be spent on such Development activities (the “Development Plan”); and (b) thereafter, shall update the Development Plan as needed from time to time during the Term.
Section 4.2. Diligence and Responsibilities. Licensee shall use best commercial efforts to Develop Licensed Products in accordance with the Development Plan agreed between the Parties and to meet any and all milestones contained in the Development Plan on a timely basis, including performing and completing all Development activities required under the Development Plan.___
Section 4.3. Development Reports. The status, progress and results of Licensee’s Development activities under this Agreement shall be discussed at meetings of the JDC. At least one (1) Business Day before each regularly scheduled JDC meeting, Licensee shall provide the JDC with a written report detailing its Development activities and the results thereof, covering subject matter at a level of detail reasonably required by Licensor and sufficient to determine if the Development is on schedule and budget pursuant to the Development Plan, including: (a) a summary of the Development activities undertaken by Licensee since the last JDC meeting; (b) the Development activities Licensee contemplates to undertake; and (c) any proposed material changes to Licensee’s Development activities and plans as compared to the then-current Development Plan. In addition, Licensee shall make available to Licensor such additional information about its Development activities as may be reasonably requested by Licensor from time to time.
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Section 4.4. Development Costs. Licensee shall be solely responsible for all expenses and costs incurred in connection with the Development and the Intellectual Property of the Licensed Products. The Licensor shall ensure for providing to Licensee the information, data, documents and correspondence generated since the date of the execution of this Agreement in connection with the Compounds relevant and necessary for the Licensor to be updated on the current situation and to discuss future plans, including but not limited to in-vitro data, in-vivo data, Compounds synthesis, formulation, manufacturing, development, regulatory filings as applicable, and as well as the relevant and necessary documents, filings and correspondence related to the Compounds’ Intellectual Property prepared for and/or exchanged with regulatory agencies. In the event that Licensee requests Licensor to conduct Development activities or provide assistance, and Licensor agrees to conduct such activities or provide such assistance, Licensee shall pay in advance Licensor of the costs Licensor incurred in relation to such activities as determined by the Parties.
Section 4.5. Licensee shall refrain from passing on Confidential Information to any third party without the prior written consent of Licensor and provided that the third party signs a CDA with similar obligations to those of the Agreement. Moreover, Licensee shall refrain from any communication likely to prevent or prejudice the granting of the Patent.
ARTICLE V.
REGULATORY
Section 5.1 Licensee Responsibilities. Except as specifically contained in the Development Plan and Development Budget, Licensee shall, at Licensee’s sole cost and expense: (a) use best efforts to apply for (and maintain), the Regulatory Approvals for the Compound and Licensed Products in the Territory in the Field; (b) be solely responsible for all communications and all Regulatory Materials with the Regulatory Authorities throughout the Territory; and (c) own, hold and maintain all Regulatory Approvals and Regulatory Materials for the Compound and Licensed Products in the Territory in the Field in the name of Licensee or a Person designated by Licensee (the “Designee”). The Parties agree and acknowledge that on a Region-by-Region basis, and at Licensee’s sole cost and expense, the Parties shall use good faith efforts to cooperate to effectuate this Section 5.1
Section 5.2. Recalls, Suspensions, or Withdrawals. Licensee shall immediately notify Licensor and the Joint Steering Committee (the “JSC”) in writing following its determination that any event, incident, or circumstance has occurred that would reasonably be expected to result in the need for a recall, market suspension, or market withdrawal of a Licensed Product in the Field in the Territory, and the JSC shall convene a telephonic meeting to discuss such recall, market suspension, or market withdrawal within twenty-four (24) hours after such notification. Licensee shall have the right to make the final determination whether to voluntarily implement any such recall, market suspension, or market withdrawal in the Field in the Territory; provided that prior to any implementation of such a recall, market suspension, or market withdrawal, Licensee shall consider the JSC’s comments in good faith. If a recall, market suspension, or market withdrawal is requested by a Regulatory Authority in the Territory, Licensee shall initiate such a recall, market suspension, or market withdrawal in compliance with Applicable Laws. Licensee shall be responsible for all costs and expenses of any such recall, market suspension, or market withdrawal.
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ARTICLE VI.
MANUFACTURING
Section 6.1. Manufacturing. As of the Effective Date, Licensee shall be responsible for the chemistry, manufacturing and control of the Compound, clinical supplies and Licensed Products pursuant to this Agreement. Licensee shall be solely responsible for all manufacturing costs and expenses.
ARTICLE VII.
COMMERCIALIZATION
Section 7.1. Commercialization. Licensee shall be the sole responsible Party fully in charge of the Commercialization of the Licensed Products under its full and sole control. Licensee shall be solely responsible for and shall use reasonable best efforts to Commercialize, in each case the Compound subject to regulatory approvals from relevant agencies in the targeted countries of and the Licensed Products in the Field in the Territory at its sole cost and expense.
ARTICLE VIII.
COMPENSATION
Section 8.1. Upfront Payment.
On the [*], 2024 (the “Effective Date”), Licensee shall pay to Licensor a non-refundable, non-creditable upfront payment in the amount of One Hundred and Seventy Thousand U.S. Dollars (US $170’000) (the “Upfront Payment”) by bank wire transfer of immediately available funds in U.S. Dollars to an account designated by Licensor. Notwithstanding anything to the contrary in this Agreement, the obligations of Licensor to sign this Agreement and to consummate the transactions contemplated thereby are subject to Licensor’s timely receipt of the Upfront Payment. This Agreement shall become effective upon receipt by the Licensor of the Upfront Payment on the bank account communicated to the Licensee by the Licensor, subject it is received within four (4) Business Days following the signature by the Parties of this Agreement.
Section 8.2. Milestone Payments.
| a) | Notices of Milestone. Within ten (10) days after the achievement of any Milestone Event by or on behalf of Licensee or any of its Affiliates or Related Licensee Parties, Licensee shall provide Licensor with written notice (which shall include any supporting information reasonably appropriate) of the achievement of such Milestone Event. |
| b) | Payment. Licensee shall pay to Licensor the applicable Milestone Payment set forth in Section 8.2(c) within thirty (30) days of achieving such Milestone Event |
| c) | Liquidity / Merger and Acquisition Events Triggering Milestone Payments to Licensee. Licensee shall pay Licensor Fifteen percent (15%) of all proceeds earned by the Licensee or any of its Affiliates or Related Licensee Parties / Sublicensees, if any, following receipt by Licensee of one-time, non-creditable, non-refundable Upfront and Milestone Payments made by Sublicensees (each, a “Milestone Payment”), upon achievement of the corresponding Milestone Events related to a Licensed Product. Payments. Unless otherwise specified in writing by Licensor, all payments under this Agreement shall be paid in U.S. Dollars by wire transfer of immediately available funds to a bank account designated in writing by Licensor. |
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| d) | Net Amounts Outside the United States; Conversion. With respect to Net Amounts outside the United States, Royalty Payments owed shall first be calculated in the currency of sale, and then such Net Amounts shall be converted into U.S. Dollars based on applicable currency exchange rates (as provided in Section 9.4(c)), and such U.S. Dollar amount of the royalties shall be paid to Licensor. The conversion of non-U.S. Dollar Net Amounts into U.S. Dollar Net Amounts shall be calculated in accordance with Licensee’s then current foreign exchange conversion methodology for external financial reporting to the Securities and Exchange Commission. In any country where conversion of the local currency is blocked and such currency cannot be removed from the country, Licensee shall pay Licensor in local currency by deposit in a local bank account designated by Licensor. All sums invoiced by Licensee to any Affiliates or Related Licensee Parties / Sublicensees and corresponding to the delegation of some or all obligations stated in the Agreement, with no consideration of the qualification given by the parties to the executed agreement. Licensee shall not deduct any costs (development, intellectual property, etc.) from the sums to be used as a basis for calculating Milestones and shall send Licensor a copy of the invoices on the basis of which the said calculation is made.” |
| e) | Upfront Payment and Milestone Payments. NLS Pharmaceutics agrees to pay Aexon Labs the following one-time, non-refundable payments as per below: |
| 1) | Upfront payment of One Hundred and Seventy Thousand U.S. Dollars (US $170’000), for an exclusive License Agreement as defined herein payable by no later than March 31st, 2024 (the “Deadline Date”). The Option Agreement shall become null and void on April 1st , 2024 and the Parties shall have no further obligations to each other, except if the article 8.2. e) 2) hereunder is triggered and used by the Parties prior to the Deadline Date |
| 2) | Notwithstanding article 8.2. e) 1) above, the Parties may agree to defer the Upfront payment prior to the Deadline Date and may agree on an amended payment schedule of the Upfront payment, subject that 1) a portion of the Upfront payment shall be paid to the Licensor by the Licensee prior to or on the Deadline Date and 2) the remaining portion of the Upfront payment still due be paid before or on a revised payment deadline date agreed by the Parties. |
| 3) | Milestone payment on termination of first Proof-of-Concept study in OX1R/OX2R KO mice model of narcolepsy: One Hundred Thousand U.S. Dollars (US $100’000); |
| 4) | Milestone payment on issuance of the first Patent Granted in the US that covers the Licensed Product: Three Hundred Thousand U.S. Dollars (US $300’000); |
| 5) | Milestone payment on issuance of the second Patent Granted in the US that covers the Licensed Product: One Hundred and Fifty Thousand U.S. Dollars (US $150’000). |
| f) | Royalty rate. NLS Pharmaceutics agrees to pay to Aexon Labs a royalty in the Territory on a country-by-country basis equal to: |
