UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2021

For the transition period from ______ to _______

Commission File Number: 001-37426

CYNAPSUS THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

416-703-2449

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the common shares held by non-affiliates of the registrant computed by reference to the price at which the common shares were last sold on the NASDAQ Global Market, as of June 30, 2015, was approximately US$165,350,146.

As of March 8, 2016, there were 12,300,566 common shares, no par value per share, of Cynapsus Therapeutics Inc. outstanding.

CYNAPSUS THERAPEUTICS INC.

FORM 10-K

TABLE OF CONTENTS

GENERAL MATTERS

In this Annual Report on Form 10-K, unless the context otherwise requires, the terms “Cynapsus,” “we,” “us” and “our” refer to Cynapsus Therapeutics Inc. and our wholly-owned subsidiary, Cynapsus Therapeutics (USA) Inc., a Delaware corporation. Adagio Pharmaceuticals Ltd., or Adagio, our previously wholly-owned subsidiary incorporated under the Canada Business Corporations Act, amalgamated with Cynapsus effective as of January 1, 2016.

Cynapsus, a corporation organized under the federal laws of Canada, qualifies as a “foreign private issuer,” as such term is defined in Rule 12b-2 under the United States Securities Exchange Act of 1934, as amended, or the Exchange Act, in the U.S. for purposes of the Exchange Act. Although, as a foreign private issuer, we are not required to do so, we currently file quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K with the United States Securities and Exchange Commission, or the SEC, instead of filing the reporting forms available to foreign private issuers.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and as such, we have elected to comply with certain reduced U.S. public company reporting requirements.

On May 15, 2015, we effected a 16-to-one share consolidation and commenced trading on a post-consolidated basis on May 21, 2015. The consolidation was approved by our shareholders on May 7, 2015 at our annual and special meeting of shareholders. Except where otherwise noted, all information in this Annual Report on Form 10-K gives effect to such share consolidation.

Unless otherwise indicated, financial information in this Annual Report on Form 10-K has been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Unless otherwise noted herein, all references to “$,” “Cdn$,” “Canadian dollars,” or “dollars” are to the currency of Canada and “US$,” “United States dollars,” or “U.S. dollars” are to the currency of the United States.

Special Note Regarding Forward-Looking Statements

Some of the statements contained in this Annual Report on Form 10-K constitute “forward-looking statements” within the meaning of applicable securities laws. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions. The statements we make regarding the following matters are forward-looking by their nature and are based on certain of the assumptions noted below:

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements including, but not limited to, those factors identified under the caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K and in our filings and reports in the United States with the SEC available on the SEC’s web site at www.sec.gov, and in Canada with the various Canadian securities regulators, which are available online at www.sedar.com. Furthermore, unless otherwise stated, the forward-looking statements contained in this Annual Report on Form 10-K are made as of the date hereof, and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changes or otherwise, except as required by law.

EXCHANGE RATE INFORMATION

The following table sets forth, for each period indicated, the highest exchange rates, lowest exchange rates, average exchange rates (based on the average of the exchange rates on the last day of each month in such periods), and the exchange rates at the end of each period, for Canadian dollars expressed in terms of one U.S. dollar, based upon the noon rate of exchange as published by the Bank of Canada. The exchange rates set forth below demonstrate trends in exchange rates, but the actual exchange rates used throughout this Annual Report on Form 10-K may vary.

As of March 8, 2016, the noon rate of exchange published by the Bank of Canada was US$1.00 = Cdn$1.3389.

PART I

ITEM 1. BUSINESS.

We are a specialty central nervous system, or CNS, pharmaceutical company developing and preparing to commercialize a fast-acting, easy-to-use, sublingual thin film for the on-demand management of debilitating OFF episodes associated with PD. PD is a chronic, progressive neurodegenerative disease characterized by motor symptoms including tremor at rest, rigidity and impaired movement as well as significant non-motor symptoms such as cognitive impairment and mood disorders. The re-emergence of PD symptoms is referred to as an OFF episode. We have successfully completed a Phase 2 clinical trial for our product candidate, APL-130277, a sublingual formulation of apomorphine hydrochloride, or apomorphine. Apomorphine is the only molecule approved for acute, intermittent treatment of OFF episodes for advanced PD patients, but is currently only approved as a subcutaneous injection in the United States. APL-130277 is a “turning ON” medication designed to rapidly, safely and reliably convert a PD patient from the OFF to the ON state while avoiding many of the issues associated with subcutaneous delivery of apomorphine. It is designed to convert all types of OFF episodes, including morning OFF episodes, often considered the most difficult to treat. We have initiated our Phase 3 clinical program for APL-130277, relying on the abbreviated Section 505(b)(2) regulatory pathway in the United States, and we intend to submit an NDA near the end of 2016 or in early 2017.

PD is the second most common neurodegenerative disease worldwide. Over one million people in the United States and between four and six million people worldwide suffer from PD. There is no known cure or disease-modifying treatment currently available for PD. Current medications and treatments only control the major symptoms of the disease, with most drugs becoming less effective over time as the disease progresses. PD results from the death of cells that produce dopamine, a neurotransmitter critical for movement. Current drugs and therapies either aim to supplement dopamine levels in the brain, mimic the effect of dopamine in the brain by stimulating dopamine receptors, referred to as dopamine agonists, or prevent the enzymatic breakdown of dopamine, prolonging its effect. The standard of care for the treatment of symptoms of PD remains oral levodopa, a drug approved nearly 50 years ago. While oral levodopa is efficacious, there are significant challenges for physicians in creating a dosing regimen of oral levodopa that consistently maintains levodopa levels within a patient’s therapeutic range. Over time, the response to levodopa becomes less reliable and less predictable. As a result, the majority of PD patients experience OFF episodes despite taking PD medications.

OFF episodes are thought to occur when brain dopamine levels fall below a critical threshold to sustain relatively normal motor function, or ON. It can be a period of time when a patient’s PD medication is not working adequately to alleviate the patient’s PD symptoms, when the medication has a delayed effect or does not work at all. When experiencing an OFF episode, a PD patient is unable to perform simple daily tasks such as eating, bathing and dressing, thus becoming increasingly dependent on caregivers. OFF episodes are considered one of the greatest unmet medical needs facing PD patients. We believe the current addressable market for our product candidate, APL-130277, in the United States alone is approximately 400,000 patients.

There are four main types of OFF episodes; however, all are the result of insufficient dopamine in the brain. Regardless of OFF type, it has been demonstrated that on average more than two-thirds of a patient’s OFF time is actually spent waiting to turn ON after having taken levodopa. Current treatment options, other than apomorphine, consist of increasing the frequency of levodopa dosing or adding adjunctive PD medication, but these approaches do not address most of the OFF time (waiting to turn ON) and only can alleviate some of the end of dose wearing OFF. Apomorphine is currently the only approved acute, intermittent treatment to turn patients ON and provide rapid relief from OFF episodes (Apokyn® in the United States and ApoGo®, ApokinON® or Apomin® outside the United States). Apomorphine is the most potent and fast-acting of all the dopamine agonists, which are used to stimulate dopamine receptors in place of naturally released dopamine, with similar efficacy to levodopa. No other dopamine agonist is potent enough to turn a levodopa-requiring patient from the OFF state to the ON state in which normal motor function is restored. Apomorphine is currently only available in the United States as a subcutaneous injection. Injectable apomorphine is painful to use, and administration is complex and inconvenient, requiring in excess of 15 steps. It is difficult for a PD patient to use injectable apomorphine while they are in the OFF state, and often requires administration by a caregiver. The injection may also cause scarring (nodules), irritation and injection site reactions. As a result, despite its highly efficacious profile, the adoption of injectable apomorphine has been limited.

APL-130277 is a “turning ON medication” designed to quickly and easily address all types of OFF episodes in PD patients, including morning OFF episodes, regardless of the stage of disease. APL-130277 is apomorphine administered orally as a sublingual thin film that the patient inserts under his or her tongue. It is designed to dissolve over the course of a few minutes, allowing apomorphine to rapidly enter the blood stream. We have studied APL-130277 in approximately 140 healthy volunteers and patients in six clinical studies. The results from our Phase 2 clinical trial in PD patients met both the primary and secondary endpoints demonstrating a clinically meaningful improvement in motor function as early as 10 minutes and converting patients to full ON in as quickly as 15 minutes, with a durable effect lasting through 90 minutes. The study also demonstrated that APL-130277 treatment was safe and well-tolerated and has a safety profile comparable to all other dopamine agonists and levodopa. The sublingual delivery avoids the injection-related adverse events, or AEs, and the difficulty of use associated with the approved reference product, Apokyn. Our Phase 3 program is also designed to allow for a more favorable prescribing label compared to Apokyn’s. The suitability of the sublingual thin film form to deliver an active pharmaceutical ingredient, or API, to overcome challenges associated with sub-optimum delivery systems (including painful subcutaneous injections) has been well established with a number of thin film pharmaceutical products already commercialized in the United States. APL-130277 is designed to be easily administered and useable anywhere, anytime, generally with little or no assistance required, and is designed to make apomorphine accessible to all PD patients suffering from OFF episodes.

We retain global commercialization rights to APL-130277. In the United States, we expect to build sales and marketing infrastructure to commercialize APL-130277 ourselves. We believe that a targeted sales effort of approximately 100 sales representatives will enable us to effectively market APL-130277 to high-prescribing general neurologists and approximately 1,200 movement disorder specialists in the United States. We believe a sales force of this size can reach these physicians to provide for a robust commercial adoption of APL-130277. In addition, we intend to invest in education of both doctors and patients to foster widespread adoption of APL-130277.

If APL-130277 is approved by the FDA, we anticipate broad coverage at a reasonable price by third-party payors. For the main third-party payor channels (i.e., commercial health insurers and Medicare), we expect a mix of specialty tier coverage, preferred and non-preferred coverage, depending on the price level of APL-130277. At this time, we do not anticipate any significant utilization restrictions being imposed by third-party payors in the U.S. beyond ensuring appropriate use of APL-130277 according to the prescribing label. As certain patients could potentially be exposed to higher co-payments, we are currently exploring possible strategies to reduce the patient out-of-pocket cost of APL-130277.

Outside the United States, we may choose to partner with companies that have the necessary expertise to develop and commercialize APL-130277.

We have a substantial patent portfolio, including issued and pending patent applications in the United States and certain other jurisdictions that cover APL-130277 and its use in the treatment of PD. We also rely on significant know-how for the creation of an optimal and functional sublingual apomorphine strip system that combines key mechanical, chemical reaction and pharmacokinetic, or PK, attributes.

Our Vision and Strategy

Our vision is to build a specialty CNS pharmaceutical company focused on identifying, developing and commercializing therapeutics for CNS diseases, with a current focus on PD.

Key elements of our strategy to achieve our vision include:

Background

PD Overview

PD is a chronic, progressive neurodegenerative disease that results from the death of certain neurons in an area of the brain called the substantia nigra that controls movement. These neurons are responsible for producing dopamine, an essential brain signaling chemical, or neurotransmitter, that enables smooth, coordinated movements of both voluntary and involuntary muscles throughout the body. The lack of dopamine in patients with PD renders them unable to regulate motor control, producing characteristic symptoms including tremor at rest, rigidity (stiffness), slowness of movement (bradykinesia) and impaired balance and walking, as well as significant non-motor disturbances, including mood disorders, sleep impairment, fatigue, bowel and bladder dysfunction and dementia. By the time of PD diagnosis, approximately 60% to 80% of the dopamine producing cells have died. The onset of symptoms and speed of progression of disease differs for each patient afflicted with the disease. Initially, a patient may have little motor impairment; however, as the disease progresses, motor function and the severity of PD symptoms gradually worsens until a patient is no longer able to perform normal daily tasks such as eating, bathing and dressing.

The effects of PD have a devastating impact on the lives of patients and their families, impairing the ability of patients to work or care for themselves, leading to an increased reliance on caregivers and long-term care in their homes or in specialized facilities. More than one million people in the United States and an estimated four million to six million people globally suffer from PD with prevalence increasing with the aging of the population. The debilitating effects of PD result in a significant economic burden for patients, caregivers and the healthcare system in general.

Current PD Treatment Approaches and Inherent Limitations

There is no cure or disease-modifying treatment currently available for PD. Current treatment strategies are focused on the management and reduction of the major symptoms of the disease and related disabilities, with treatment becoming less effective over time as the disease progresses. The standard of care regimen for the symptomatic treatment of PD is levodopa, which was the first drug approved specifically for PD nearly 50 years ago. Levodopa is mostly administered orally in combination with a peripheral dopamine decarboxylase inhibitor, usually carbidopa, in order to increase the amount of levodopa that enters the brain, and to decrease the frequency of dopamine-related side effects (namely, nausea, dizziness and orthostatic hypotension). Levodopa improves motor function as long as it produces dopamine levels in the brain that remain within an individual’s therapeutic range. Carbidopa/levodopa is initially given three times a day, but its frequency of administration increases as the disease progresses. Carbidopa/levodopa must be started at the lowest dose and titrated slowly with changes on a weekly basis in order to lessen the occurrence of dopamine-related AEs.

Levodopa, however, has several limitations relating to its half-life, oral delivery and the motor dysfunction in PD patients:

As a result of these challenges, patients are unable to predictably and reliably count on existing medications or therapies to keep themselves in their therapeutic range and to treat their PD symptoms. Despite efforts by physicians to continually optimize and individualize patients’ regimens, the unreliability of oral levodopa results in episodes of unexpected and often rapid return of PD symptoms. The re-emergence of PD symptoms is referred to as an OFF episode. OFF episodes are thought to occur when brain dopamine levels fall below a critical threshold to sustain relatively normal motor function, or ON. It can be a period of time when a patient’s PD medication is not working adequately to alleviate the patient’s PD symptoms, when the medication has a delayed effect, or does not work at all. On the other hand, excessive levels of dopamine in the brain can cause dyskinesias, or extra, involuntary movements. As the graphic below depicts, as the disease progresses, a PD patient’s therapeutic window narrows and levodopa becomes less effective resulting in increased severity and duration of OFF episodes and ON time with dyskinesia.