| 1) | 15% (fifteen per cent) of all Net Amounts earned by Licensee in the Territory in the event that the Patent covers the Licensed Product; |
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| 2) | 5% (five percent) of all Net Amounts in case the Aexon Labs the corresponding Patent has not been granted to the Product at the time of the time of its Commercialization; |
| 3) | If Licensee challenges the validity of the Patents, the above Royalty Rates are increased to 30% if the challenge initiated by the Licensee is not successful. If the challenge pursued by the Licensee is successful and lead to reduced royalty rates, the new royalty rates resulting from the challenge shall be immediately applied. |
| g) | Sublicensing. NLS Pharmaceutics agrees to pay Aexon Labs the following percentages of license fees, milestones and royalties received from Sublicensees in consideration for any Sublicense granted for the Licensed Products to include: |
| 1) | 15% (fifteen per cent) of all Net Amounts earned by Sublicensee in the Territory in the event that the Patent covers the Licensed Products; |
| 2) | 5% (five percent) of all Net Amounts in case the Aexon Labs Patent is not granted yet; |
| 3) | If any Sublicensee challenges the validity of the Patents, the new Royalty Rates doubles to 30% if the validity of Aexon Labs Patent is confirmed by the relevant Patent Office. If the challenge pursued by the Sublicensee is successful and lead to reduced royalty rates, the new royalty rates resulting from the challenge shall be immediately applied. |
| h) | Late Payment. If a Party does not receive payment of any sum due to it on or before the due date, simple interest shall thereafter accrue on the sum due to such Party until the date of payment at the per annum rate of two percent (2%) over the then-current base rate quoted by the Bank of America or the maximum rate allowable by Applicable Laws, whichever is lower. |
Section 8.3. Records and Audit.
| a) | Records. Licensee shall maintain, and shall require its Affiliates and Related Licensee Parties to maintain, complete and accurate books and records in connection with the activities in connection with this Agreement, in sufficient detail and as necessary to permit Licensor to confirm the achievement of Milestone Events and the amount of Royalty Payments, Milestone Payments, the incursion of expenses and any other payments due under this Agreement, and to confirm Licensee’s compliance with this Agreement. Licensee, its Affiliates and Related Licensee Parties shall keep such books and records for five (5) years following the Calendar Year to which they pertain, or such longer period of time as may be required by Applicable Law. |
| b) | Audit. Upon Licensor’s written notice to Licensee, with reasonable advance notice, Licensor shall be permitted to have an external certified public accountant and/or auditor (“Auditor”) selected by Licensor, at Licensor’s sole cost and expense (except as set forth in this Section 8.3(b)) to have access during normal business hours to such of the records of Licensee being audited, and its Affiliates and Related Licensee Parties, to verify the occurrence of Milestone Events and any reimbursed expenses and the accuracy of the Net Amounts due and payable under this Agreement. If such Auditor identifies an undisputed discrepancy made during such period, the appropriate Party shall pay the other Party the amount of the discrepancy within thirty (30) days of the date of receiving such Auditor’s written report, or as otherwise agreed upon by the Parties. The fees charged by such Auditor shall be paid by the Licensor; provided, that if the audit uncovers an underpayment pursuant to this Section 8.3(b) in an amount that exceeds three percent (3%) of the total Net Amounts owed or if the occurrence of Milestone Events has not been duly disclosed to Licensor, then the fees of such Auditor shall be paid by Licensee. |
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ARTICLE IX.
CONFIDENTIALITY; PUBLICATION
Section 9.1 Non-disclosure Obligation.
During the Term of this Agreement and for five (5) years thereafter (except in respect of trade secrets or Know-How for so long as such Confidential Information remains confidential or non-public), the Party receiving the Confidential Information of the other Party (such receiving Party, the “Receiving Party”) shall: (i) keep confidential, with at a minimum the same degree of care it would exercise to protect its own Confidential Information (and in no event less than a reasonable standard of care) to keep confidential the Confidential Information; (ii) not publish, make available or otherwise disclose any Confidential Information to any Third Party, without the express prior written consent of the other Party (the “Disclosing Party”); provided, however, the Receiving Party shall have the right to disclose the Confidential Information to those of its Affiliates, officers, directors, employees, agents, consultants or independent contractors (including Sublicensees) of such Receiving Party who need to know the Confidential Information in connection with this Agreement and the performance thereunder, and are bound by confidentiality obligations with respect to such Confidential Information at least as restrictive as those contained in this Agreement; and (iii) shall use the Confidential Information solely in connection with the purposes of this Agreement (it being understood that this Section 9.1 shall not create or imply any rights or licenses not expressly granted under this Agreement). Notwithstanding the foregoing, the obligations of confidentiality and non-use with respect to any trade secret or to Know-How within such Confidential Information shall survive for so long as such Confidential Information remains confidential or non-public. (i) It shall not be considered a breach of Section 9.1(a) if the Receiving Party discloses Confidential Information in order to comply with a lawfully issued court or governmental order, a requirement of Applicable Laws or the rules of any internationally recognized stock exchange; provided that: (i) the Receiving Party gives prompt written notice of such disclosure requirement to the Disclosing Party and cooperates with the Disclosing Party’s efforts to oppose such disclosure or obtain a protective order for such Confidential Information (taking into account and considering Licensor’s capacity and available resources); and (ii) if such disclosure requirement is not quashed or a protective order is not obtained, the Receiving Party shall only disclose those portions of the Confidential Information that it is legally required to disclose and shall use reasonable efforts to obtain confidential treatment for the disclosed Confidential Information. This ARTICLE IX supersedes as of the Effective Date the confidentiality agreement executed by the Parties dated as of xxxx, 2024; provided however that all “Confidential Information” disclosed or received by the Parties and their Affiliates thereunder shall be deemed Confidential Information hereunder and shall be subject to the terms and conditions of this Agreement.
Section 9.2. Permitted Disclosure. Each Party shall have the right to disclose Confidential Information provided by the other Party to the extent such disclosure is reasonably necessary in the following instances:
| a) | disclosure to governmental or other regulatory agencies in order to obtain Patents on Licensed Technology or to gain or maintain approval to conduct Clinical Trials or to market Licensed Product (in each case to the extent permitted by this Agreement), but such disclosure may be only to the extent reasonably necessary to obtain Patents or authorizations; b) complying with applicable court orders or governmental regulations, including without limitation rules or regulations of the Securities and Exchange Commission, or by rules of the National Association of Securities Dealers, any securities exchange or Nasdaq, NYSE, etc.; provided, however, that the receiving Party shall first have given notice to the other Party hereto in order to allow such Party the opportunity to seek confidential treatment of the Confidential Information; |
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| c) | disclosure by Licensee to Related Licensee Parties or distributors for the sole purpose of conducting Development, Manufacturing and/or Commercialization of the Compound and Licensed Products on a “need-to-know” basis, in accordance with the terms and conditions of this Agreement on the condition that such Related Licensee Parties agree to be bound by confidentiality and non-use obligations at least equivalent in scope to those contained in this Agreement; provided the term of confidentiality for such Related Licensee Parties shall be no less than five (5) years, except in respect of trade secrets or Know-How where the provisions of Section 9.2(a) shall apply; provided that the Licensed Technology should be carefully disclosed by Disclosing Party, and only to the extent absolutely required, and provided however that the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursual to this Section 9.2(c)(iii) to treat such Confidential Information as required under this ARTICLE IX, and provided in case of termination of this Agreement, Licensee must provide Licensor with a copy of all confidentiality, non-disclosure and other agreements entered into with such Third Parties; and |
| d) | disclosure to consultants, agents or other current or potential Third Parties investors, lenders or merger partners, and consultants and advisors of the Receiving Party, solely to the extent required to accomplish the purposes of this Agreement or in connection with due diligence or similar investigations by such Third Parties investors, and disclosure to potential Third Party investors in confidential financing documents, in each case on a “need-to-know basis” and on the condition that such Third Parties investors agree to be bound by confidentiality and non-use obligations at least equivalent in scope to those contained in this Agreement or for the purposes of such financing; provided the term of confidentiality for such Third Parties investors shall be no less than five (5) years, except in respect of trade secrets or Know-How where the provisions of Section 9.2(a) shall apply, and provided that the Licensed Technology should be carefully disclosed by the Licensee, and only to the extent absolutely required and provided however that the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Section 9.2(c)(iv) to treat such Confidential Information as required under this ARTICLE IX, and provided in case of termination of this Agreement, Licensee must provide Licensor with a copy of all confidentiality, non-disclosure and other agreements entered into with such Third Parties. |
If and whenever any confidential information is disclosed in accordance with this Section 9.2(c), such disclosure shall not cause any such information to cease to be Confidential Information
Section 9.3. Publication. Licensee shall not publish or otherwise disclose any scientific papers, abstracts, presentations or publications relating to or concerning the Licensed Technology or any Licensed Products, including, without limitation, the results of any Clinical Trials carried out under this Agreement, without the prior written approval of Licensor in each instance.
Section 9.4. Publicity; Use of Names.
| a) | Each of the Parties agrees not to disclose to any Third Party the terms and conditions of this Agreement without the prior approval of the other Party (such consent not to be unreasonably withheld, delayed or conditioned), except to: (i) advisors (including consultants, financial advisors, attorneys and accountants); (ii) bona fide potential and existing investors and acquirers on a need to know basis, in each case under circumstances that reasonably protect the confidentiality thereof; (iii) to the extent necessary to comply with the terms of agreements with Third Parties; or (iv) to the extent required by Applicable Laws, including securities laws and regulations. Notwithstanding the foregoing, following the Effective, each Party shall have the right to prepare and issue a press release announcing the execution of this Agreement; provided that, in advance of public release, each Party shall deliver its final draft press release to the other Party for review, and neither Party shall release its press release without the prior written approval of the other Party, such approval not to be unreasonably withheld or delayed. Thereafter each Party shall have the right to disclose to Third Parties the information contained in such press release(s) without the need for further approval by the other. |
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| b). | The Parties acknowledge the need to keep investors and others informed regarding such Party’s business under this Agreement, including as required by the rules of a recognized stock exchange. To the extent a Party is or becomes publicly listed, and subject to Section 9.3(a), such Party shall have the right to issue press releases or make disclosures to the Securities and Exchange Commission or other applicable agency as it determines, based on advice of counsel, as reasonably necessary to comply with laws or regulations or for appropriate market disclosure; provided that each Party shall provide the other Party with advance notice of legally required disclosures to the extent practicable. The Parties shall consult with each other on the provisions of this Agreement to be redacted in any filings made by a Party with the Securities and Exchange Commission or as otherwise required by Applicable Laws; provided that each Party shall have the right to make any such filing as it reasonably determines necessary under Applicable Laws. |
ARTICLE X. REPRESENTATIONS, WARRANTIES, AND COVENANTS
Section 10.1. Representations and Warranties of Each Party. Each Party represents and warrants to the other Party as of the Effective Date that:
| i. | it is a company or corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement, including the right to grant the licenses granted by it hereunder; |
| ii. | it has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder, (ii) it has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder, and (iii) the Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid and binding obligation of such Party that is enforceable against it in accordance with its terms; |
| iii. | it is not a party to any agreement that would prevent it from granting the rights granted to the other Party under this Agreement or performing its obligations under the Agreement; and |
| iv. | all consents, approvals and authorization from all Governmental Authorities or other Third Parties required to be obtained by such Party in connection with this Agreement have been obtained. |
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Section 10.2. Additional Representations, Warranties and Covenants of Licensor. Licensor represents, warrants and covenant to Licensee that as of the Effective Date or during such period specifically referenced herein: Licensor has the right under the Licensed Technology to grant the licenses to Licensee as purported to be granted pursuant to this Agreement;
| a) | Licensor has not granted (and shall not grant during the Term) any right to any Third Party under the Licensed Technology that would conflict with the rights granted to Licensee hereunder; and |
| b) | no claim or action has been brought against Licensor or, to Licensor’s Knowledge, threatened in writing to Licensor, by any Third Party alleging that (i) the Licensed Patents are invalid or unenforceable, or (ii) the use of the Compound or Licensed Product infringes the Patents or misappropriates the Patents of any Third Party; and to Licensor’s Knowledge, no interference, opposition, cancellation or other protest proceeding has been filed against any Licensed Patent. |
Section 10.3. Additional Representations, Warranties and Covenants of Licensee. Licensee represents, warrants and covenant to Licensor that as of the Effective Date or during such period specifically referenced herein:
| a) | Licensee, together with its Affiliates, contractors, Sublicensees and distributors, has or will have the necessary resources and expertise, including relevant approvals and licenses (or the resources to acquire the expertise) to perform its obligations hereunder, including to use best efforts to Develop and Commercialize the Compound and Licensed Products in the Field in the Territory; |
| b) | in the course of performing its obligations or exercising its rights under this Agreement, Licensee shall, and shall cause its Affiliates and Related Licensee Parties to (i) comply with the Development Plan, all agreements referenced herein and all Applicable Laws, including as applicable, cGMP, GCP, GLP and GSP standards; and (ii) ensure that its distributors, suppliers and manufacturers, if any, comply with Applicable Laws in respect of the Development, Manufacture and Commercialization of the Licensed Products; |
| c) | neither Licensee nor any employee, agent or Subcontractor of Licensee involved in or who will be involved in the Development, Manufacture and/or Commercialization of the Licensed Products has been debarred or disqualified under Subsection (a) or (b) of Section 306 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 335a) or is otherwise the subject of any pending or threatened debarment or disqualification proceedings or other notice of non-compliance or enforcement action by any Regulatory Authority; (ii) Licensee shall not employ or engage any Person who has been debarred or disqualified by any Regulatory Authority, or, to Licensee’s Knowledge, is the subject of any pending or threatened debarment, disqualification or enforcement proceedings by a Regulatory Authority; and (iii) no Person on any of the FDA clinical investigator enforcement lists will participate in the performance of any activities hereunder; |
| d) | Licensee acknowledges and agrees that (i) it has been furnished the materials relating to the Licensed Technology that it has requested; (ii) it has completed to its satisfaction an independent investigation of the Licensed Technology that it has requested; and (iii) in making its decision to enter into this Agreement, and to consummate the transactions contemplated hereby, it has relied solely on the results of its own independent investigation and analysis and the representations and warranties set forth in Sections 10.1 and 10.2. Licensee has no Knowledge that any representations or warranties of Licensor made in this Agreement are not true and correct; |
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| e) | Licensee shall not, and shall not permit any of its Subcontractors to, process personal data in a manner that involves (i) the transfer of such personal data from one country to any other country (the EU and Switzerland constituting a single country for this purpose), or (ii) accessing personal data from another country; in each case without the prior written consent of Licensor or as explicitly permitted in the Agreement; and |
Upon the request of Licensor, Licensee shall enter into appropriate data transfer agreements with Licensor and its Affiliates as needed to satisfy cross-border transfer obligations relating to personal data, such as the European Commission Standard Contractual Clauses or other similar agreements.