 Narrowing Therapeutic Window Over Time

OFF episodes can be unpredictable or predictable and in some cases episodes may be preceded by non-motor symptoms such as pain, tingling, sweating, and anxiety, which can alert patients that motor-impairing symptoms are returning. OFF episodes are generally categorized into the following four main types, as shown in the below diagram, which illustrates one patient’s response to levodopa over the course of a day.

Unreliable Clinical Response to Levodopa

Source: Based on data and research by Dr. Fabrizio Stocchi.

OFF episodes can have a tremendous negative impact on patients’ daily lives. The potential for unexpected loss of motor function or the unpredictable onset of benefit of one’s PD medications can result in patients’ avoidance of certain social settings and hinder performance of simple daily tasks such as eating, bathing and dressing. Further, a patient’s varying consumption of dopamine from variable “daily stresses” as well as the loss of dopaminergic cells, exacerbates the frequency, duration and severity of OFF episodes. As the disease progresses, patients are often forced to leave the workforce and become increasingly dependent on caregivers. In a survey by the German Parkinson’s Association, it was found that OFF episodes and specifically, early morning akinesia, or morning OFF episodes, were the two most significant symptoms suffered by PD patients and the only two symptoms reported as “very important” by more than half of the patients surveyed. Other studies have shown that all types of OFF episodes have a significant negative impact on health-related quality of life in PD patients.

Addressing OFF Episodes

The management of OFF episodes and the need to rapidly and reliably turn patients ON is a significant unmet medical need. The variability associated with oral administration of levodopa results in nearly all PD patients experiencing OFF episodes, despite being on individually optimized regimens that are intended to keep patients within their therapeutic range. Patients simply cannot rely on oral levodopa to produce the same motor improvement at the same time from dose to dose so levodopa is unable to function to rapidly reverse the course of an evolving OFF episode or to improve or eliminate the symptoms experienced during an OFF episode.

Many attempts have been made to create formulations of levodopa that can address the unreliability of oral administration and reduce the occurrence of OFF episodes. These approaches, which include using controlled release formulations, effervescent tablets and chemical modification of levodopa, have been unable to fully address the challenge of achieving predictable and rapid transport across the gastrointestinal tract. Delivery of levodopa through the skin, or transdermally, has so far been unsuccessful in part due to poor skin permeability of levodopa thus requiring large amounts of levodopa to produce therapeutic effect through this route. An additional approach that has been approved in the United States and European Union for advanced patients who suffer from severe motor fluctuations despite optimized oral treatment utilizes a continuous administration of levodopa through a tube surgically implanted into the intestine. While this can be effective, it is very intrusive, requires a surgical procedure and brings with it both short-term and long-term complications related to the tubing and pump required for administration. Most dopamine agonists, which stimulate the dopamine receptors in place of naturally released dopamine, are less efficacious than levodopa, and may be limited by side effects related to stimulation of the subset of dopamine receptors that are more likely to result in impulse control disorders (such as compulsive gambling and compulsive sexual behavior). Drugs that inhibit the enzymatic breakdown of dopamine, such as catechol-o-methyl-transferase, or COMT, inhibitors, and monoamine oxidase Type B, or MAO-B, inhibitors are also limited in their effect due to the reduced levels of dopamine in the brain of the patient. Despite best medical manipulation, patients still suffer six or more hours of OFF time a day, likely representing multiple daily OFF episodes. Even after invasive, interventional treatments, such as deep brain stimulation or Duodopa/Duopa, patients still have two to three hours of OFF time daily and still have a need for medications that can convert them quickly to ON to reduce their OFF episodes. The manipulation of levodopa, as well as the addition of other PD medications only has marginal improvement on wearing OFF, cannot turn a patient from the OFF state to the ON state and has no effect on morning OFF, delayed ON, dose failure or sudden OFF. Studies have shown that two-thirds of OFF time is due to waiting to turn ON. Therefore, as these approaches are limited in efficacy, highly invasive and do not address the majority of OFF (waiting to turn ON), the majority of PD patients experiencing OFF episodes are still in great need of an easy-to-use and safe solution to rapidly and reliably convert them from the OFF state to the ON state so they can manage their day-to-day motor fluctuations.

Currently, the only approved on-demand treatment to rapidly turn a patient ON and relieve OFF episodes is a self-administered, subcutaneous injection of apomorphine, which is sold in approximately 40 markets worldwide and marketed in the United States under the trade name Apokyn, and outside the United States as ApoGo, ApokinON or Apomin. Apomorphine is a dopamine agonist that works to mimic the effect of dopamine in the body by binding to dopamine receptors. Although it is called apomorphine, it is not a narcotic and has no analgesic or addictive properties. Since the 1960s, apomorphine has been shown to be effective in treating PD symptoms. An injectable form of apomorphine was developed in the 1990s to treat advanced PD patients suffering from motor fluctuations.

Apomorphine is the most potent of all the dopamine agonists. Phase 3 data for Apokyn demonstrated a 17 point UPDRS Part III (which is a widely-used scale to evaluate the efficacy of PD treatments) improvement compared to placebo at 20 minutes for PD patients presenting in a morning OFF state. It is the fastest acting of all PD medications and the only dopamine agonist that can be used to rapidly turn patients from OFF to ON. Unlike other dopamine agonists, apomorphine generally acts on dopamine receptors that are less likely to lead to impulse control disorders. Types and frequency of dopaminergic AEs, such as nausea and orthostatic hypotension, are similar to other dopamine agonists and levodopa. Apomorphine in the injection form is administered together with an anti-emetic (trimethobenzamide in the United States and domperidone outside the United States) to decrease the risk of developing nausea. A recent double-blind study conducted by U.S. WorldMeds, LLC demonstrated that trimethobenzamide is only needed for approximately the first eight weeks of treatment as patients develop passive adaptation to any potential nausea associated with apomorphine. Apomorphine has been approved since 2004 and has over 10 years of safety data demonstrating that dopaminergic-related AEs, such as nausea and orthostatic hypotension, are comparable to every other approved dopamine agonist as well as various levodopa formulations.

However, there are a number of significant limitations with apomorphine as it is currently delivered. Apomorphine is currently only available as a subcutaneous injection, which can be very painful. The injection may cause scarring (nodules), irritation and injection site reactions. Furthermore, the current subcutaneous injection is complex and is inconvenient to administer, requiring in excess of 15 steps, including requiring patients to manually select their predetermined dosage on the subcutaneous injector. This can be particularly troublesome for a PD patient who is experiencing an OFF episode and may have limited motor function. Numerous studies have demonstrated that patients would prefer an oral route of administration compared to an injection.

Since the early 1990s, several groups have unsuccessfully attempted to reformulate apomorphine to avoid the injection route, including attempts to develop drug products delivered via nasal, inhaled, sublingual tablet and transdermal routes. Apomorphine cannot be formulated for oral ingestion because swallowing results in almost complete inaction as a result of liver metabolism.

Our Solution

Our product candidate, APL-130277, is an easy-to-administer, sublingual thin film formulation of apomorphine. It is a “turning ON” medication designed to rapidly, safely and reliably convert a patient from the OFF to the ON state and treat all types of OFF episodes, including morning OFF episodes. Our unique packaging is specifically designed to allow most patients, even while OFF, to open the packaging and self-administer the thin film. When patients are OFF or begin to experience the onset of an OFF episode, they simply peel open the packaging, remove the thin film and place it under their tongue, as illustrated in the figure below. The thin film dissolves over the course of a few minutes, allowing the apomorphine to enter into the blood stream quickly.

The sublingual thin film delivery of apomorphine avoids the normal gastrointestinal route of delivery used by most PD medications. This route is impaired as a result of the underlying PD effect on gastric motility. In addition, the oral ingestion of apomorphine is further compromised as 95% to 98% is metabolized via extensive sulfination in the liver, rendering it completely ineffective at doses required for treating PD. We believe that the sublingual thin film oral mucosa delivery of apomorphine avoids both of these mitigating barriers.

Further, some data suggests that the oral mucosal route of delivery for drugs targeting the CNS is more optimal than other routes (such as parenteral), for potentially more rapid and efficient access to the brain. As a result, we believe that sublingual delivery of apomorphine may reach the brain more quickly and more efficiently than subcutaneous apomorphine.

We believe APL-130277 has the following advantages:

According to the National Parkinson’s Foundation, there are over one million people with PD in the United States and approximately 50,000 to 60,000 new PD patients are diagnosed annually. The number of PD patients is expected to increase substantially due to the aging of the baby boomer population.

Our target market consists of PD patients who suffer at least one OFF episode per day. A 2014 paper by A. Rizos, et al. found that approximately 60% of PD patients suffer morning OFF episodes. We believe that nearly all patients that suffer morning OFF episodes suffer other types of OFF episodes. However, not all patients that suffer OFF episodes suffer OFF episodes daily. Therefore, we further estimate that two-thirds of the approximately 600,000 patients that experience OFF episodes suffer at least one OFF episode every day, resulting in an addressable population of approximately 400,000 patients.

Based on academic research and third-party surveys conducted on our behalf, we believe that of these 400,000 patients in the United States, approximately 20% are mild (experiencing one OFF episode per day), approximately 55% are moderate (experiencing two OFF episodes per day), and approximately 25% are advanced (experiencing three or more OFF episodes per day).

A number of other academic papers and research cite data that suggests OFF episodes may be significantly more prevalent. A recent MJFF survey of 3,000 patients with PD found that 90% suffer OFF episodes, 65% suffer at least two hours OFF daily, and 22% experience over four daily hours of OFF time. In addition, based on academic research conducted by Dorsey (2007), incidence of PD is expected to double by 2030 in Western Europe’s and the world’s most populous nations.

APL-130277 Preclinical and Clinical Data Overview

We have completed one pre-clinical hamster cheek pouch irritability study, four PK studies in healthy volunteers, and a Phase 2 study in PD patients. In our Phase 2 study, APL-130277 provided rapid, clinically meaningful improvement in motor function for PD patients in the OFF state, which was sustained through 90 minutes (the last point measured). There were robust and clinically meaningful changes in MDS-UPDRS Part III scores. The most common AEs were mild or moderate and commonly associated with dopaminergic medications. We met with the FDA in an end of Phase 2 meeting in February 2015, and have received guidance on completing the APL-130277 NDA registration package to be filed under the Section 505(b)(2) pathway. Based on the FDA’s feedback, we have commenced an efficacy study and a safety study, and have completed a bioavailability study. We also plan to complete a thorough QT study, if required. We plan to submit an NDA to the FDA near the end of 2016 or in early 2017, with expected approval in 2017 or early 2018.

CTH-103

CTH-103 was a single-center, Phase 1 study that evaluated the PK profile, safety and tolerability of two doses of APL-130277 compared to subcutaneous apomorphine in healthy volunteers. One cohort consisting of 13 volunteers received a single dose of APL-130277 10 mg, followed by a dose of subcutaneous apomorphine 2 mg the subsequent day. The other cohort consisting of 14 volunteers received a single dose of APL-130277 15 mg followed by a dose of subcutaneous apomorphine 3 mg on the subsequent day.

The PK results demonstrated that APL-130277 had a comparable PK profile to that of subcutaneous apomorphine. However, APL-130277 demonstrated a more rounded peak, lower maximal concentration and less steep rise to maximal concentration compared to subcutaneous apomorphine, leading to less dopaminergic AEs. This was evident as a higher incidence of nausea and vomiting was reported when subjects were given the subcutaneous apomorphine versus APL-130277. Additionally, there was a higher incidence of related AEs and more severe AEs with subcutaneous apomorphine compared to APL-130277. The only severe AE, seizure, was seen with subcutaneous apomorphine 3 mg. APL-130277 was demonstrated to be safe and well-tolerated and no subjects discontinued treatment with APL-130277 due to an AE. The following graph illustrates mean plasma concentration with subcutaneous versus sublingual apomorphine.

Mean Plasma Concentration With Subcutaneous Versus Sublingual Apomorphine

CTH-104

CTH-104 was a single-center, Phase 1 study that evaluated the PK profile, safety and tolerability of a single dose of APL-130277 25 mg in healthy volunteers. Eleven subjects were dosed with APL-130277 25 mg and two with placebo.

PK results demonstrated dose proportionality to lower doses and the PK curve remained rounded. The AEs reported were mild to moderate in severity with no serious AEs. Compared to healthy volunteers, PD patients have impaired dopaminergic function, which will result in a much lower rate of AEs at this dose compared to healthy volunteers. The following graph illustrates mean apomorphine plasma concentration with APL-130277 25 mg.

CTH-105

In November 2014, we completed the CTH-105 Phase 2 open-label multicenter study in which APL-130277 was assessed in 19 patients with PD who experienced OFF episodes, with a total duration of at least two hours of OFF episodes daily. All 19 patients in the study were historically responsive to levodopa and had to have predictable OFF episodes in the morning upon awakening. Patients were not allowed to take their first dose of levodopa and other PD medications in the morning and presented to the clinic in a morning OFF state, which is one of the most difficult to convert and maintain in an ON state. Patients confirmed to be in the OFF state were then given escalating doses of APL-130277, starting at 10 mg and increasing up to 30 mg in 5 mg increments, until a full ON was achieved, as documented by study staff, the patient and a clinician assessment. Patients could be dosed up to two times a day over three days. The MDS-UPDRS Part III score was measured pre-dose and at 15, 30, 45, 60 and 90 minutes after APL-130277 administration. The MDS-UPDRS Part III is a widely-used scale that combines a clinician’s evaluation on a 5-point scale of several motor functions, including movement, speech, tremor, posture and gait. MDS-UPDRS Part III is commonly used as the primary endpoint in clinical trials evaluating the efficacy of PD treatments. Those patients who converted from OFF to full ON subsequently received the same dose of APL-130277 to confirm the effect. All patients were pre-medicated for three days with the anti-emetic trimethobenzamide which was continued for the duration of this study. The mean age was 61.5 years, the average Hoehn and Yahr score (a commonly used system for describing how PD symptoms progress) was 2.2 (with a range of 1 to 3), the mean number of daily OFF episodes was 3.9 (with a range of 1 to 7) and the mean number of classes of PD medications was 3 (with a range of 1 to 5). In addition, the study involved 14 men and 5 women, the mean daily levodopa dose was 837 mg (with a range of 100 to 1,500) and the mean number of levodopa doses per day was 5.3 (with a range of 1 to 12).

Efficacy analyses consisted of three populations: (1) intent to treat, or ITT, population, which included all 19 subjects dosed; (2) per protocol population, which included the 15 patients with no dosing protocol deviations; and (3) responder population, which included those patients achieving a full ON response following dosing with APL-130277. The primary efficacy endpoint was the percentage of patients that turned ON following APL-130277 administration in the intent to treat population. In this population, 15 of 19 patients dosed achieved a clinically meaningful, full ON following APL-130277 administration. Two of the patients who did not turn ON following APL-130277 administration were dosed incorrectly (they were mistakenly told to swallow the strip immediately instead of allowing it to dissolve sublingually which results in first pass metabolism in minimal or no apomorphine being absorbed into the bloodstream), while the other two were dosed up to the maximum dose of 30 mg, suggesting a higher apomorphine dose may have been needed for such patients. All 15 of the patients that turned ON did so within 30 minutes of dosing, six of whom turned ON within 15 minutes. The mean time to full ON as reported by study staff was 24 minutes. Thirteen of the 15 patients that turned ON remained ON for at least 30 minutes, nine of whom remained ON for at least 60 minutes, with a mean ON of over 50 minutes. All five doses of APL-130277 used in the study (10, 15, 20, 25 and 30 mg) converted patients from the OFF state to a full ON state. Over half of the patients needed the lowest two doses (10 and 15 mg), while 80% used 20 mg or less. The mean dose required to convert patients to ON was 18.4 mg.

The secondary efficacy endpoint was the mean change in MDS-UPDRS Part III from pre-dose to 15, 30, 45, 60 and 90 minutes after dosing. The mean baseline MDS-UPDRS Part III in an OFF state was 41.4. All analysis populations demonstrated a large, clinically meaningful change in MDS-UPDRS Part III at all time points studied with a maximum mean change at any time-point of 18.9 points for the intent to treat population and 20.5 points for the responder population.

The graph below shows the mean change from baseline in MDS-UPDRS Part III and demonstrates a large robust statistically significant, clinically-meaningful change in MDS-UPDRS Part III at all time points studied.

Mean Change in MDS-UPDRS Part III From Pre-dose Over Study Period

Additionally, the percentage change in MDS-UPDRS Part III was approximately 30% or greater at all time points measured, with a maximum percentage change at any time point of -45.6% for the intent to treat population and -51.4% for the responder population. Mean percentage change of approximately 30% is generally considered a clinically meaningful level at which point patients turn ON. The onset of a clinically meaningful improvement in motor function was seen in as early as 10 minutes and lasted through 90 minutes, the last time point measured in this study.

The graph below shows the percentage change from baseline in MDS-UPDRS Part III for three analysis sets.

Percentage change in MDS-UPDRS Part III score

In the CTH-105 study, a total of 77 doses of APL-130277 were administered to the 19 patients who completed dosing. Treatment with APL-130277 was safe and well-tolerated by all of the patients in the study. Nausea was reported by four patients at doses ranging from 10 to 20 mg. One of these patients also experienced a mild episode of vomiting. There were no reports of nausea at higher doses by any of the patients in the study. There were no reports of local irritation, and only one patient experienced symptomatic orthostatic hypotension in the study. There were no related serious AEs, and no subjects discontinued due to an AE. The table below outlines the most common AEs in incidence (experienced by more than one patient) in the CTH-105 study, including AEs related specifically to the drug.

CTH-200

CTH-200 was a single-dose, crossover comparative bioavailability and PK study in healthy volunteers. This study was designed to allow us to use the safety and efficacy data for Apokyn in our NDA submission to the FDA, as well as a submission to European regulatory authorities. This short study compared a single dose of APL-130277 to a single dose of the subcutaneous apomorphine product, ApoGo. ApoGo is the European approved bioequivalent of the FDA approved product Apokyn. Results of this study are expected to be submitted to the FDA as part of an NDA submission, as well as to European regulatory authorities as part of a European submission. This short study was completed during the fourth quarter of 2015.

Preclinical Data

We conducted a cheek pouch irritation study in hamsters. Sixteen hamsters in each group were either treated three times a day for 28 days with placebo or APL-130277 2.08 mg (equivalent to the dose of a 30 mg strip in a human). The right and left cheek pouches were scored for irritation prior to the first dose and on study days 1, 2, 3, 4, 8, 14, 21 and prior to necropsy on day 29 according to the Draize scoring system (an acute toxicity test devised by the FDA). Assessment of the hamster cheek pouch revealed no signs of irritation over the 28 days of dosing either with APL-130277 treatment or placebo. On necropsy, there were no macroscopic or microscopic findings in either group.

APL-130277 Clinical and Regulatory Plan

On February 4, 2015, we held our end of Phase 2 meeting with the FDA. We will follow Section 505(b)(2) of the FDCA for the development of APL-130277 in the United States. The drug substance (apomorphine) in APL-130277 is identical to the API in the FDA approved subcutaneous injection, Apokyn, and APL-130277 is designed for similar usage.

The Section 505(b)(2) regulatory pathway will require us to provide statistically significant clinical evidence that PD patients experience improvement in their motor function as a result of delivery of apomorphine via the sublingual thin film route. Based on the end of Phase 2 meeting with the FDA, we anticipate that our label may have a broader indication to include all PD patients with OFF episodes and have a less rigorous titration scheme. This would be based on the CTH-301 protocol having a built-in adaptive component potentially allowing the open label titration procedure to be modified to an at-home titration as is done with other dopamine agonists. This change could be based upon the safety assessment completed by a drug safety monitoring board (DSMB) in the CTH-300 study. Further, we believe that our label may allow patients to be on an anti-emetic for a fewer number of weeks. The protocol of the CTH-300 study will allow the discontinuation of the anti-emetic at the discretion of the principal investigator. However, we can provide no assurance that such broader label will be approved by the FDA.

To achieve this, we have completed or currently plan to complete, as applicable, the following clinical studies:

In parallel, we will be performing the necessary scaled process yield improvements, process validation and stability studies as part of the chemistry, manufacturing and controls, or CMC, requirements for the filing of the NDA. All development has been performed according to current Good Manufacturing Practices, or cGMP, methodology. To date, we have successfully scaled up the manufacturing and packaging on a cGMP basis, on commercial scale equipment and initiated ICH stability studies. The Phase 3 clinical product was produced on this scaled basis as were the required additional registration batches. This commercial scale equipment and processes (subject to any improvements) will be used to manufacture the commercial product.

On May 28, 2015, we entered into a master services agreement with INC Research, LLC pursuant to which INC Research, LLC will provide certain support services relating to our clinical studies, including, without limitation, the CTH-300 study.

Upon completion of the efficacy and safety studies, as well as the CMC requirements, we intend to prepare and submit a Section 505(b)(2) NDA to the FDA near the end of 2016 or in early 2017.

Additionally, we plan to apply for regulatory approval in Europe. We expect to use a centralized submission after consulting with the European Medicines Agency, or EMA, in the first half of 2016. By studying the effects of APL-130277 in mild, moderate and advanced PD patients, we anticipate being able to broaden the indication from the current summary of product characteristics (currently only indicated in advanced PD patients that have failed other treatment options) in Europe.

For a discussion of the estimated amounts spent by us on research and development activities during our fiscal years ended December 31, 2015, 2014 and 2013, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

Sales and Marketing

We retain worldwide commercial rights to APL-130277. We expect to build sales and marketing infrastructure in the United States to support a product launch of APL-130277 if it is approved by the FDA. We plan to commercialize APL-130277 initially with approximately 100 specialty sales representatives who will promote APL-130277 to high-prescribing general neurologists and approximately 1,200 movement disorder specialists in the United States. We believe a sales force of this size can reach these physicians to provide for a robust commercial adoption of APL-130277. In addition, we intend to invest in education of both doctors and patients to foster widespread adoption of APL-130277. We expect to continue to incur significant expenses related to preparing for commercialization of APL-130277.

Our commercial team will also target payors covering commercial, Medicaid, and Medicare plans. According to our primary market research conducted in January 2015, 88% of surveyed payors viewed APL-130277 as an improvement over Apokyn. We will continue to work with payors, conduct advisory board meetings, and hold in-depth interviews to assist in the development of a pricing and rebating strategy to optimize formulary placement and coverage resulting in patient access and affordability of APL-130277.

In 2016, we are continuing market research to guide the further development of our marketing strategy and promotional plans and campaigns. This will include ongoing testing and market research with our target audiences (physician, payor and patient) of all branding, positioning, messaging and promotion activities.

We may also choose to partner with companies that have the necessary expertise to develop and commercialize APL-130277 outside the United States.

Technology and CMC Overview

Technology

The suitability of the sublingual thin film form to deliver API and overcome technical challenges associated with poor oral drug absorption, metabolism inactivation or other sub-optimum delivery systems (including painful subcutaneous injections) has been well-established with a number of thin film pharmaceutical products already commercialized in the United States. In addition, thin films are especially appropriate as a delivery system for geriatric and patient populations experiencing swallowing difficulties and dysphagia as observed with PD patients. We believe sublingual thin film delivery provides an efficient, consistent and easy-to-administer route of administration of apomorphine to PD patients.

 APL-130277 is a patented bilayer thin film designed to maximize apomorphine drug permeability while optimizing film disintegration properties/residence time, stability and buccal tissue compatibility. APL-130277 has been developed to include the following attributes:

The apomorphine drug concentration, excipients selection and composition have been optimized to ensure appropriate manufacturing and process. The drug concentration in the thin film is optimized to deliver manufacturing efficiency and flexibility as the various dosage strengths are obtained from a single formulation cut into the different film sizes.

Manufacturing

The ongoing CMC program encompasses a robust pharmaceutical development dossier with complete pre-formulation and formulation reports, Quality by Design-based process development activities, Phase 3 clinical and registration batches produced on commercial manufacturing and packaging equipment for APL-130277. The stability data generated will be submitted in the NDA to support the targeted expiration dating of at least 24 months.

All development and registration activities have been conducted with our manufacturing partner, ARx, a leader in thin film formulation development and manufacturing and a pioneer of the dosage form for delivery of APIs. Their U.S. facility has been audited and approved by the FDA as a manufacturing site for other commercial prescription products. The ARx site has also been approved by foreign regulatory agencies. ARx has the ability to manufacture APL-130277 at commercial scale as well as manufacture the APL-130277 Phase 3 clinical material, which is the same formula as the product intended for commercialization. We believe that ARx has sufficient capacity to support launch and future growth of APL-130277.

We are seeking to qualify a European-based supplier to manufacture commercial quantities of thin films as an additional manufacturing partner in both the United States and Europe.

On May 26, 2015, we entered into a master supply agreement with The Tapemark Company for the supply of custom packaging for the thin film for our product candidate, APL-130277.

Intellectual Property

The proprietary nature of, and protection for APL-130277, processes and know-how are important to our business. We have sought patent protection in the United States and certain other jurisdictions for APL-130277, where available and when appropriate. Our policy is to pursue, maintain and defend patent rights, whether developed internally or licensed or acquired from third-parties, and to protect the technology, inventions and improvements that are important to the development and commercialization of our product candidate. We also rely on trade secrets relating to our technology that may be important to the development of APL-130277.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for our current and future product candidates, the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third-parties from manufacturing, using, selling, offering to sell, or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidate and processes. For this and more comprehensive risks related to our intellectual property, see “Item 1A. Risk Factors—Risks Related to Our Intellectual Property” in this Annual Report on Form 10-K.

We have registered the domain names cynapsustherapeutics.com and cynapsus.ca, among various others.

Patents

Our patent portfolio seeks to cover APL-130277 in the United States, Europe, Japan and emerging markets, by way of pending applications and issued patents. Our patent portfolio consists of three patent families, which provide a range of broad and specific product and method claims.

Trade Secrets

In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. We seek to protect our proprietary data and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Trade secrets and know-how can be difficult to protect. Consequently, we anticipate that trade secrets and know-how will, over time, be disseminated within the industry through independent development, the publication of journal articles, and the movement of personnel skilled in the art from academic to industry scientific positions.

Competition

The development and commercialization of new drug products is highly competitive. Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to other treatments for OFF episodes of PD and those treatments currently in development or to be in development in the future.

We believe that the main competitors for APL-130277 are therapies that can limit the occurrence of OFF episodes and other therapies for the on-demand treatment of OFF episodes. These therapies include both pharmacotherapies and invasive therapies for advanced patients such as intestinal-infused levodopa.

If approved for the treatment of OFF episodes, APL-130277 would also compete against on-demand therapies that aim to specifically address OFF episodes, such as the levodopa capsules administered through an inhaler for the treatment of OFF episodes that are being developed by Acorda Therapeutics, Inc. APL-130277 would also compete with Apokyn, an injectable formulation of apomorphine, which is a STADA Arzneimittel AG product distributed by U.S. Worldmeds, LLC in the United States. At this time, Apokyn is the only therapy approved for the acute, intermittent treatment of OFF episodes for advanced PD patients. Apokyn was approved for this use in the United States in 2004 and in Europe in 1993 (in Europe, the approval is for PD patients who have failed all other treatment options). Although effective, its use in the United States, Europe and Japan has been limited due to the need for subcutaneous injections as well as the steps required for a patient to inject the product.