Section 10.3. Compliance with Anti-Corruption Laws.
| a) | Notwithstanding anything to the contrary in the Agreement, Licensee hereby covenants to Licensor that: |
| 1) | it shall not, in the performance of this Agreement, perform any actions that are prohibited by anti-corruption laws (collectively “Anti-Corruption Laws”, including the provisions of the U.S. Foreign Corrupt Practices Act) that may be applicable to either or both Parties to the Agreement; |
| 2) | it shall not, in the performance of this Agreement, directly or indirectly, make any payment, offer or transfer anything of value, or agree or promise to make any payment or offer or transfer anything of value, to a government official or government employee, to any political party or any candidate for political office or to any other Third Party with the purpose of influencing decisions related to either Party or its business in a manner that would violate Anti-Corruption Laws; |
| 3) | it shall, on request by Licensor, verify in writing that to the best of Licensee’s Knowledge, there have been no violations of Anti-Corruption Laws by Licensee or persons employed by or Subcontractors used by Licensee in the performance of the Agreement, or shall provide details of any exception to the foregoing; and |
| 4) | it shall maintain records (financial and otherwise) and supporting documentation related to the subject matter of the Agreement in order to document or verify compliance with the provisions of this Section 10.4, and upon request of Licensor, upon reasonable advance notice, shall provide a Third Party auditor acceptable to Licensor with access to such records for purposes of verifying compliance with the provisions of this Section 10.4. Licensee may require the Third Party auditor to enter into a reasonable confidentiality agreement in connection with such an audit. |
| b) | As of the Effective Date, none of the officers, directors, employees, of Licensee or of any of its Affiliates or agents acting on behalf of Licensee or any of its Affiliates, in each case that are employed or reside outside the United States, are themselves Public Officials. To its Knowledge as of the Effective Date and during the Term, neither Licensee nor any of its Subsidiaries nor any of their Affiliates, directors, officers, employees, distributors, agents, representatives, Net Amounts intermediaries or other Third Parties acting on behalf of Licensee or any of its Subsidiaries or any of their Affiliates: (i) has taken or shall take any action in violation of any applicable Anti-Corruption Law, including the U.S. Foreign Corrupt Practices Act (15 U.S.C. § 78 dd-1 et seq.); (ii) has corruptly, offered, paid, given, promised to pay or give, or authorized or shall corruptly, offer, pay give, promise to pay or give or authorize, the payment or gift of anything of value, directly or indirectly, to any Public Official; (iii) has influenced or shall influence any act or decision of any Public Official in his official capacity; (iv) has induced or shall induce such Public Official to do or omit to do any act in violation of his lawful duty; (v) has secured or shall secure any improper advantage; or (vi) has induced or shall induce such Public Official to use his or her influence with a government, governmental entity, or commercial enterprise owned or controlled by any government (including state-owned or controlled medical facilities) in obtaining or retaining any business whatsoever. |
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NO OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, THE PARTIES MAKE NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND LICENSOR SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES, INCLUDING ANY EXPRESS OR IMPLIED WARRANTY OF QUALITY, MERCHANTABILITY, USE, EXPLOITATION, FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTY OF NON-INFRINGEMENT OF THE LICENSED TECHNOLOGY, THE COMPOUND OR THE LICENSED PRODUCTS OR AS TO THE VALIDITY OF ANY LICENSED PATENTS, OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. THE COMPOUND, LICENSED PRODUCTS, LICENSED TECHNOLOGY PROVIDED BY LICENSOR OR ITS AFFILIATES HEREUNDER ARE MADE AVAILABLE ON AN “AS IS” BASIS WITHOUT WARRANTY WITH RESPECT TO COMPLETENESS, COMPLIANCE WITH REGULATORY STANDARDS OR OTHER APPLICABLE LAW OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER KIND OF WARRANTY WHETHER EXPRESS OR IMPLIED. THE ENTIRE RISK AS TO THE RESULTS, AND PERFORMANCE AND EXPLOITATION OF THE LICENSED TECHNOLOGY, THE COMPOUND AND THE LICENSED PRODUCTS IS EXCLUSIVELY ASSUMED BY LICENSEE.
ARTICLE XI. INDEMNIFICATION; LIMITATION OF LIABILITY; INSURANCE
Section 11.1. By Licensee. Licensee shall indemnify and hold harmless Licensor, its Affiliates, and their directors, officers, employees and agents (“Licensor Indemnitee”) from and against all losses, liabilities, damages and expenses (including legal expenses and reasonable attorneys’ fees and costs) incurred in connection with any claims, demands, actions or other proceedings by any Third Party (individually and collectively, “Losses”) to the extent arising from: (a) the research, Development, Manufacturing, Commercialization, use, offering for sale, sale, importation or otherwise exploitation of the Licensed Technology, the Compound and the Licensed Products including, without limitation, the Product Marks, Brand Strategy and Promotional Materials; (b) any activity by Licensee that is outside the Field or the Territory; (c) the gross negligence or willful misconduct of Licensee or any of its Affiliates or Related Licensee Parties; (d) Licensee’s breach of any of its obligations, representations, warranties or covenants set forth in this Agreement or the scope of the licenses set forth in Section 2; (e) Licensor holding any Regulatory Approval for any Licensed Product for Licensee’s benefit in accordance with Section 11.1; and (f) failure of any Licensee Indemnitee to comply with any Applicable Laws in the performance of any obligations under this Agreement.
Section 11.2 By Licensor. Licensor shall indemnify and hold harmless Licensee, its Affiliates, and their directors, officers, employees and agents (“Licensee Indemnitees,” individually and together with the Licensor Indemnitees, “Indemnitees”) from and against all Losses to the extent arising from: (a) the gross negligence or willful misconduct of Licensor or its Affiliates; (b) Licensor’s breach of any of its obligations, representations, warranties or covenants set forth in this Agreement; and (c) the failure of Licensor or its Affiliates to comply with any Applicable Laws in the performance of any obligations under this Agreement, in each case of clauses (a) through (c) above, except to the extent Losses arise from, are based on, or result from any activity or occurrence for which Licensee is obligated to indemnify the Licensor Indemnitees under Section 11.2.
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Section 11.3. Defense. The Indemnitee shall notify the Indemnifying Party promptly of any claim, demand, action or other proceeding under Section 11.1 or 11.2 and shall reasonably cooperate with all reasonable requests of the Indemnifying Party with respect thereto. If any such claims or actions are made, the Indemnitee shall be defended at the sole cost and expense of the Party that is obligated to indemnify the Indemnitee (the “Indemnifying Party”) by counsel selected by the Indemnifying Party, provided that the Indemnitee may, at its own expense, also be represented by counsel of its own choosing. The Indemnifying Party shall have the sole right to control the defense of any such claim or action, subject to the terms of this Article XI. The Indemnifying Party shall promptly (and in any event not more than twenty (20) days after receipt of the Indemnitee’s original notice) notify the Indemnitee in writing whether or not it acknowledges its obligation (which acknowledgement shall not be deemed or construed as an admission of liability to indemnify the Indemnitee with respect to the claim pursuant to this Section 11.3) and of its intention either to compromise or defend such claim.
Section 11.4. Settlement. The Indemnifying Party shall have the right to settle any such claim, demand, action or other proceeding or otherwise consent to an adverse judgment: (a) with prior written notice to the Indemnitee but without the consent of the Indemnitee where the only liability to the Indemnitee is the payment of money and the Indemnifying Party makes such payment; or (b) in all other cases, only with the prior written consent of the Indemnitee, such consent not to be unreasonably withheld or delayed. The Indemnitee shall not settle any such claim, demand, action or other proceeding or otherwise consent to an adverse judgment in any such action or other proceeding or make any admission as to liability or fault without the express written permission of the Indemnifying Party not to be unreasonably upheld.
Section 11.5. Insurance. Licensee shall procure and maintain for itself and its Affiliates during the Term and for a period of five (5) years thereafter, insurance policies, including product liability and clinical trial insurance, adequate to cover its obligations hereunder with a company having a minimum of an A-rating by Best’s rating; provided, however, that in no event shall such product liability insurance be written and in force in Net amounts not less than the average amount per claim under the insurance policies that are customarily obtained by similarly situated companies conducting similar activities with respect to similar product candidates. Licensee shall identify the Licensor as an additional insured and provide Licensor with evidence of such insurance upon request and prior to expiration of any one coverage. Licensee shall provide Licensor with prompt written notice of any anticipated cancellation, non-renewal or material change in such insurance, and in all cases shall provide such notice prior any such cancellation, non-renewal or material change. Licensee shall impose substantially identical obligations on its Affiliates (to the extent not named insureds under such Party’s coverages) and Related Licensee Parties. Such insurance shall not be construed to create a limit of the Licensee’s liability with respect to its indemnification obligations under this Article XI.