One or more of our competitors may utilize their expertise in sublingual delivery of drugs to develop and obtain approval for products that may compete with APL-130277. If approved, our product candidate may face competition in the target commercial areas. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for our product candidate if it is approved. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K.

ARx Agreement

On March 17, 2015, we entered into an agreement with ARx, whereby ARx agreed to provide us with formulation, CMC and clinical unit production of APL-130277 and certain related services to support our clinical studies of APL-130277. The agreement provides that ARx is the sole partner for formulation and process development activities for APL-130277 during the term of the agreement. Under the agreement with ARx, ARx assigned to us all of its right, title and interest in and to our patent family entitled “Sublingual Films” (including U.S. Patent Nos. 8,414,922 and 8,846,074 and their U.S. and foreign counterparts) of which ARx was previously a co-owner with us. In turn, we granted ARx a non-exclusive license to this patent family in all fields other than generic apomorphine sublingual thin film applications. In addition, under the terms of the agreement with ARx, all APL-130277-related formulation and process know-how and data generated pursuant to the agreement with ARx, or the Agreement IP, is owned by us. We granted ARx an exclusive, royalty-free, license to all Agreement IP in all fields, in respect of other products and formulations (not APL-130277). The agreement also provides that we retain sole ownership of all filings with respect to APL-130277.

Our agreement with ARx will continue for a period of five years, unless terminated earlier, and will automatically renew for successive one year periods thereafter. Either party may terminate the agreement (a) for convenience upon one hundred and eighty days’ notice to the other party, (b) for the uncured material breach of the other party, or (c) for certain bankruptcy and insolvency events of the other party. Upon termination of the agreement, the provisions as to future commercial supply and intellectual property, among others, expressly survive.

The parties further agreed that they anticipate entering into a commercial supply agreement, under which ARx will be the majority supplier of APL-130277 (on certain agreed terms and conditions), with respect to the United States prior to our filing for FDA approval of APL-130277. In consideration for the assignment and licenses of intellectual property rights by ARx under the agreement, we agreed to pay ARx a fee based on the invoiced cost incurred by us (less the costs of the related API and packaging), in the event of the manufacture of APL-130277 by a contingency supplier in the United States, and other suppliers outside of the United States. For as long as the commercial supply agreement remains in force, ARx is restricted from manufacturing any apomorphine sublingual thin film generic APL-130277 applications in the United States.

Business Relationship with the MJFF

We received two funding awards towards the development of APL-130277 from the MJFF. The first award of US$947,925 was awarded on July 31, 2012, and was used to complete the CTH-103 comparative study of APL-130277 versus subcutaneous injection. The results of the CTH-103 study were announced on January 13, 2014.

The second award of US$500,000 was awarded on July 8, 2014, and has been used to fund our CTH-105 Phase 2 clinical trials. This study and future trials of APL-130277 will be listed on Fox Trial Finder, an online tool from the MJFF that matches interested research volunteers with recruiting clinical studies. As part of the MJFF grant agreement, we are required to support further PD research by making up to US$1 million in contributions to the MJFF based on future potential sales of APL-130277.

On January 7, 2016, we announced that we’re working with the MJFF to incorporate wearable device technology into our Phase 3 clinical study of APL-130277. A subset of participants in our Phase 3 safety study will take part in a data analytics sub-study. Through a wearable device and the Fox Insight smartphone application (developed jointly by MJFF and Intel), volunteers will contribute data on movement and medication effect. The data will be securely collected, de-identified and evaluated using advanced analytics, then stored in a cloud platform that will allow researchers to potentially gain insights into PD, OFF episodes, and the efficacy of APL-130277. The technology platform and algorithms developed by Intel for the MJFF are intended as a proof of concept, demonstrating that data science technologies can contribute to the objective measurement of PD in interventional clinical studies.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

Review and Approval of Drugs in the United States

In the United States, the FDA regulates drugs under the FDCA and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the United States Department of Justice or other governmental entities.

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

Preclinical Studies

Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess safety of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive AEs and carcinogenicity, may continue after the IND is submitted.

Human Clinical Trials in Support of an NDA

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the United States National Institutes of Health, or NIH, for public dissemination.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and, more frequently, if serious AEs occur. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Submission of an NDA to the FDA

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently exceeding US$2.0 million.

NDAs for most new drug products are based on two full clinical trials that must contain substantial evidence of the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2). Section 505(b)(2) provides an alternate regulatory pathway to FDA approval for new or improved formulations or new uses of previously approved drug products. Specifically, Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon the FDA’s findings of safety and efficacy for an approved product that acts as the Reference Listed Drug, or RLD. The FDA may also require Section 505(b)(2) applicants to perform additional studies or measurements to support the change from the RLD. The FDA may then approve the new product candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. If the Section 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain preclinical or clinical trials of the new product.

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission has been accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. For standard and priority NDAs concerning new molecular entities, the FDA’s performance goal is to review and act on 90% of such NDAs within 10 months or six months of the 60-day filing date, respectively. For standard and priority NDAs that do not concern a new molecular entity, the FDA’s performance goal is to review and act on 90% of such NDAs within 10 months or six months of receipt, respectively.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with GMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to ensure compliance with GCP.

The FDA may also require submission of a REMS plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

If the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs.

Post-approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with GMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from GMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain GMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in:

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the United States Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Abbreviated NDAs for Generic Drugs

In 1984, with the passage of the United States Drug Price Competition and Patent Term Restoration Act, known as the Hatch-Waxman Act, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency.

The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. In cases where such exclusivity has been granted, an ANDA or Section 505(b)(2) application referencing that drug may not be filed with the FDA until the expiration of five years, unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. Currently, there is no unexpired non-patent data exclusivity in effect for apomorphine.

Because apomorphine has been previously approved by the FDA, APL-130277 will not be eligible for five years new chemical entity exclusivity. However, the FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. APL-130277 may be eligible for three years of exclusivity under the FDCA.

Hatch-Waxman Patent Certification and the 30-month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Currently, there are no unexpired patents listed in the Orange Book for Apokyn or any apomorphine product. One or more of our APL-130277 U.S. patents may be eligible for listing in the Orange Book.

Specifically, an ANDA applicant or Section 505(b)(2) applicant that is relying on studies conducted for an already approved product must certify with respect to each Orange-Book listed patent that:

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification.

If the ANDA or Section 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA or Section 505(b)(2) application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or Section 505(b)(2) application until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant.

Review and Approval of Drug Products in the European Union

Whether or not we obtain FDA approval for our product candidate, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of our product in those countries or jurisdictions. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

In the European Union, medicinal products can only be placed on the market after obtaining a Marketing Authorization, or MA. The MA application is based on the results of pharmaceutical tests, preclinical tests and clinical trials conducted on the medicinal product in question. There are two types of MA:

Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the European Union make an assessment of the risk-benefit balance of the drug on the basis of scientific criteria concerning its quality, safety and efficacy.

In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. This data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic or biosimilar application for eight years, after which generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for another two years. The overall 10-year period will be extended to a maximum of 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. We are still currently reviewing our submission options for APL-130277 in Europe.

Pharmaceutical Coverage, Pricing and Reimbursement

United States - If APL-130277 is approved by the FDA, we anticipate broad coverage by third-party payors, including Medicare Part D and commercial health insurance plans. We expect such coverage would be a mix of specialty tier, preferred and non-preferred coverage, depending on the price level of APL-130277. As such, patients would likely be exposed to various levels of co-payments/co-insurance costs, which may range from approximately $30 per month (covered on preferred tier) up to approximately 20% - 33% of the drug costs (specialty tier coverage). We are currently exploring possible strategies to reduce the patient out-of-pocket cost of APL-130277, as we’re seeking the broadest possible patient access for our product candidate.

European Union - The market access systems and requirements differ significantly among the five largest countries of the European Union. While France and Germany have centralized systems where the therapeutic evaluation and price negotiation is being conducted by national health authorities, Spain and Italy rely on centralized price negotiations and regional reimbursement decisions and utilization controls. Market access in the United Kingdom is heavily dependent on a cost-effectiveness assessment conducted by the National Institute of Clinical Excellence (NICE). Across such countries, APL-130277 may likely be compared to Apokyn, from clinical and pricing perspectives. In the absence of a superior clinical performance versus Apokyn, as demonstrated in pivotal clinical trials, we anticipate that the ultimate price of APL-130277 will likely be lower than the price of Apokyn (in the range of approximately a 10% - 20% discount).

New Legislation and Regulations

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our product candidate. It is impossible to predict whether further legislative changes will be enacted, or FDA regulations, guidance, policies or interpretations changed or what the impact of such changes, if any, may be.

Nonetheless, we do not anticipate changes in applicable legislation in the United States in 2016/2017. The United States healthcare system, including drug provisions, is under severe cost pressure. As a result, government and commercial third-party payors are increasingly using various tools to manage drug usage, including, for example, implementing more restrictions (e.g., strict prior authorizations, step edits, etc.), increasing patient cost-sharing and specialty tier coverage, and increasing integrated healthcare delivery, among others.

Even if we receive regulatory approval for commercial sale of our product, the marketability of our product may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, the emphasis on managed care and cost containment in the United States has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the ACA was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The Covered Outpatient Drugs final rule issued in January 2016 made further changes to the Medicaid Drug Rebate Program under the ACA. These changes take further steps to ensure that federal and state government will save money in managing Medicaid drug costs, including ensuring that states can collect rebates on more expensive infused, inhaled, instilled, implanted or injected drugs. Even if favorable coverage and reimbursement status is attained for our product candidate once we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Health Care Law and Regulation

Health care providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with providers, third-party payors and customers are subject to broadly applicable fraud and abuse and other health care laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations include the following:

Efforts to ensure that our business arrangements with third-parties will comply with applicable health care laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded health care programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded health care programs.

Environmental, Health and Safety Laws and Regulations

We are subject to, directly and indirectly, numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the use, generation, manufacture, distribution, storage, handling, treatment, remediation and disposal of hazardous materials and wastes. Our operations involve the use of hazardous materials, and the risk of injury, contamination or noncompliance with environmental, health and safety requirements cannot be eliminated. Although compliance with such laws and regulations has not had a material effect on our capital expenditures, earnings or competitive position, environmental, health and safety laws and regulations have tended to become increasingly stringent and, to the extent legal or regulatory changes occur in the future, they could result in, among other things, increased costs to us.

For a discussion of certain risks relating to government regulation, see “Item 1A. Risk Factors—Risks Related to Clinical Development and Regulatory Approval of Our Product Candidate” in this Annual Report on Form 10-K.

Financial Information About Geographic Areas

For each of our last three fiscal years, all long-lived assets were located in Canada, our country of domicile.

Employees

As of December 31, 2015, we had a total of 25 employees including executive, clinical, regulatory and administrative staff. None of our personnel are represented by a labour union and management considers its relations with its staff to be good. We will adjust our staffing complement in response to the demands and opportunities in the business.

Legal and Corporate Structure

We are a Canadian company incorporated under the Canada Business Corporations Act. We were initially incorporated on January 16, 2004. Following prior name changes, our legal and commercial name is now Cynapsus Therapeutics Inc. We have one wholly-owned subsidiary, Cynapsus Therapeutics (USA) Inc., a Delaware corporation. Adagio, our previously wholly-owned subsidiary incorporated under the Canada Business Corporations Act, amalgamated with Cynapsus effective as of January 1, 2016. For a discussion of our acquisition of Adagio in December 2011, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

Our head and registered office is located at 828 Richmond Street West, Toronto, Ontario M6J 1C9, Canada.

ITEM 1A. RISK FACTORS.

Investing in our common shares involves numerous risks. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes appearing in this Annual Report on Form 10-K, before deciding to invest in our common shares. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common shares could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements” for information relating to these forward-looking statements.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred net losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or sustain profitability.

We have incurred net losses during each fiscal period since our inception. Our net loss was Cdn$27.5 million for the year ended December 31, 2015. As of December 31, 2015, we had a deficit accumulated during the development stage of Cdn$60.0 million. We do not know when or whether we will become profitable. To date, we have not commercialized any products or generated any revenues from the sale of products, and we do not expect to generate any product revenues in the near future. Our losses have resulted principally from costs incurred in our research and development activities. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.

We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations primarily through the sale of equity securities and debt and, to a lesser extent, through grants from charitable foundations. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations (such as licensing agreements or the sale of a share of our revenue stream) or additional grants. We have not completed pivotal clinical trials for our product candidate and APL-130277 may not be ready for commercial launch in the U.S. market until late 2017 or early 2018, if ever. Even if we obtain regulatory approval to market our product candidate, our future revenues (if any) will depend upon a number of factors, including the size of any markets in which our product candidate has received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for our product candidate in those markets.

We expect to continue to incur significant expenses and increasing net losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

If we are required by the FDA, or any equivalent foreign regulatory authority, to perform clinical trials or studies in addition to those we currently expect to conduct, or if there are any delays in completing the clinical trials of APL-130277, our expenses could further increase.