LIMITATION OF LIABILITY. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, SUBJECT TO AND WITHOUT LIMITING THE INDEMNIFICATION OBLIGATIONS OF EACH PARTY WITH RESPECT TO THIRD PARTY CLAIMS UNDER SECTION 11.1 OR 11.2 OR LIABILITY AS A RESULT OF A BREACH OF ARTICLE XI, OR DAMAGES AVAILABLE FOR PARTY’S BREACH OF CONFIDENTIALITY OBLIGATIONS IN ARTICLE XI, OR FOR A PARTY’S BREACH OF OBLIGATIONS UNDER ARTICLE XIII, NO PARTY OR ANY OF ITS AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY UNDER ANY CONTRACT, WARRANTY, NEGLIGENCE, TORT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, MULTIPLIED OR CONSEQUENTIAL DAMAGES OR FOR LOST PROFITS (EVEN IF DEEMED DIRECT DAMAGES) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
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ARTICLE XII. INTELLECTUAL PROPERTY
Section 12.1 Ownership of Intellectual Property.
| a) | Ownership. As between the Parties: (i) Licensor shall remain the sole and exclusive owner of all Licensed Technology; (ii) Licensee shall remain the sole and exclusive owner of all Licensee IP; and (iii) each Party shall solely own all right, title, and interest in and to any New Technology, including any Improvements, invented, created, conceived, developed or otherwise made solely by its or its Affiliates’ employees, agents or independent contractors during the Term. Improvements made solely by Licensor shall be included in the Licensed Technology, and Improvements made solely by Licensee shall be included in the Licensee Intellectual Property. |
| b) | Joint New Technology. The Parties shall jointly own all New Technology, including improvements made to the Licensed Technology or to the Licensee IP, that are made jointly by the employees, agents, and independent contractors of one Party and its Affiliates together with the employees, agents, and independent contractors of the other Party and its Affiliates (the “Joint New Technology”). Inventorship, authorship and ownership of all New Technology shall be assigned in accordance with United States Intellectual Property laws. In the event that Joint New Technology is made, each Party shall own an undivided half interest in any such Joint New Technology and the Parties shall enter into a joint ownership agreement to manage such joint ownership. |
| c) | Disclosure. Licensee shall promptly disclose to Licensor all New Technology and Improvements, including all invention disclosure or other similar documents submitted to Licensee by its or its Affiliates’ employees, agents, or independent contractors relating thereto, and shall promptly respond to reasonable requests from Licensor for additional information relating thereto. |
| d) | Patent Prosecution. |
| 1) | Prosecution. As between the Parties, Licensor shall in its discretion prepare, file, and prosecute all Patent Applications and maintain all Patents granted within the Licensed Patents in the Territory, as well as re-examinations, reissues, appeals, and requests for Patent term adjustments and Patent term extensions with respect to such Licensed Patents. Licensor shall bear all costs and expenses incurred in connection with such prosecution and maintenance; provided that Licensee shall reimburse Licensor for such expenses within thirty (30) days after receipt of an invoice. Licensor shall keep Licensee reasonably informed through the JDC of material developments concerning the prosecution and maintenance of the Licensed Patents in the Territory. |
| 2) | Abandonment. Licensor shall notify Licensee of any decision to cease Patent Prosecution or maintenance of any Licensed Patents prosecuted by Licensor and shall provide such notice at least thirty (30) days prior to any filing or payment due date, or any other due date that requires action, in connection with such Licensed Patents. In such event, Licensor shall permit Licensee, at its sole cost and expense, to continue Patent Prosecution or maintenance of such Licensed Patents. Upon Licensee’s written election provided no later than thirty (30) days after such notice from Licensor to take over Patent Prosecution or maintenance for the Licensed Patents, Licensor shall take all actions and execute all documents reasonably necessary for Licensee to assume such responsibility. If Licensee does not notify Licensor of its election within such thirty (30) day period, Licensor may continue or discontinue prosecution and maintenance of such Licensed Patents in its discretion. For the avoidance of doubt, notwithstanding Licensee’s maintenance or Patent Prosecution of the Licensed Patents, such Licensed Patents shall remain owned by Licensor for all purposes under this Agreement. |
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| 3) | Cooperation. With respect to all Patent Prosecution, Licensee shall, and shall cause its Affiliates to provide all reasonable assistance and cooperation in connection with prosecution and maintenance activities hereunder, including by making its employees, agents, and independent contractors reasonably available and executing any necessary documents or instruments, including powers of attorney. |
e). Enforcement.
Each Party shall notify the other within thirty (30) Business Days of becoming aware of: (i) any alleged or threatened infringement by a Third Party of any of the Licensed Technology in the Field in the Territory; and (ii) any related declaratory judgment, opposition, or similar action alleging the invalidity, unenforceability or non-infringement of any of the Licensed Patents (collectively “Product Infringement”).
Licensee shall have the first right to bring and control any legal action in connection with such Product Infringement at its own expense as it reasonably determines appropriate. If Licensee decides not to bring such legal action, it shall so inform Licensor promptly and Licensor shall have the right to bring and control any legal action in connection with such Product Infringement at its own expense as it reasonably determines appropriate.
The Parties shall consult each other to decide what action if any should be taken to stop the infringement, encroachment or violation. If Licensee decides not to bring such legal action, it shall so inform the Licensor promptly and the Licensor shall have the right to bring and control any legal action in connection with such infringement at its own expense as it reasonably determines appropriate.
At the request of the Party bringing an action related to Product Infringement, the other Party shall provide reasonable assistance in connection therewith, including by executing reasonably appropriate documents, cooperating in discovery and joining as a party to the action if required by Applicable Law to pursue such action, at the sole cost and expense of the Party bringing the action. In connection with an action related to Product Infringement, the Party bringing the action shall not enter into any settlement admitting the invalidity or non-infringement of, or otherwise impairing the other Party’s rights in the Licensed Patents without the prior written consent of the other Party. Licensee shall at all times keep Licensor informed as regards progress of any action taken or proceedings raised by Licensee against a Third Party. Any course of action, offer of settlement or settlement shall not conflict with any licenses granted under this Agreement and shall comply upon all terms and conditions of this Agreement. Licensee shall, provided that Licensee has confirmed to Licensor in writing that all costs relating to the settlement, including but not limited to sums to be paid to Third Parties as compensation, costs or damages shall be borne by Licensee, have sole discretion in relation to the conduct and settlement of any action taken or proceedings raised against a Third Party provided that, Licensee shall not settle in a manner that involves any admission of wrongdoing on the part of Licensor or that diminishes or affects the rights or interests of Licensor without their express prior written consent.
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If Licensee elects not to take steps to enforce Licensed Patents or eliminate the infringement within sixty (60) days from any Product Infringement notice, then Licensor shall have the right and option, but not the obligation, to do so at its expense upon providing written notice to Licensee after giving good faith consideration to Licensee’s reasons for not taking other action.
Any recoveries resulting from enforcement action relating to a claim of Product Infringement shall be first applied against payment of each Party’s costs and expenses in connection therewith. Any such recoveries in excess of such costs and expenses shall be allocated equally (50/50) between the Parties; provided that if Licensee is the controlling Party, then such recovery will be treated as Net Net amounts in the period in which payment of such recovery was received.
Defense. Each Party shall promptly notify the other in writing of any allegations it receives from a Third Party that the Development, Manufacture, Commercialization or other exploitation of any Licensed Product infringes, misappropriates or violates any Intellectual Property (“IP”) or proprietary rights of such Third Party (“Third Party IP Claim”). Each Party shall assert and not waive the joint defense privilege with respect to all communications between the Parties. If either Party is entitled to indemnification under Article XII with respect to any Third Party IP Claim, then the terms and conditions of Article XII shall apply to such Third Party IP Claim. In all other cases, except as otherwise provided in this Agreement, each Party shall have the right to defend itself from any such Third Party IP Claim brought against such Party or its Affiliates or licensees at its own expense and with counsel of its choosing. Each Party shall keep the other Party reasonably informed of all material developments in connection with any Third Party IP Claim, and the other Party shall consult with and offer reasonable assistance to the Party defending against such Third Party IP Claim, at the defending Party’s cost and expense.
ARTICLE XIII.