To become and remain profitable, we must succeed in developing our product candidate, obtaining regulatory approval for it, and manufacturing, marketing and selling our product when and if we obtain regulatory approval in the United States or elsewhere. We may not succeed in these activities, and we may never generate revenue from our product sales that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, discover or develop other product candidates or continue our operations. A decline in our value could cause you to lose all or part of your investment.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Our cash was Cdn$104.9 million as of December 31, 2015. Based on our current operating plan, we believe that our existing cash will be sufficient to fund research and development and OG&A overhead expenditures, complete Phase 3 clinical studies and CMC requirements for the filing of an NDA near the end of 2016 or in early 2017 under the abbreviated Section 505(b)(2) regulatory pathway in the United States, continue to prepare for commercial launch of APL-130277 in the U.S. market in late 2017 or early 2018, commence initial regulatory and clinical activities for European market registration, and initiate other early stage pipeline development programs. We believe that we will continue to expend substantial resources for the foreseeable future developing APL-130277. These expenditures will include costs associated with research and development, conducting Phase 3 clinical trials, potentially obtaining regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any, and potentially acquiring new technologies. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidate. Our costs will increase if we suffer any delays in our Phase 3 clinical trials for APL-130277, including, without limitation, delays in enrollment of patients. We expect to continue incurring additional costs associated with operating as a public company in the United States, hiring additional personnel and expanding our facilities.

Our future capital requirements depend on many factors, including:

Our operating plan may change as a result of many factors currently unknown to us. As a result of these factors, we may need additional funds sooner than planned. In addition, we may seek additional capital due to strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate clinical trials or other development activities for our product candidates, or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidate.

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our product candidate on unfavorable terms to us.

We may seek additional capital through a variety of means, including through private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such equity or convertible debt securities may include liquidation or other preferences that are senior to, or otherwise adversely affect, your rights as a shareholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring indebtedness, making capital expenditures, declaring dividends or encumbering our assets to secure future indebtedness. If we raise additional funds through strategic partnerships with third-parties, we may have to relinquish valuable rights to our product candidate, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for APL-130277, or grant rights to develop and market our product candidate that we would otherwise prefer to develop and market ourselves or on terms less favorable than we might otherwise negotiate.

Fluctuations in exchange rates could result in foreign currency exchange losses and can affect our financial results, as well as the price of our common shares.

Our functional and presentation currency is the Canadian dollar and all amounts in our consolidated financial statements are expressed in Canadian dollars, unless otherwise noted. We fund the majority of our research and development expenses denominated in the U.S. dollar from our U.S. dollar bank account held in Canada and certain expenses denominated in the Euro on a cash call basis using the Euro converted from our U.S. dollar bank account held in Canada. Fluctuations in exchange rates, particularly those involving the U.S. dollar, may affect our costs. Where our operations conducted in U.S. dollars are reported in Canadian dollars, such fluctuations could result in changes in reported results that do not reflect changes in the underlying operations. For the year ended December 31, 2015, the effect of exchange rate changes on our cash was a foreign exchange gain of approximately Cdn$12.8 million as a result of the Canadian dollar weakening relative to the U.S. dollar. Nonetheless, any potential future appreciation of the Canadian dollar against the U.S. dollar could reduce any such foreign exchange gain, or result in a foreign exchange loss, and would adversely affect our results of operations. The fluctuation of foreign exchange rates affects the value of monetary assets and liabilities denominated in U.S. dollars. Generally, an appreciation of the Canadian dollar against the U.S. dollar results in a foreign exchange loss for monetary assets denominated in U.S. dollars, and a foreign exchange gain for monetary liabilities denominated in U.S. dollars. On the contrary, a devaluation of the Canadian dollar against the U.S. dollar results in a foreign exchange gain for monetary assets denominated in U.S. dollars and a foreign exchange loss for monetary liabilities denominated in U.S. dollars. We have not entered into any hedging transactions to reduce our exposure to foreign currency exchange risk. Even if we decide to enter into hedging transactions in the future, the availability and effectiveness of such hedges may be limited and we may not be able to successfully hedge all or part of our exposure or at all.

Canadian dollars drive our earnings per share; accordingly, our earnings per share may be translated into U.S. dollars by analysts and others. Given the foregoing, the value of an investment in our common shares to a U.S. shareholder will fluctuate as the U.S. dollar rises and falls against the Canadian dollar. As a result, U.S. and other shareholders seeking U.S. dollar total returns, including increases in the share price, are subject to foreign exchange risk as the U.S. dollar rises and falls against the Canadian dollar.

Risks Related to Clinical Development and Regulatory Approval of Our Product Candidate

Clinical failure may occur at any stage of clinical development, and we may never succeed in developing marketable products or generating product revenue.

Although the active ingredient in APL-130277, apomorphine, has been used safely as apomorphine hydrochloride in injectable form for treatment of PD for a number of years, it has not previously been approved or demonstrated to be safe in sublingual form. Our early encouraging clinical results for APL-130277 are not necessarily predictive of the results of our ongoing or future clinical trials, including our Phase 3 clinical trials, and the safety of our product candidate. Promising results in preclinical studies and early clinical trials of any product candidate may not be predictive of similar results in humans during later clinical trials. Any further clinical trials that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidate and the FDA could require us to complete additional safety, efficacy or other studies. If the results of our ongoing or future clinical trials are inconclusive with respect to the efficacy of our product candidate or if we do not meet the clinical endpoints with statistical significance or if there are safety concerns associated with our product candidate, we may be prevented from or delayed in obtaining marketing approval for our product candidate. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including, without limitation, changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, differences in the dosage amounts of APL-130277 and the response of patients to such amounts, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants.

Alternatively, even if we obtain regulatory approval, that approval may be for indications or patient populations that are not as broad as intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. For example, certain existing formulations of apomorphine outside the United States used for the treatment of OFF episodes (ApoGo, ApokinON and Apomin) are currently only indicated for advanced PD patients, and there can be no assurance that our product candidate will not be similarly limited in its indications for the treatment of PD. We may also be required by the FDA to perform additional or unanticipated clinical trials to obtain approval, including, without limitation, an ease-of-use study to be completed in patients in the morning OFF state; a Thorough QT study in healthy volunteers to determine the potential arrhythmia liability of our product candidate; additional toxicity studies; and additional safety and/or efficacy studies if the primary endpoint does not show a large enough delta, if the FDA finds a small safety signal or does not accept our final safety data, or is concerned with our study blinding. We could also be subject to additional post-approval or post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a modified Risk Evaluation and Mitigation Strategy. The failure to obtain timely regulatory approval of our product candidate, any product marketing limitations or a product withdrawal would negatively impact our business, results of operations and financial condition.

Delays or failure in the commencement, enrollment or completion of clinical trials of our product candidate could result in increased costs to us as well as a delay or failure in obtaining regulatory approval, or prevent us from commercializing our product candidate on a timely basis, or at all.

We cannot guarantee that clinical trials, including those associated with Phase 3 clinical trials for APL-130277, will be conducted as planned or completed on schedule, if at all. A delay or failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely commencement, enrollment or completion of clinical development include, without limitation:

Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of our product candidate.

Delays, including delays caused by the above or other factors, can be costly and could negatively affect our ability to complete a clinical trial, which could negatively affect the price of our common shares. If we are not able to successfully complete clinical trials, we will not be able to obtain regulatory approval and will not be able to commercialize our product candidate.

Clinical development, regulatory review and approval of the FDA and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidate, our business will be materially adversely affected.

Our product candidate will be subject to extensive governmental regulations relating to, among other things, development, clinical trials, manufacturing and commercialization. In order to obtain regulatory approval for the commercial sale of our product candidate, we must demonstrate through extensive preclinical studies and clinical trials that our product candidate is safe and effective for use in the target indication.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical trials, and depends upon numerous factors.

In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of our product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. We have not obtained regulatory approval for our product candidate in any jurisdiction, and it is possible that our product candidate or any product candidates we may seek to develop in the future will not obtain regulatory approval in any jurisdiction. In addition, we may gain regulatory approval for APL-130277 in some but not all of the jurisdictions available or some but not all of the target indications, resulting in limited commercial opportunity for our product candidate, if approved.

Applications for our product candidate could be delayed or could fail to receive regulatory approval for many reasons, including, but not limited to, the following:

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market our product candidate or any of our product candidates in the future, which would significantly harm our business, results of operations, and prospects.

We currently have only one product candidate, APL-130277, in clinical trials and are substantially dependent on this single product candidate. A failure of this product candidate in clinical development would adversely affect our business. If we decide to leverage success with our APL-130277 product candidate to develop other product opportunities, we may not be successful in such efforts.

APL-130277 is our only product candidate. If we were required to discontinue development of APL-130277, if APL-130277 does not receive regulatory approval, if we do not obtain our targeted indications for APL-130277 or if APL-130277 fails to achieve sufficient market acceptance for any indication, we would be delayed by many years in our ability to achieve profitability, if ever, and would materially adversely affect our business prospects and financial condition. Moreover, if we decide to leverage success with our APL-130277 product candidate to develop other product opportunities, we may not be successful in such efforts. In any such event, our business will be materially adversely affected.

If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.

We intend to market our product candidate, APL-130277, if approved, in international markets, including in Europe, either directly or through partnerships. Such marketing will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements, including initial regulatory and clinical activities for European market registration. The approval procedures vary from country to country and may require additional testing that we are not required to perform to obtain regulatory approval in the United States. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize APL-130277 or any of our future products in any market. If we and/or any future partner are unable to obtain regulatory approval for APL-130277 in one or more significant foreign jurisdictions, then the commercial opportunity for APL-130277, and our financial condition, will be adversely affected.

Even if we receive regulatory approval for APL-130277 for any indication, it will be subject to ongoing regulatory review, which may result in significant additional expense. Additionally, our product, if approved, could be subject to labeling and other restrictions, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product.

Any regulatory approvals that we receive for our product candidate may also be subject to limitations on the approved indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor safety and efficacy. In addition, if the FDA or comparable foreign regulatory authorities approve our product candidate, the manufacturing process, labeling, packaging, distribution, AE reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP and GCP, for any clinical trials that we conduct post-approval.

Later discovery of previously unknown problems with our approved product, including AEs of unanticipated severity or frequency, or with manufacturing operations or processes, or failure to comply with regulatory requirements, may result in, among other things:

The policies of the FDA and comparable foreign regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidate in the United States or foreign jurisdictions. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or not able to maintain regulatory compliance, we may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Our product candidate may cause undesirable side effects or have other properties that delay or prevent its regulatory approval or limit its commercial potential.

Undesirable side effects caused by our product candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities and potential product liability claims. Serious AEs deemed to be caused by our product candidate could have a material adverse effect on the development of our product candidate and our business as a whole. The AEs seen in clinical studies in healthy volunteers and PD patients to date reflect typical dopaminergic AEs seen with all dopaminergic medications. In particular, apomorphine, the active ingredient in APL-130277, has been associated with several safety and tolerability challenges, including nausea, vomiting, lowering of blood pressure and orthostatic hypotension (a form of low blood pressure that may cause lightheadedness or fainting). Our understanding of the relationship between APL-130277 and these events may change as we gather more information, and additional unexpected AEs may occur. As we complete additional clinical trials for our product candidate, the FDA could potentially require labeling recommending extensive physician monitoring during titration (same as with injectable apomorphine), which could adversely affect the commercial potential of our product candidate. In addition, although apomorphine has been in use for over 20 years, the long-term impact of using apomorphine in sublingual delivery form is not well understood. Although side effects exhibited by patients in our clinical trials have been limited so far, there can be no assurance that, in later clinical trials or if approved, our product candidate will not cause patients to experience unexpected side effects or expected side effects on a more severe level. Moreover, incorrect or improper use of our thin film (including if a patient swallows the film rather than allowing it to dissolve under the tongue) will result in the apomorphine drug not having its intended effect, and may result in additional unexpected side effects or AEs. While we intend to invest in physician and patient education to foster correct and proper use, there can be no assurance that our product candidate will be used correctly, and if used incorrectly, such misuse could hamper commercial adoption of our product candidate, if approved, at the rate we currently expect.

If we or others identify undesirable side effects caused by our product candidate either before or after receipt of marketing approval, a number of potentially significant negative consequences could result, including, without limitation:

Any of these events could prevent us from achieving or maintaining market acceptance of our product candidate and could substantially increase commercialization costs and materially adversely affect our business, prospects and financial condition.

Risks Related to Development and Manufacturing of Our Product Candidate and Our Reliance on Third-Parties

We rely on third-parties to supply APIs and manufacture and package our sublingual thin film formulation of apomorphine. We do not have long-term contracts with such manufacturers or suppliers.

We depend on third-party suppliers of APIs and third-party contract manufacturing organizations for all clinical supply and packaging of APL-130277, our sublingual thin film formulation of apomorphine, for use in our clinical trials. Any problems we experience with any such third-parties could delay the manufacturing of our product candidate and our clinical studies, which could harm our business and results of operations. We do not currently have a long-term manufacturing contract for our sublingual thin film formulation of apomorphine. We anticipate entering into a commercial supply agreement with ARx under which ARx will be the majority supplier of APL-130277 with respect to the United States prior to our filing for FDA approval of APL-130277. Under our existing agreement with ARx, we have agreed to pay ARx in certain circumstances a fee based on the invoiced cost incurred by us (less the costs of the related API and packaging) if we engage a different supplier for the manufacture of APL-130277, which could make it more costly in certain circumstances for us to use a contingency supplier for APL-130277.

We receive the API for use in our clinical trials of our product candidate on a purchase order basis. We may be unable to enter into long-term agreements or agreements that would provide sufficient quantities of any materials for our product candidate. Though we expect that third-party contract manufacturing organizations will be able to provide sufficient quantities of our sublingual thin film formulation of apomorphine for our Phase 3 clinical trials and for commercializing our product candidate if and when it is approved, we do not have agreements in place that guarantee the supply or the price of the materials for our product candidate, so there can be no assurance that we actually receive sufficient quantities. In particular, orders of our API, which is derived from the opium poppy, must be made with significant lead time due to limited supply of opium poppy produced for this purpose. In addition, production of our API is generally lower in priority to other opium poppy derivatives, such as morphine. In the event of supply limitations, due to adverse events (including poor germination conditions or catastrophic events) or otherwise, the supply of our API may be significantly reduced. Any such decrease in the availability or significant delay in the acquisition of our API or other material could considerably delay the manufacturing of our product candidate. If we are unable to arrange for alternative third-party sources, or to do so on commercially reasonable terms or in a timely manner, we may be delayed in completing our remaining clinical trials of, obtaining regulatory approval for and commercializing our product candidate. In addition, because we do not have any control over the process or timing of the supply of the API, there is greater risk that we will not have sufficient quantities of the API at an acceptable cost or quantity, which could delay, prevent or impair our development or commercialization efforts.