TERM; TERMINATION
| a). | Term. This Agreement shall be effective on the Effective Date and, subject only to earlier termination pursuant to this Article XIII , shall continue until the latest of: (a) Licensee’s termination of the Commercialization of the Licensed Products in the Field in the last Region of the Territory in which Commercialization had actually begun; and (b) the expiration of the last-to-expire Valid Claim of a Licensed Patent that Covers such Licensed Product in the Field in the Territory (the “Term”). |
| b. | Termination for Breach. This Agreement may be terminated in its entirety, or with respect to any country in the Territory, upon written notice by either Party if the other Party is in material breach of its obligations (other than payment obligations) hereunder and has not cured such material breach within thirty (30) days after written notice describing the nature of such material breach is provided to the breaching Party. If Licensee breaches any of its payment obligations hereunder and has not cured such breach within thirty (30) Business Days following the date for payment provided herein, this Agreement may be terminated in its entirety by Licensor upon written notice to Licensee. |
| c. | Termination for Insolvency. Either Party shall have the right to terminate this Agreement upon written notice to the other Party in the event of the Bankruptcy Event of the other Party. For purposes of this Section 13.c, “Bankruptcy Event” means the occurrence of any of the following: (a) the institution of any bankruptcy, receivership, insolvency, reorganization or other similar proceedings by or against a Party under any bankruptcy, insolvency, or other similar law now or hereinafter in effect, including any section or chapter of the United States Bankruptcy Code, as amended or under any similar laws or statutes of the United States or any state thereof or any other country or jurisdiction, where in the case of involuntary proceedings such proceedings have not been dismissed or discharged within 60 days after they are instituted, (b) the making of an assignment for the benefit of creditors as to all or substantially all of a Party’s assets, or (c) appointment of a receiver, custodian, trustee, liquidator, assignee or other similar official for all or substantially all of a Party’s assets. |
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d. Termination for incapacity to finance the Development Plan.
The License Agreement may not be assigned or otherwise transferred by the Licensee to a third party company (the “Third Party Company”) without the prior written consent of the other Party, such consent not to be unreasonably withheld; provided, however, that either Party may assign the License Agreement without such consent to an Affiliate or, in the case of Licensee , in connection with the transfer or sale of its business or all or substantially all of its assets related to Licensed Products, or in the event of a merger, consolidation, change of control or similar corporate transaction. Any permitted assignee shall assume all obligations of its assignor under the License Agreement.
e. Effects of Termination.
In the event of termination of this Agreement by either Party, the following shall apply:
| i. | Without limiting the effect that such termination shall have on any provisions of this Agreement, other than those provisions that this Agreement expressly provides shall survive such termination, all rights and licenses granted herein to either Party shall terminate and the Licensee, its Affiliates and all Related Licensee Parties shall cease all use and other forms of Commercialization of the Licensed Products, Licensed Technology or the Compound or Confidential Information of Licensor; provided that, at Licensor’s sole discretion, such licenses shall continue as necessary for the Parties to complete the orderly wind-down of their activities under this Agreement in accordance with Applicable Laws and in compliance with the terms and conditions of this Agreement; |
| ii. | All payment obligations hereunder shall terminate, other than those that are accrued and unpaid as of the effective date of such termination, as well as those accrued during the wind-down period and the disposal of inventory period provided hereinafter; provided that Licensee shall also reimburse Licensor for any expenses incurred, or to which Licensor is obligated, pursuant to the Development Plan as applicable, through the date of termination, including all uncancellable commitments; |
| iii. | All Licensed Technology, the Compound and related Confidential Information and data, and all accurate written records, accounts, notes, reports and data with respect to its activities conducted pursuant to the Development Plan, shall become and be deemed for all purposes the sole Confidential Information of Licensor, and, accordingly, Licensee, its Affiliates and all Related Licensee Parties shall promptly (but no later than thirty calendar days) (i) return to Licensor all Confidential Information of Licensor; including Confidential Information, provided, however that Licensee shall have the right to retain one copy of such Confidential Information including all documents, files and tangible materials (and any partial and complete copies) containing, reflecting, incorporating, or based on any of the foregoing, in its confidential files solely for purposes of exercising Licensee’s surviving rights hereunder, satisfying its obligations hereunder or complying with any legal proceeding or requirement with respect thereto, and provided further that Licensee shall not be required to erase electronic files created in the ordinary course of business during automatic system back-up procedures pursuant to its electronic record retention and destruction practices that apply to its own general electronic files and information so long as such electronic files are: (A) maintained only on centralized storage servers (and not on personal computers or devices); (B) not accessible by any of its personnel (other than its information technology specialists); (C) not otherwise accessed subsequently except with the written consent of Licensor or as required by law or legal process and (D) provide to Licensor a signed written instrument certified by an officer that it has complied with the requirements of this Section 14.5(c). Such retained copies of Licensor’s Confidential Information shall remain subject to the confidentiality and non-use obligations herein; |
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| iv. | Subject to the payment of all Net Amounts required above, Licensee shall not have the right to sell or otherwise dispose of any inventory of any Licensed Product on hand at the time of such termination or in the process of Manufacturing for a period of six (6) months following the effective date of termination provided that any revenue obtained from such disposal shall be treated as Net Amounts and the provisions of Article VIII shall apply to such Net Amounts. |
| v. | Licensee shall have the right to acquire a Licensor IP that is incorporated into or otherwise necessary or useful in connection with the Compound or any Licensed Product, with a right to Sublicense, to Develop, make, have made, use, sell, have sold, offer for sale, and import such Compound or Licensed Product. The Licensor cannot sell any Licensee IP to Third Party except to the Licensee that is incorporated into or otherwise necessary or useful in connection with the Compound or any Licensed Product, with a right to Sublicense, to Develop, make, have made, use, sell, have sold, offer for sale, and import such Compound or Licensed Product In the event of such election, the Parties shall negotiate in good faith commercially reasonable terms for such license. |
| vi. | Licensor shall be granted back full control and take all decisions in respect of the Licensed Patents. Without limitation, all Licensed Patents shall be filed, prosecuted and maintained exclusively by Licensor and Licensee shall collaborate and to do any acts reasonably necessary to transfer such activities to Licensor, including provide all required instructions to patent firms and agents in relation thereto. |
| vii. | Unless expressly prohibited by any Regulatory Authority in the Territory, at Licensor’s written request, Licensee shall, and shall cause its Affiliates and all Related Licensee Parties, as applicable, to, (i) transfer control to Licensor of any or all Clinical Trials involving the Compound or any Licensed Product being conducted by or on behalf of Licensee, an Affiliate or Related Licensee Party as of the effective date of termination and (ii) continue to conduct such Clinical Trials for up to three (3) months to enable such transfer to Licensor to be completed without interruption of any such Clinical Trial; provided that, with respect to any Clinical Trial for which such transfer is expressly prohibited by the applicable Regulatory Authority, Licensee shall, and shall cause its Affiliates and all Related Licensee Parties, as applicable, to continue to conduct such Clinical Trial to completion. |
| f). | Accrued Rights and Obligations; Survival. Termination of this Agreement by a Party pursuant to Section14.4 shall not be a Party’s sole remedy for a material breach of this Agreement but shall be in addition to any other rights or remedies of a Party under this Agreement. Termination of this Agreement shall not affect any accrued rights or surviving obligations of the Parties. In addition to any provisions required to survive to accomplish the intent of Section 14.2 (Termination for Breach) and Section 14.5 (Effects of Termination), the provisions contained in ARTICLE X (Representations, Warranties, And Covenants), ARTICLE IX (Confidentiality; Publication), ARTICLE XI(Indemnification), ARTICLE XII (Intellectual Property), ARTICLE XIII (Term) and ARTICLE XV (Miscellaneous) shall survive the expiration or termination of this Agreement for any reason whatsoever. |
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ARTICLE XIV.
DISPUTE RESOLUTION
Section 14.1. General. The Parties recognize that a dispute may arise relating to this Agreement (a “Dispute”). Any Dispute, including Disputes that may involve the Affiliates of any Party, shall be resolved in accordance with this Article XIV. If there are any Disputes in connection with this Agreement, all rights and obligations of the Parties shall continue until such time as any Dispute has been resolved in accordance with the provisions of this Article XIV. Each Party shall continue to perform its obligations under the Agreement pending final resolution of any Dispute unless to do so would be impossible or impracticable under the circumstances. If either Party receives a notice of Dispute, then any associated time to cure shall be stayed pending the resolution of the issue pursuant to this Section 14.1.
Section 14.2. Equitable Remedies; Court Proceedings. Notwithstanding the foregoing or anything to the contrary in this Agreement, each Party shall have the right to initiate court proceedings in a court of competent jurisdiction for: (a) any claim for injunctive or other equitable relief in the event of an actual or threatened breach by the other Party of any of its confidentiality obligations under this Agreement, and the Parties hereby agree that (i) any such actual or threatened breach would give rise to irreparable harm for which monetary damages would not be an adequate remedy; and (ii) a Party shall be entitled to seek such injunctive or other equitable relief, in addition to any and all other rights and remedies that may be available to such Party at law or in equity or otherwise in respect of such breach, without the posting of any bond or other security; or (b) any Dispute concerning the validity, construction, scope, enforceability, infringement, or misappropriation of Patents, Know-How or other Intellectual Property rights.
Section 14.3. Governing Law; Venue and Procedure. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New Jersey, without regard to the principles of conflicts of law thereof. Any Dispute for which a Party is permitted to bring a court proceeding must be instituted exclusively in the federal courts of the United States or the courts of the State of New Jersey in each case located in the Trenton or in other courts of the State of New Jersey, and each Party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action, or proceeding. Service of process, summons, notice, or other document by mail to such Party’s address set forth herein shall be effective service of process for any suit, action, or other proceeding brought in any such court. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY FOR ANY COURT PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY FOR WHICH A PARTY MAY BRING SUCH A COURT PROCEEDING.
ARTICLE XV.
MISCELLANEOUS
Section 15.1. Force Majeure. Neither Party shall be held liable to the other Party nor be deemed to have defaulted under or breached this Agreement (except for any obligations to make payments to the other Party hereunder) for failure or delay in performing any obligation under this Agreement to the extent such failure or delay is caused by or results from a Force Majeure Event; provided that (a) the affected Party provides prompt written notice to the other Party of such failure or delay, (b) the affected Party promptly undertakes all reasonable efforts to mitigate the effects of the Force Majeure Event, and (c) the affected Party immediately resumes performance upon cessation of the Force Majeure Event. Notwithstanding the foregoing, a Party shall not be excused from making payments owed hereunder because of an event of force majeure affecting such Party.
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Section 15.2. Assignment. Neither Party shall assign or otherwise transfer this Agreement to an Affiliate or a Third Party, nor shall any right or obligation hereunder be assigned or transferred, without the other Party’s prior written consent - such consent not to be unreasonably withheld. No assignment shall relieve the assigning Party of any of its obligations hereunder. Notwithstanding the above, Licensor shall have the right to freely: (a) assign its rights to receive license revenue under this Agreement; and (b) make such an assignment without the Licensee’s prior written consent to a successor to substantially all of the business of Licensor to which this Agreement relates (whether by merger, sale of stock, sale of assets, exclusive license or other transaction), if the Third Party successor or purchaser provides written notice to Licensee that such Third Party agrees to be bound by the terms of this Agreement within ten (10) days after such assignment. This Agreement shall inure to the benefit of and be binding on the Parties’ successors and permitted assignees. Any assignment or transfer in violation of this Section 15.2 shall be null and void and wholly invalid, the assignee or transferee in any such assignment or transfer shall acquire no rights whatsoever, and the non-assigning non-transferring Party shall not recognize, nor shall it be required to recognize, such assignment or transfer.
Section 15.3. Severability. If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the Parties. The Parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.
Section 15.4. Notices. All notices which are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by electronic mail (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent by nationally recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:
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| If to Licensor: | ||
| Aexon Labs | ||
| Address: | 16192 Coastal Hwy, | |
| Lewes 19958, DE | ||
| U.S.A. | ||
| Attn: | Eric Konofal, President | |
| Email: | ek@aexonlabs.com | |
| with a copy (which shall not constitute notice) to: | ||
| [*] | ||
| Address: | 18 rue du Moulin Saint-Rieul | |
| 60300 Senlis | ||
| France | ||
| Attn: | Docteur Eric Konofal | |
| Email: | eric@konofal.com | |
| If to Licensee: | ||
| NLS Pharmaceutics Ltd. | ||
| Address: | The Circle 6 | |
| 8058 Zurich | ||
| Switzerland | ||
| Attn: | Alex Zwyer, Chief Executive Officer | |
| Email: | acz@nls-pharma.com | |
or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such notice shall be deemed to have been given: (a) when delivered if personally delivered or sent by electronic mail on a Business Day, (b) on the Business Day after dispatch if sent by nationally recognized overnight courier or (c) on the fifth Business Day following the date of mailing if sent by mail.
Section 15.5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, United States without reference to any rules of conflict of laws.
Section 15.6. Entire Agreement; Amendments. The Agreement contains the entire understanding of the Parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, with regard to the subject matter hereof (including the licenses granted hereunder) are superseded by the terms of this Agreement, including the exclusive Option Agreement executed by the Parties as of November 28, 2023 and the confidentiality agreement executed by the Parties dated as of July 17, 2023, as of the Effective Date which is superseded in accordance with the terms of Section 10.1 and following and all Confidential Information disclosed under the prior confidentiality agreement shall be deemed to have been disclosed under this Agreement. Neither Party is relying on any representation, promise, nor warranty not expressly set forth in this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representatives of both Parties hereto.
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| a. | Headings. The captions to the several Sections hereof are not a part of this Agreement, but are merely for convenience to assist in locating and reading the Sections of this Agreement. |
| b. | Independent Contractors. It is expressly agreed that Licensor and Licensee shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither Licensor nor Licensee shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party. |
| c. | Waiver. The waiver by either Party of any right hereunder, or the failure of the other Party to perform, or a breach by the other Party, shall not be deemed a waiver of any other right hereunder or of any other breach or failure by such other Party whether of a similar nature or otherwise. |
| d. | Waiver of Rule of Construction. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply. |
| e. | Construction. Except where the context expressly requires otherwise, (a) the use of any gender herein shall be deemed to encompass references to either or both genders, and the use of the singular shall be deemed to include the plural (and vice versa), (b) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (c) the word “will” shall be construed to have the same meaning and effect as the word “shall”, (d) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (e) any reference herein to any person shall be construed to include the person’s successors and assigns, (f) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (g) all references herein to Sections, Schedules, or Exhibits shall be construed to refer to Sections, Schedules or Exhibits of this Agreement, and references to this Agreement include all Schedules and Exhibits hereto, (h) the word “notice” means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other written communications contemplated under this Agreement, (i) provisions that require that a Party, the Parties or any committee hereunder “agree”, “consent” or “approve” or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise (but excluding e-mail and instant messaging), (j) references to any specific law, rule or regulation, or Section, section or other division thereof, shall be deemed to include the then-current amendments thereto or any replacement or successor law, rule or regulation thereof and (k) the term “or” shall be interpreted in the inclusive sense commonly associated with the term “and/or” where applicable. |
| f. | Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by email, .pdf or other electronically transmitted signatures (including via DocuSign and other similar reputable electronic signature solutions) and such signatures shall be deemed to bind each Party hereto as if they were the original signatures. |
[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties intending to be bound have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.
| AEXON LABS INC. | ||
| By: | /s/ Eric Konofal | |
| Name: | Eric Konofal | |
| Title: | President Aexon Labs, and co-founder | |
| NLS PHARMACEUTICS LTD. | ||
| By: | /s/ Ronald Hafner | |
| Name: | Ronald Hafner | |
| Title: | Chairman of the Board | |
| By: | /s/ Elena Thyen | |
| Name: | Elena Thyen | |
| Title: | CFO | |
[Signature Page to Exclusive License Agreement]
Exhibit A
Know-How
(see attached)
Exhibit B
Patents
Exhibit 12.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a) or 15d-14(a)
I, Alexander Zwyer, certify that:
| 1. | I have reviewed this annual report on Form 20–F of NLS Pharmaceutics Ltd.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 15, 2024 | /s/ Alexander Zwyer |
| Alexander Zwyer | |
| Chief Executive Officer |
Exhibit 12.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a) or 15d-14(a)
I, Elena Thyen-Pighin, certify that:
| 1. | I have reviewed this annual report on Form 20–F of NLS Pharmaceutics Ltd.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 15, 2024 | /s/ Elena Thyen-Pighin |
| Elena Thyen-Pighin | |
| Chief Financial Officer |
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350
In connection with the filing of the Annual Report on Form 20-F for the period ended December 31, 2023 (the “Report”) by NLS Pharmaceutics Ltd. (the “Company”), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, to my knowledge:
| (1) | the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 15, 2024 | /s/ Alexander Zwyer |
| Alexander Zwyer | |
| Chief Executive Officer |
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350
In connection with the filing of the Annual Report on Form 20-F for the period ended December 31, 2023 (the “Report”) by NLS Pharmaceutics Ltd. (the “Company”), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, to my knowledge:
| (1) | the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 15, 2024 | /s/ Elena Thyen-Pighin |
| Elena Thyen-Pighin | |
| Chief Financial Officer |
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (No. 333-262489, No. 333-268690 and No. 333-269220) of NLS Pharmaceutics Ltd. of our report dated May 15, 2024 relating to the financial statements, which appears in this Form 20-F.
/s/ PricewaterhouseCoopers AG
Zurich, Switzerland
May 15, 2024
PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, CH-8050 Zurich, Switzerland
Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch
PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity.