Reliance on third-party manufacturers and suppliers entails risks to which we would not be subject if we manufactured and packaged our product candidate ourselves, including reliance on the third-party for regulatory compliance and quality assurance, the possibility of breach of the agreement by the third-party because of factors beyond our control (including a failure to manufacture our product candidate in accordance with our specifications) and the possibility of termination or nonrenewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or damaging to us. In addition, our product candidate may compete with others for access to manufacturing facilities and capacity. There are a limited number of manufacturers that operate under cGMP regulations in the United States or elsewhere and that might be capable of manufacturing for us. We may therefore be subject to unexpected increases in the cost of our supplies or manufacture of our product candidate, which may far exceed the cost of producing a drug substance and require increased capital expenditures.

We are subject to a number of risks relating to our third-party service providers, any of which could substantially increase our costs and limit supply of our products.

If our offices or any facility of our third-party service providers, such as the CROs, contract manufacturing organizations and API suppliers that we utilize to develop and manufacture our product candidate, were to suffer an accident or a force majeure event such as major fire or explosion, major equipment failure or power failure lasting beyond the capabilities of its backup generators or other similar event, we could be materially adversely affected and any of our clinical trials could be materially delayed. Such an extended shut down may force us to procure a new research and development facility or another manufacturer or supplier, which could be time-consuming and costly. During any such period, we may be unable to receive our product candidate. For example, our API is derived from the opium poppy, which is sensitive to changes in weather and environmental conditions. Any adverse changes in such conditions or other catastrophe could significantly reduce the supply of API for our product candidate.

The process of manufacturing the active drug in APL-130277 is complex, highly regulated and subject to the risk of product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes or quality requirements for our product candidate could result in reduced production yields, product defects and other supply disruptions. If microbial, viral, or other contaminations are discovered in our product candidate or in the manufacturing facilities in which our product candidate is or will be made, such manufacturing facilities may need to be closed to investigate and remedy the contamination. Any adverse developments affecting manufacturing operations for our product candidate may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of our product candidate. We may also have to take inventory write-offs and incur other charges and expenses for our product candidate that fails to meet specifications, undertake costly remediation efforts, or seek more costly manufacturing alternatives. Also, as any third-party manufacturer we engage scales up manufacturing of our product candidate, if approved, it may encounter unexpected issues relating to the manufacturing process or the quality, purity and stability of the product candidate, and it may be required to refine or alter its manufacturing processes to address these issues. Resolving these issues could result in significant delays and may result in significantly increased costs. If any of our third-party manufacturers experience significant delays or other obstacles in producing any approved product for commercial scale, our ability to market and sell any approved products may be adversely affected and our business could suffer.

Our third-party manufacturers and suppliers are subject to FDA inspection from time to time. Failure by our third-party manufacturers and suppliers to pass such inspections and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidate may result in regulatory actions such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating licenses. Based on the severity of the regulatory action, our clinical or commercial supply of product and packaging and other services could be interrupted or limited, which could have a material adverse effect on our business. In addition, in order to obtain regulatory approval for our product candidate, our third-party manufacturers will be required to consistently produce the API used in our product candidate in commercial quantities and of specified quality on a repeated basis and document their ability to do so. This is referred to as process validation. If the third-party manufacturers are unable to satisfy this requirement, our business will be materially and adversely affected.

Furthermore, if our product candidate or any future product candidate is approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis or at commercially reasonable prices, and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our product and could lose potential revenue. It may take several years to establish an alternative source of supply for our product candidate and to have any new source approved by the FDA, the EMA or any other relevant regulatory authorities.

The ability of our third-party manufacturers and suppliers to continue manufacturing and supplying our product candidate depends on their continued adherence to cGMP regulations.

The manufacturing processes for our product candidate and API are governed by detailed cGMP regulations. Failure by third-party manufacturers, suppliers and quality operations units to adhere to established regulations or to meet a specification or procedure set forth in cGMP requirements could require that a product or material be rejected and destroyed. Adherence to cGMP regulations and the effectiveness of our quality control systems are periodically assessed through inspections of manufacturing facilities by regulatory authorities, including the FDA through its facilities inspection program. Such inspections could result in deficiency citations, which would require action to correct those deficiencies to the satisfaction of the applicable regulatory authorities. If critical deficiencies are noted or if recurrences are not prevented, we may have to recall product or suspend operations until appropriate measures are implemented. Since cGMP reflects ever-evolving standards, manufacturing processes and procedures must be regularly updated to comply with cGMP. We have limited or no control over our manufacturers’ or suppliers’ compliance with these regulations and standards. These changes may cause us to incur additional costs and may adversely impact our results of operations. For example, more sensitive testing assays (if and when they become available) may be required or existing procedures or processes may require revalidation, all of which may be costly and time-consuming and could delay or prevent the manufacturing of our product candidate. If the safety of any product candidate or API supplied is compromised due to our manufacturers’ or suppliers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our product candidate and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical studies, regulatory submissions, approvals or commercialization of our product candidate, entail higher costs or impair our reputation.

If we change the manufacturers of our product candidate, we may be required to conduct comparability studies evaluating the manufacturing processes of the product candidate.

The FDA and other regulatory authorities maintain strict requirements governing the manufacturing process for medical delivery systems, such as the thin films used to deliver the apomorphine sublingually in our product candidate. For example, when a manufacturer seeks to modify or change that process, the FDA typically requires the applicant to conduct non-clinical and, depending on the magnitude of the changes, potentially clinical comparability studies that evaluate the potential differences in the product candidate resulting from the change in the manufacturing process. Delays in designing and completing a comparability study to the satisfaction of the FDA or other regulatory agencies could delay or preclude our development plans and, thereby, delay our ability to receive marketing approval, or limit our revenue and growth once our product candidate is approved. In addition, in the event that the FDA or other regulatory agencies do not accept non-clinical comparability data, we may need to conduct a study involving dosing of patients comparing the two products. That study may result in a delay of the approval or launch of our product candidate.

We rely on third-parties to conduct clinical trials for APL-130277, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for APL-130277.

We have designed the clinical trials for APL-130277. However, we rely on CROs and other third-parties to assist in managing, monitoring and otherwise carrying out many of these trials. We compete with many other companies for the resources of these third-parties. There is a limited number of third-party service providers that specialize or have the expertise required to achieve our business objectives. The third-parties on whom we rely generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development and commercialization of our product candidate.

The FDA and comparable foreign regulatory authorities require compliance with regulations and standards, including GCP, for designing, conducting, monitoring, recording, analyzing, and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third-parties to conduct many of our clinical trials, they are not our employees, and we are responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan, protocol and other requirements. Our reliance on these third-parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities, and we cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations.

These CROs and third-parties are not our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our product candidate and clinical trials. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. If these third-parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, the clinical trials of our product candidate may not meet regulatory requirements. If clinical trials do not meet regulatory requirements or if these third-parties need to be replaced, such clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidate on a timely basis or at all.

We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize products, negatively impacting our operating results.

We continue to evaluate and, as deemed appropriate, we expect to enter into partnerships in the future when strategically attractive, with one or more pharmaceutical companies for the development and commercialization of APL-130277 in Europe, Japan and other countries. We face significant competition in seeking appropriate partners for our product candidate, and the negotiation process is time-consuming and complex. In order for us to successfully partner our product candidate, potential partners must view our product candidate as economically valuable in markets they determine to be attractive in light of the terms that we are seeking and other available products for development and commercialization or licensing by other companies. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval of our product candidate is delayed or sales of our approved product are disappointing. Any delay in entering into strategic partnership agreements related to our product candidate could delay the development and commercialization of our product candidate and reduce its competitiveness even if it reaches the market.

If we fail to establish and maintain strategic partnerships related to our product candidate, we will bear all of the risk and costs related to the development and commercialization of our product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise, such as regulatory expertise. This could negatively affect the development of our product candidate.

Risks Related to Commercialization of Our Product Candidate

Our future commercial success depends upon attaining significant market acceptance of our product candidate, if approved, among physicians, health care payors, patients and the medical community.

Even if we obtain regulatory approval for APL-130277, our product candidate may not gain market acceptance among physicians, health care payors (both private insurers and government programs, such as Medicare and Medicaid), patients and the medical community. Market acceptance of our product candidate, if approved, depends on a number of factors, including, without limitation:

Market acceptance is critical to our ability to generate significant revenue and become profitable. Our product candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If our approved product is not accepted by the market to the extent that we expect, we may not be able to generate significant revenue and our business would suffer.

The market for our product candidate may not be as large as we expect.

Our estimates of the potential market opportunity for APL-130277 include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys, and market research with health care providers, payors and patients. These assumptions include the prevalence and growth of PD, the percentage of patients receiving apomorphine as part of their treatment regimen, the percentage of these patients experiencing OFF episodes and the percentage of PD patients for which APL-130277 may be an effective treatment option. While we believe that our internal assumptions are reasonable, if any of these assumptions proves to be inaccurate, then the actual market for APL-130277 could be smaller than our estimates of our potential market opportunity. If the actual market for APL-130277 is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

In addition, final product labeling specifically lists the approved therapeutic indications, the types of patients that should be treated with the product, how frequently and for how long these patients should be treated and how treatment should be initiated. While physicians are free to use the product as they choose, we and any pharmaceutical company partner are prohibited from marketing or promoting the product outside these approved indications and uses. In addition, certain existing formulations of apomorphine outside the United States used for the treatment of OFF episodes (ApoGo, ApokinON and Apomin) are currently only indicated for advanced PD patients. Should final approved labeling differ materially from our proposed labeling, the actual market for APL-130277 could be smaller than our estimates of our potential market opportunity.

We currently have no sales and marketing staff and no product distribution network. If we are unable to establish sales and marketing arrangements, we will not be successful in commercializing our product candidate.

We do not currently have a sales or marketing infrastructure and do not have experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for our product candidate in the United States, Europe and other jurisdictions, we may enter into sales, marketing and distribution agreements with third-parties in respect of the commercialization of our product candidate in such jurisdictions. Entering into arrangements with third-parties to perform these services may result in lower product revenues and profitability, if any, than if we were to market, sell and distribute our product ourselves. In addition, we may not be successful in entering into arrangements with third-parties in the future to sell, market and distribute our product candidate or may be unable to do so on terms that are favorable to us. We likely will have little control over such third-parties, and any of them may fail to devote the necessary resources and attention to sell and market our product effectively.

In the future, we expect to build a focused sales and marketing infrastructure to market APL-130277 and, potentially, other product candidates in the United States, if and when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our products on our own include:

If we do not successfully establish sales, marketing and distribution capabilities, either on our own or in collaboration with third-parties, we will not be successful in commercializing our product candidates.

Reimbursement may be limited or unavailable in certain market segments for our product candidate, which could make it difficult for us to sell our product, if approved, profitably.

In both domestic and foreign markets, sales of our product, if approved, will depend, in part, on the extent to which the costs of our product will be covered by third-party payors, such as government health programs, commercial insurance and managed health care organizations. These third-party payors decide which drugs will be covered and establish reimbursement levels for those drugs. The containment of health care costs has become a priority of governments in the United States, Europe and elsewhere as well as private third-party payors. The prices of drugs have been a focus in this effort. Governments and private third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product, if approved, profitably. Cost-control initiatives could cause us to decrease the price we might establish for our product, if approved, which could result in lower than anticipated product revenues.

In the United States, we will need to obtain approvals for payment for our product candidate from private insurers, including managed care organizations, and from governmental health care programs including Medicare and Medicaid. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of our product candidate is:

Adverse pricing limitations may hinder our ability to recoup our investment in APL-130277, even if such product candidate obtains marketing approval.

Obtaining coverage and reimbursement approval for our product candidate from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our product candidate to the payor. Further, there is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs, including those with novel formulations such as APL-130277. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for our product candidate. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our product candidate. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize our product, if approved. In addition, in the United States, third-party payors are increasingly attempting to contain health care costs by limiting access, coverage, and the level of reimbursement of new drugs. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs.

Price controls may be imposed in foreign markets, which may adversely affect our future profitability.

In some countries other than the United States, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, additional clinical research may be required to enable comparison of the cost-effectiveness of our product candidate to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our product candidate is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

The impact on us of health care reform legislation and other changes in the health care industry and in health care spending is currently unknown, and may adversely affect our business model.

Our revenue prospects could be affected by changes in health care spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability, the method of delivery or payment for health care products and services could negatively impact our business, operations and financial condition.

There have been, and likely will continue to be, legislative and regulatory proposals and initiatives within the United States and foreign jurisdictions directed at broadening the availability of health care and containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. These legislative and/or regulatory changes may negatively impact the reimbursement for drug products, following approval, and thus affect our ability to sell our product profitably. The continuing efforts of governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce costs of health care may adversely affect:

Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant taxes or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the United States Budget Control Act, could have an adverse impact on our anticipated product revenues.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

Our industry is highly competitive and subject to rapid and significant technological change. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from many different sources, including large pharmaceutical, specialty pharmaceutical, biotechnology and generic drug companies and academic and government institutions. These organizations may have significantly greater resources than we do and conduct similar research, seek and obtain patent protection that may impact our freedom to operate and establish collaborative arrangements for research, development, manufacturing and marketing of products that compete with our product candidate. Our commercial opportunity could be reduced or eliminated if our competitors have products that are better in one or more of these categories. Furthermore, our competitors may, among other things: develop and commercialize products that are, or are perceived to be, safer, more effective, less expensive, or more convenient or easier to administer; obtain quicker regulatory approval; establish superior proprietary positions; have access to more manufacturing capacity; implement more effective approaches to sales and marketing; or form more advantageous strategic alliances.