Exhibit 16.1
May 15, 2024
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Commissioners:
We have read the statements made by NLS Pharmaceutics Ltd. (copy attached), which we understand will be filed with the Securities and Exchange Commission, pursuant to Item 16F of its Annual Report on Form 20-F of NLS Pharmaceutics Ltd. dated May 15, 2024. We agree with the statements concerning our Firm contained therein.
Very truly yours,
/s/ PricewaterhouseCoopers AG
Zurich, Switzerland
Attachment
PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, 8050 Zürich
T: +41 58 792 44 00, F: +41 58 792 44 10, www.pwc.ch
PricewaterhouseCoopers AG is a member of a global network of companies that are legally independent of one another.
Exhibit 97.1
NLS Pharmaceutics Ltd. (the “Company”)
CLAWBACK POLICY
Effective as of November 8, 2023
Background
The Board of Directors of the Company (the “Board”) believes that it is in the best interests of the Company and its shareholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation philosophy. The Compensation Committee of the Board (the “Compensation Committee”) and the Board have therefore adopted this policy, which provides for the recoupment (or clawback) of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws of the United States (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated under the Exchange Act (“Rule 10D-1”) and the listing standards of the Nasdaq Stock Market (“Nasdaq”) under Nasdaq Listing Rule 5608].
Administration
This Policy shall be administered by the Compensation Committee. Any determinations made by the Compensation Committee shall be final and binding on all affected individuals. Subject to any limitation under applicable law, the Compensation Committee may authorize and empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and intent of this Policy (the “Authorized Officers”) (other than with respect to any recovery under this Policy involving such officer or employee).
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with Section 10D of the Exchange Act and the listing standards of Nasdaq (“Covered Executives”).
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, the Compensation Committee will require prompt reimbursement or forfeiture of any excess Incentive Compensation (as defined below) received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement. For the sake of clarity, recoupment is required in the event of any restatement that either: (a) corrects an error in previously issued financial statements that is material to the previously issued financial statements; or (b) corrects an error not material to previously issued financial statements, but that would result in a material misstatement if (i) the error was left uncorrected in the then current period; or (ii) the error correction was recognized in the then current period. The Company’s obligation to recover erroneously awarded compensation is not dependent on if or when the restated financial statements are filed. For purposes of determining the relevant recovery period, the date that the Company is required to prepare an accounting restatement as described above is the earlier to occur of: (A) the date the Board, a committee of the Board, the Authorized Officers, or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an accounting restatement as described above; or (B) the date a court, regulator, or other legally authorized body directs the Company to prepare an accounting restatement as described above. In accordance with Nasdaq Rule 5608(e), this Policy is applicable to Incentive Compensation (as described below) received on or after October 2, 2023.
Incentive Compensation
For purposes of this Policy, “Incentive Compensation” means any of the following, provided that such compensation is granted, earned or vested based wholly or in part on the attainment of a financial reporting measure affected by the restated financial statements:
| ● | Annual bonuses and other short- and long-term cash incentives. | |
| ● | Share options. | |
| ● | Share appreciation rights. | |
| ● | Restricted shares. | |
| ● | Restricted share units. | |
| ● | Performance shares. | |
| ● | Performance units. |
Financial reporting measures are measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Share price and total shareholder return are also financial reporting measures. A financial reporting measure need not be presented within the financial statements or included in a filing with the Securities and Exchange Commission. The Company’s financial reporting measures may include, but are not limited to, the following:
| ● | Company stock price. | |
| ● | Total shareholder return. | |
| ● | Revenues. | |
| ● | Net income. | |
| ● | Earnings before interest, taxes, depreciation and amortization (EBITDA). | |
| ● | Funds from operations. | |
| ● | Liquidity measures such as working capital, operating cash flow or Free Cash Flow. | |
| ● | Return measures such as return on invested capital or return on assets. | |
| ● | Earnings measures such as earnings per share. |
This Policy applies to all Incentive Compensation received by a Covered Executive:
| ● | After beginning service as an executive officer; | |
| ● | Who served as an executive officer at any time during the performance period for that Incentive Compensation; | |
| ● | While the Company has a class of securities listed on a national securities exchange or a national securities association; and |
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| ● | During the three completed fiscal years immediately preceding the date that the Company is required to prepare an accounting restatement as described in this Policy. In addition to these last three completed fiscal years, this Policy applies to any transition period (that results from a change in the Company’s fiscal year) within or immediately following those three completed fiscal years. However, a transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months would be deemed a completed fiscal year. |
Incentive Compensation is deemed received in the Company’s fiscal period during which the financial reporting measure specified in the Incentive Compensation award is attained, even if the payment or grant of the Incentive Compensation occurs after the end of that period.
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Compensation Committee, and without regard to any taxes paid by or withheld from the Covered Executive. If the Compensation Committee cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement. For Incentive Compensation based on share price or total shareholder return, where the amount of erroneously awarded compensation is not subject to mathematical recalculation directly from the information in an accounting restatement, the amount will be based on a reasonable estimate of the effect of the accounting restatement on the share price or total shareholder return upon which the Incentive Compensation was received. In such case, the Company shall maintain documentation of the determination of that reasonable estimate and provide such documentation to Nasdaq.
Method of Recoupment
The Compensation Committee will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder which may include, without limitation:
| ● | Requiring reimbursement of cash Incentive Compensation previously paid; | |
| ● | Seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards; | |
| ● | Offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive in accordance with applicable law; | |
| ● | Cancelling outstanding vested or unvested equity awards; and/or | |
| ● | Taking any other remedial and recovery action permitted by law, as determined by the Compensation Committee. |
No Indemnification
The Company shall not indemnify any Covered Executives against the loss of any Incentive Compensation recovered under this Policy or from any consequence arising therefrom.
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Interpretation
The Compensation Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act, Rule 10D-1 and any applicable rules or standards adopted by the Securities and Exchange Commission or Nasdaq.
Effective Date
This Policy shall be effective as of the date it is adopted by the Board (the “Effective Date”) and, in accordance with Nasdaq Rule 5608(e), shall apply to Incentive Compensation that is received by Covered Executives on or after October 2, 2023.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with any rules or standards adopted by Nasdaq. The Board may terminate this Policy at any time.
Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of applicable law. The Board and/or Compensation Committee may require that any employment agreement, equity award agreement, or similar agreement entered into or amended on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of: (a) any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement or similar agreement and any other legal remedies available to the Company, including termination of employment or institution of legal proceedings; and (b) any statutory recoupment requirement, including Section 304 of the Sarbanes-Oxley Act of 2022. For the avoidance of doubt, any amounts paid to the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2022 shall be considered (and may be credited) in determining any amounts recovered under this Policy.
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Impracticability
The Compensation Committee shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined in accordance with Rule 10D-1(b)(1)(iv) under the Exchange Act and the listing standards of Nasdaq. In order for the Company to determine that recovery would be impracticable, the Company’s Compensation Committee must conclude the following:
| a) | The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered after making a reasonable attempt to recover such Incentive Compensation. Note that the attempt(s) to recover must be documented by the Company and such documentation provided to Nasdaq; | |
| b) | Recovery would violate home country law where that law was adopted prior to November 28, 2022. Note that the Company must obtain a legal opinion of home country counsel that such recovery would result in a violation of local law and provide such opinion to Nasdaq; or | |
| c) | Recovery would likely cause an otherwise tax-qualified retirement plan under which benefits are broadly available to Company employees to fail to meet the requirements for qualified pension, profit-sharing and stock bonus plans under Section 401(a)(13) of the U.S. Internal Revenue Code or the minimum vesting standards under Section 411(a) of the U.S. Internal Revenue Code. |
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.
Exhibit Filing
A copy of this Policy shall be filed as an exhibit to the Company’s annual report on Form 20-F.
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ATTESTATION AND ACKNOWLEDGEMENT OF CLAWBACK
POLICY FOR NLS
PHARMACEUTICS LTD. (the “Company”)
By my signature below, I acknowledge and agree that:
| ● | I have received and read the attached Clawback Policy (this “Policy”) of the Company. | |
| ● | I hereby agree to abide by all of the terms of the Policy both during and after my employment with the Company, including, without limitation, by promptly repaying or returning any incorrectly awarded Incentive Compensation to the Company as determined in accordance with the Policy. | |
| ● | I hereby waive any claim against the Company, its Authorized Officers and the Board in connection with the implementation of the Policy. |
| Signature: | ||
| Printed Name: | ||
| Date: |
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