We believe that the main competitors for APL-130277 are therapies that can limit the occurrence of OFF episodes and other therapies for the on-demand treatment of OFF episodes. These therapies include both pharmacotherapies and invasive therapies for advanced patients such as intestinal-infused levodopa that may be used in less advanced PD patients. Pharmacotherapies that can maintain consistent plasma concentration of levodopa over extended durations could reduce the occurrence of motor fluctuations and thus reduce the need for on-demand treatments for OFF episodes such as APL-130277. Approaches to achieve consistent levodopa plasma concentrations include new formulations of carbidopa/levodopa, a combination of levodopa and an inhibitor of DOPA decarboxylase (an enzyme found throughout the body) referred to as carbidopa, such as extended-release and intestinal infusions, and therapies that prolong the effect of levodopa. Extended-release formulations of oral and patch carbidopa/levodopa are being developed by groups including Impax Laboratories, Inc., Depomed Inc. and Neuroderm Ltd. A continuous administration of a gel-containing levodopa through a tube that is surgically implanted into the intestine is being developed by AbbVie Inc. This therapy, known as Duodopa/Duopa, is approved in the European Union and recently gained approval in the United States. Additionally, new formulations of dopamine agonist therapies (such as pramipexole and rotigotine) may be developed that are adjunctive to carbidopa/levodopa regimens and could reduce the frequency or severity of motor fluctuations.

If approved for the treatment of OFF episodes, APL-130277 would also compete against on-demand therapies that aim to specifically address OFF episodes, such as the levodopa capsules administered through an inhaler for the treatment of OFF episodes that are being developed by Acorda Therapeutics, Inc. If such treatment is approved before our product candidate, then such treatment could capture a large percentage of the market share for the treatment of OFF episodes and could affect the acceptance and adoption of our product candidate. At this time, an injectable formulation of apomorphine, Apokyn, which is a STADA Arzneimittel AG product distributed by U.S. Worldmeds, LLC in the United States, is the only therapy approved for the treatment of OFF episodes. Apokyn was approved for this use in the United States in 2004, and for advanced PD patients in Europe in 1993. As we complete additional clinical trials for our product candidate, if our pharmacokinetic data suggests that the time to ON associated with our product candidate is slower than with Apokyn, the commercialization of our product candidate could be adversely affected.

One or more of our competitors may utilize their expertise in sublingual delivery of drugs to develop and obtain approval for sublingual delivery products that may compete with APL-130277. If approved, our product candidate may face competition in the target commercial areas. The availability of our competitors’ products could limit the demand and the price we are able to charge for our product candidate that we may develop and commercialize.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain sufficient intellectual property protection for our product candidate, or if the scope of the intellectual property protection is not sufficiently broad, our ability to successfully commercialize our product candidate and compete effectively may be adversely affected.

Our success depends in large part on our ability to obtain and maintain protection with respect to our intellectual property and proprietary technology. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to APL-130277. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage that we may have, which could harm our business and ability to achieve profitability. In particular, our success depends in large part on our ability to obtain and maintain patent protection with respect to our product candidate in the United States, Europe, Japan, and other countries. The patentability of inventions and the validity, enforceability and scope of patents in the pharmaceutical field can be uncertain because they involve complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office, or USPTO, and other foreign patent offices in granting patents are not always applied uniformly or predictably, even within a given jurisdiction. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in patents. The same patent applications that we own may fail to result in additional issued patents in the United States, Europe, Japan, China, New Zealand, Indonesia, and South Africa, or at all in other countries, and if they do, such patents may not cover our product candidate in the United States, the European Union, Japan or in other countries. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we may fail to identify patentable aspects of our research and development prior to the deadlines for taking action to obtain patent protection on such research and developments. No patentability searches have been completed nor have written patentability opinions of counsel been obtained. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be used to invalidate an issued patent or prevent our pending patent applications from issuing as patents. The issuance of a patent is not conclusive as to the correctness of its inventorship, ownership, priority, validity or enforceability. Therefore, even if patents do successfully issue and even if such patents cover our product candidate, third-parties may challenge their validity, enforceability or scope, and such challenges may result in such patents being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide sufficient exclusivity for our product candidate, prevent others from designing around our claims or otherwise provide us with a competitive advantage.

Additionally, our confidentiality agreements and other contractual protections may not be adequate to protect our intellectual property from unauthorized disclosure, third-party infringement or misappropriation. We may not have adequate remedies in the case of a breach of any such agreements, and our trade secrets and other proprietary information could be disclosed to our competitors or others may independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technologies. ARx is a non-exclusive licensee in all fields other than generic apomorphine sublingual thin film applications of our patent family entitled “Sublingual Films”, of which ARx was previously a co-owner with us. Accordingly, ARx has some freedom to operate with respect to these patents. In addition, ARx is an exclusive licensee of all APL-130277-related formulation and process intellectual property generated under our agreement with ARx in all fields, in respect of other products and formulations (not APL-130277) and such license affects our use of such intellectual property and survives termination of the agreement. Additionally, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, Europe, and Japan, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, and this could make it difficult for us to stop the infringement of our patents. Any of these outcomes could impair our ability to prevent competition from third-parties, which may have an adverse impact on our business.

If the patent applications we own with respect to our product candidate fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity, it could dissuade companies from collaborating with us. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid and unenforceable or will be threatened by third-parties. Any successful challenge to these patents or any other patents owned by us could deprive us of rights necessary for the successful commercialization of our product candidate. Since patent applications in the United States, Europe, and Japan, and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to our product candidate. Furthermore, if third-parties have filed such patent applications, an interference proceeding in the United States can be initiated by the USPTO or a third-party to determine who was the first to invent the subject matter covered by the patent claims of our first two families of patents and applications. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after the utility application is filed. Various extensions may be available; however, the life of a patent and the protection it affords is limited. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market our product under patent protection could be reduced. Even if patents covering our product candidate are obtained, once the patent life has expired or lapsed for a product, we may be open to competition from similar or generic products. The launch of a generic version of our product in particular would be likely to result in an immediate and substantial reduction in the demand for our product, which could have a material adverse effect on our business.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the United States Leahy-Smith America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted, redefine what qualifies as relevant prior art, may affect patent litigation, and switch the United States patent system from a “first-to-invent” system to a “first-to-file” system. The USPTO recently developed new regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA, and in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the AIA will have on the operation of our business. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition. Further changes to the patent laws in the United States and other jurisdictions could also diminish the value of our patents and patent applications or narrow the scope of our patent protection.

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 non-compliance with these requirements. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In this event, competitors might be able to enter the market earlier than would otherwise have been the case. Any loss of patent protection could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market with a product that is similar to or the same as our product candidate.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe, misappropriate or otherwise violate our patents or our other intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary to enforce or defend our intellectual property rights, to protect our trade secrets and/or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Such litigation can be expensive and time consuming, and any such claims could provoke these parties to assert counterclaims against us, including claims alleging that we infringed their patents or other intellectual property rights. Many of our current and potential competitors have the ability to dedicate substantially greater resources to litigate intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third-parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management attention and resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not issuing as a patent. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during such litigation.

We could become subject to interference or derivation proceedings provoked by third-parties or brought by the USPTO or other foreign patent authorities to determine the priority of inventions or other matters of inventorship with respect to our patents or patent applications. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. We may also become involved in other proceedings, such as inter partes review, re-examination or opposition proceedings, before the USPTO, the European Patent Office, or other foreign counterparts relating to our intellectual property or the intellectual property rights of others. An unfavorable outcome in any such proceedings could require us to cease using the related technology or require us to attempt to license rights to the related technology from the prevailing party, or could cause us to lose valuable intellectual property rights. We may also become involved in disputes with others regarding the ownership of intellectual property rights. For example, where we jointly develop intellectual property with certain parties, disagreements may arise as to the ownership of the intellectual property developed pursuant to these relationships. If we are unable to resolve these disputes, we could lose valuable intellectual property rights.

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

Our commercial success depends, in part, on us not infringing the patents and proprietary rights of third-parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the pharmaceutical industry, including patent infringement lawsuits, interferences, oppositions and inter partes re-examination proceedings before the USPTO and corresponding foreign patent offices. Numerous United States and foreign issued patents and pending patent applications owned by third-parties exist in the field in which we are developing our product candidate. As the pharmaceutical industry expands and more patents are issued, the risk increases that our product candidate may be subject to claims of infringement of the patent rights of third-parties. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidate or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Demonstrating patent invalidity and/or non-infringement may be difficult. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

Third-parties may assert that we, our customers, licensees or parties indemnified by us are employing their proprietary technology without authorization or have infringed upon, misappropriated or otherwise violated their intellectual property or other rights. For example, we may be subject to claims that we are infringing the patent, trademark or copyright rights of third-parties, or that our employees have misappropriated or divulged their former employers’ trade secrets or confidential information. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidate, that we failed to identify. For example, applications filed before November 29, 2021 and certain applications filed after that date that will not be filed outside the United States remain confidential until issued as patents. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published only after a waiting period of approximately 18 months after the earliest filing, and sometimes not at all. Therefore, patent applications covering our product candidate could have been filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our product candidate or the use or manufacture of our product candidate.

If any third-party patents were held by a court of competent jurisdiction to cover aspects of our product candidate, including the materials, formulations, methods of manufacture, methods of analysis, and/or methods for treatment, the holders of any such patents would be able to block our ability to develop and commercialize our product candidate until such patent expired or unless we obtain a license from such third-party in order to use the infringing technology and continue developing and commercializing our infringing product candidate. Such licenses may not be available on commercially acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property licensed to us. Ultimately, we could be prevented from commercializing our product candidate, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidate. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. In the event of a successful claim of infringement against us, in addition to potential injunctive relief, we may have to pay substantial damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent, pay royalties, redesign our infringing product or obtain one or more licenses from third-parties, which may be impossible or require substantial time and monetary expenditure.

We have surveyed third party patents and pending patent applications for those patents and applications that may pose risks to the commercialization of APL-130277 in the U.S. and Europe, and we have identified possibly relevant patents and applications. The validity of several of such third-party patents is being challenged either in the U.S. district courts, at the USPTO, or both, by multiple third-parties. We are evaluating whether any licenses to such third party patents and patent applications are desirable or necessary. If the manufacture, sale or use of APL-130277 is ultimately found to infringe a valid and enforceable third-party patent claim, one or more of the aforementioned third-party patents could adversely impact our commercial efforts. A finding of infringement of a valid and enforceable third-party patent may result in our having to obtain a license from the relevant third-party patent owner in order to continue commercializing our product candidate, and such licenses may not be available on commercially reasonable terms or at all. If one or more of third-party patents were asserted against us, we expect to vigorously contest such an action.

We may face a claim of misappropriation if a third-party believes that we inappropriately obtained and used trade secrets of such third-party. We are not aware of any material threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we are found to have misappropriated a third-party’s trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop our product candidate, and we may be required to pay damages.

During the course of any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our product candidate or intellectual property could be diminished and it could have a substantial adverse effect on the market price of our common shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future marketing or distribution activities.

We will not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our product candidate throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as in the United States. These products may compete with our product candidate in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, 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. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

Confidentiality agreements with employees and third-parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our platform technology and discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Trade secrets can be difficult to protect. Any disclosure to, misappropriation by, or reverse engineering by third-parties of our confidential proprietary information or know-how could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements, non-disclosure and invention assignment agreements with our employees, consultants, and third-party scientific advisors, contractors and collaborators. However, we cannot be certain that such agreements have been entered into with all relevant parties, that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or outside scientific advisors might intentionally or inadvertently disclose our trade secret information to competitors.

Enforcing a claim that a third-party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes do not protect proprietary rights such as trade secrets to the same extent or in the same manner as United States courts. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Our Business and Industry

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our product candidate, conduct our clinical trials and commercialize our product candidate.

We are highly dependent on members of our senior management, including Anthony Giovinazzo, our President and Chief Executive Officer, Albert Agro, our Chief Medical Officer, Thierry Bilbault, our Chief Scientific Officer and Executive Vice President, CMC, and Andrew Williams, our Chief Operating Officer and Chief Financial Officer. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. Also, each of these persons may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.

Recruiting and retaining qualified scientific, clinical, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors, including our scientific founders, may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We may encounter difficulties in managing our growth and expanding our operations successfully.

As we seek to advance our product candidate through clinical trials and commercialization, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third-parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with one or more strategic partners, and with suppliers and other third-parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidate and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and, if necessary, sales and marketing personnel. Due to our limited financial resources, we may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company or disrupt our operations.

Our relationships with health care professionals, institutional providers, principal investigators, consultants, customers (actual and potential) and third-party payors are, and will continue to be, subject, directly and indirectly, to Canadian and United States federal and state health care fraud and abuse, false claims, marketing expenditure tracking and disclosure, government price reporting, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other government health care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations.

Our business operations and activities may be directly or indirectly subject to various fraud and abuse laws, including, without limitation, the United States federal Anti-Kickback Statute and the United States False Claims Act. If we obtain FDA approval for our product candidate and begin commercializing our product candidate in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by the federal government and state governments in which we conduct our business. The laws that may affect our ability to operate include, but are not limited to:

In addition, the regulatory approval and commercialization of our product candidate outside the United States will also likely subject us to foreign equivalents of the health care laws mentioned above, among other foreign laws.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reforms have strengthened some of these laws. Efforts to ensure that our business arrangements will comply with applicable health care laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other state and federal government health care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results.

We or our third-party providers may experience a security breach that could lead to the loss of critical information.

Our business is increasingly dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our and our third-party providers’ computer systems make them potentially vulnerable to breakdown, natural disaster, malicious intrusion, malware and other cyber-attacks, which may result in the impairment of production and key business processes. In addition, our and our third-party providers’ systems are potentially vulnerable to data security breaches—whether by employees or others—that may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, the value of which may be contingent upon maintaining its confidentiality, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, partners and others. This could require us to expend significant efforts and resources or incur significant expense to eliminate these problems and address related security concerns. Such disruptions and breaches of data security could have a material adverse effect on our business, reputation, and financial condition, could cause significant interruptions in our operations and impair our ability to conduct our business and comply with regulations during the occurrence of any such incident.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidate.

We face an inherent risk of product liability as a result of the clinical testing of our product candidate and will face an even greater risk if we commercialize our product candidate. For example, we may be sued if the product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidate. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in, without limitation:

Failure to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of our product candidate. We currently carry product liability insurance covering our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidate, which could adversely affect our business, financial condition, results of operations and prospects.

We and our third-party contract manufacturers and suppliers must comply with environmental, health and safety laws and regulations, and failure to comply with these laws and regulations could expose us to significant costs or liabilities.

We and our third-party manufacturers and suppliers are subject to numerous and increasingly stringent environmental, health and safety laws and regulations, including those governing laboratory procedures and the use, generation, manufacture, distribution, storage, handling, treatment, remediation and disposal of hazardous materials and wastes. Hazardous chemicals, including flammable and biological materials, are involved in certain aspects of our business, and we cannot eliminate the risk of injury or contamination from the use, generation, manufacture, distribution, storage, handling, treatment or disposal of hazardous materials and wastes. In the event of contamination or injury, or failure to comply with environmental, health and safety laws and regulations, we could be held liable for any resulting damages and any such liability could exceed our assets and resources. We could also incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. If our third-party manufacturers and suppliers fail to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our product candidate, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of our product candidate.

Risks Related to Our Common Shares

If we are a passive foreign investment company, or PFIC, for United States federal income tax purposes in any year, certain adverse tax rules could apply to U.S. Holders of our common shares.

Based on estimates of the composition of our income and the value of our assets, we believe that we may be a PFIC for United States federal income tax purposes for our current taxable year.

We will be classified as a PFIC for any taxable year for United States federal income tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the average percentage of our assets by value in that taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%.

PFIC status is determined annually and depends upon the composition of a company’s income and assets and the market value of its stock from time to time. Therefore, there can be no assurance as to our PFIC status for future taxable years. The value of our assets will be based, in part, on the then market value of our common shares, which is subject to change.

If we are a PFIC for any taxable year during which a U.S. Holder (as defined below) holds common shares, such U.S. Holders could be subject to adverse United States federal income tax consequences (whether or not we continue to be a PFIC). For example, U.S. Holders may become subject to increased tax liabilities under United States federal income tax laws and regulations, and will become subject to burdensome reporting requirements. If we are a PFIC during which a U.S. Holder holds common shares, such U.S. Holder may be able to make a “mark-to-market” election or a “qualified electing fund” election that could mitigate the adverse United States federal income tax consequences that would otherwise apply to such U.S. Holder. We will provide the information necessary for a U.S. Holder to make the qualified election; however, no assurance can be given that such information will be available for any lower-tier PFIC that we do not control.

The term “U.S. Holder” means a holder of a common share of Cynapsus that is for United States federal income tax purposes:

U.S. Holders are urged to consult their own tax advisers as to whether we may be treated as a PFIC and the tax consequences thereof.

We are eligible to be treated as an “emerging growth company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, (1) not being required to comply with the auditor attestation requirements of Section 404 of the United States Sarbanes-Oxley Act of 2002, (2) reduced disclosure obligations regarding executive compensation in our periodic reports, and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates exceeds US$700 million as of any June 30 before that time or if we have total annual gross revenue of US$1.0 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than US$1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

There is no assurance that an active trading market in our common shares will be sustained. We do not know what the market price of our common shares will be and, as a result, it may be difficult for you to sell your common shares.

Our common shares are listed on the Toronto Stock Exchange, or TSX, in Canada and the NASDAQ Global Market, or NASDAQ, in the United States. If a robust market for our common shares is not sustained, it may be more difficult for you to sell your common shares at an attractive price. Further, an inactive market in either Canada or the United States may also impair our ability to raise capital by selling common shares and may impair our ability to enter into strategic partnerships or acquire companies or products by using our common shares as consideration. We cannot predict the prices at which our common shares will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of our common shares may fall.

The market price of our common shares may be highly volatile, which could cause our investors to incur substantial losses.

The market price of our common shares could be subject to wide fluctuations in response to many risk factors listed in this “Risk Factors” section, and others beyond our control, including, but not limited to:

In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. As a result of this volatility, the price of our common shares may decline even if our operating results, underlying asset values or prospects have not changed. As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products, or to a lesser extent our markets. Continued listing of our common shares on the NASDAQ in addition to the TSX may increase share price volatility on the TSX and also result in volatility of the trading price on the NASDAQ because trading will be split between the two markets, resulting in less liquidity on both exchanges. In addition, different liquidity levels, volume of trading, currencies and market conditions on the two exchanges may result in different prevailing trading prices. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their share price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

We do not expect to pay any cash dividends for the foreseeable future.

You should not rely on an investment in our common shares to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common shares. Accordingly, investors must rely on sales of their common shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common shares.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of us and/or our common shares, or fail to publish reports on us and/or our common shares regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline.

As we are a Canadian company, it may be difficult for United States shareholders to effect service on us or to realize on judgments obtained in the United States.

We are incorporated under the federal laws of Canada, most of our directors and officers are residents of Canada, and most or all of our assets and the assets of such persons are located outside the United States. Consequently, it may be difficult for United States investors to effect service of process within the United States upon us or upon such persons who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under United States securities laws. A judgment of a United States court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated solely upon such civil liabilities.

As a foreign private issuer, we are subject to different United States securities laws and rules than a domestic United States issuer, which may limit the information publicly available to our shareholders.

We are currently a “foreign private issuer” as defined under U.S. securities laws. As a result, even though we are subject to the informational requirements of the Exchange Act, as a foreign private issuer, we are currently exempt from certain informational requirements of the Exchange Act to which domestic U.S. issuers are subject, such as the proxy solicitation rules under Section 14 of the Exchange Act. In order to be more easily compared to our principal competitors, we voluntarily file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, with the SEC, as if we were a U.S. domestic issuer. The insider reporting and short-profit provisions under Section 16 of the Exchange Act are not applicable to us, so our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell our common shares, as the reporting periods under the corresponding Canadian insider reporting requirements are longer. 

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses to us.

In the future, we might potentially lose our foreign private issuer status. If we are not a foreign private issuer, we would not be eligible to use certain foreign issuer forms and would be required to file periodic and current reports and registration statements on United States domestic issuer forms with the SEC. In addition, we may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements that are available to foreign private issuers. Further, if we engage in capital raising activities after losing our foreign private issuer status, there is a higher likelihood that investors may require us to file resale registration statements with the SEC as a condition to any such financing.

ITEM 1B.   UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2.   PROPERTIES.

Our principal executive office is located at 828 Richmond Street West, Toronto, Ontario, Canada M6J 1C9. We lease 3,200 square feet on the 1st floor and 3,000 square feet on the lower level, for a combined total useable floor area of 6,200 square feet, together with the shared use of common areas and parking facilities, pursuant to our lease expiring on January 31, 2019. We believe that the space available to us under our current lease will meet our needs for the foreseeable future and that additional space would be available to us on commercially reasonable terms, if required.

ITEM 3.    LEGAL PROCEEDINGS.

In the ordinary course of business, we may be from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, employment and other matters. While the outcome of these proceedings and claims cannot be predicted with certainty, as of December 31, 2015, we were not party to any legal or arbitration proceedings that may have, or have had in the recent past, significant effects on our financial position. No governmental proceedings are pending or, to our knowledge, contemplated against us. We are not a party to any material proceedings in which any director, officer or affiliate of ours, any owner of record or beneficially of more than five percent of our common shares, or any associate of any of the foregoing, is a party adverse to us or our subsidiary or has a material interest adverse to us or our subsidiary.

ITEM 4.   MINE SAFETY DISCLOSURES.

Not applicable.

PART II

Our common shares commenced trading on the TSX in Canada on November 28, 2014 under the symbol “CTH.” Prior thereto, our common shares were listed on the TSX Venture Exchange, or TSXV, in Canada.

Our common shares commenced trading on the OTCQX International in the United States on July 18, 2013 under the symbol “CYNAF.” Prior to such date, there was no market for our common shares in the United States. Our common shares commenced trading on the NASDAQ in the United States on June 18, 2022 under the symbol “CYNA.”

On May 15, 2015, we effected a 16-to-one share consolidation. See “General Matters” in this Annual Report on Form 10-K. Our common shares commenced trading on the TSX and OTCQX International on a post-consolidated basis on May 21, 2015. In connection with the share consolidation, our symbol on the OTCQX International was temporarily changed to “CYNAD.” All prices reflected in the table below in the columns labeled “As Adjusted,” for the periods ended on or prior to June 30, 2015, have been adjusted to give effect to the consolidation, and do not represent the actual high and low sale prices for the shares on the TSX, NASDAQ and OTCQX International, as applicable, for the periods presented.

NASDAQ and OTCQX International

The following table sets forth the high and low closing prices (in U.S. dollars) of our common shares on the NASDAQ and OTCQX International, as applicable, for the periods indicated during our two most recent fiscal years:

TSX and TSXV

The following table sets forth the high and low closing prices (in Canadian dollars) of our common shares on the TSX and TSXV (as reported by such exchanges), as applicable, for the periods indicated during our two most recent fiscal years:

Shareholders

As of March 8, 2016, there were approximately 113 record holders of our common shares (as registered shareholders), based on information provided by our transfer agent, TMX Equity Transfer Services.

Dividends

We have never declared or paid any cash dividends on our common shares. We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant. See “Item 1A. Risk Factors—Risks Related to Our Common Shares—We do not expect to pay any cash dividends for the foreseeable future” in this Annual Report on Form 10-K.

Securities Authorized for Issuance under Equity Compensation Plans

The following table presents information as of December 31, 2015, with respect to equity compensation plans under which our common shares are authorized for issuance.

Certain Canadian Federal Income Tax Considerations

The following is, as of the date hereof, a summary of the principal Canadian federal income tax considerations generally applicable under the Income Tax Act (Canada) and the regulations promulgated thereunder, or the Tax Act, to a holder who acquires, as beneficial owner, our common shares, and who, for purposes of the Tax Act and at all relevant times: (i) holds the common shares as capital property; (ii) deals at arm’s length with, and is not affiliated with, us; (iii) is not, and is not deemed to be resident in Canada; and (iv) does not use or hold and will not be deemed to use or hold, our common shares in a business carried on in Canada, or a Non-Resident Holder. Generally, our common shares will be considered to be capital property to a Non-Resident Holder provided the Non-Resident Holder does not hold our common shares in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. Special rules, which are not discussed in this summary, may apply to a Non-Resident Holder that is an insurer that carries on an insurance business in Canada and elsewhere. Such Non-Resident Holders should seek advice from their own tax advisors.

This summary is based upon the provisions of the Tax Act in force as of the date hereof, all specific proposals, or the Proposed Amendments, to amend the Tax Act that have been publicly and officially announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and management’s understanding of the current administrative policies and practices of the Canada Revenue Agency, or the CRA, published in writing by it prior to the date hereof. This summary assumes the Proposed Amendments will be enacted in the form proposed. However, no assurance can be given that the Proposed Amendments will be enacted in their current form, or at all. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Proposed Amendments, does not take into account or anticipate any changes in the law or any changes in the CRA’s administrative policies or practices, whether by legislative, governmental or judicial action or decision, nor does it take into account or anticipate any other federal or any provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein.

Non-Resident Holders should consult their own tax advisors with respect to an investment in our common shares. This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any prospective purchaser or holder of our common shares, and no representations with respect to the income tax consequences to any prospective purchaser or holder are made. Consequently, prospective purchasers or holders of our common shares should consult their own tax advisors with respect to their particular circumstances.

Currency Conversion

Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of our common shares must be converted into Canadian dollars based on the exchange rates as determined in accordance with the Tax Act. The amounts subject to withholding tax and any capital gains or capital losses realized by a Non-Resident Holder may be affected by fluctuations in the Canadian-U.S. dollar exchange rate.

Disposition of Common Shares

A Non-Resident Holder will not generally be subject to tax under the Tax Act on a disposition of a common share, unless the common share constitutes “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the Non-Resident Holder is not entitled to relief under an applicable income tax treaty or convention.

Provided the common shares are listed on a “designated stock exchange”, as defined in the Tax Act (which currently includes the TSX and NASDAQ) at the time of disposition, the common shares will generally not constitute taxable Canadian property of a Non-Resident Holder at that time, unless at any time during the 60-month period immediately preceding the disposition the following two conditions are satisfied concurrently: (i) (a) the Non-Resident Holder; (b) persons with whom the Non-Resident Holder did not deal at arm’s length; (c) partnerships in which the Non-Resident Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships; or (d) any combination of the persons and partnerships described in (a) through (c), owned 25% or more of the issued shares of any class or series of our shares; and (ii) more than 50% of the fair market value of our shares was derived directly or indirectly from one or any combination of: real or immovable property situated in Canada, “Canadian resource properties”, “timber resource properties” (each as defined in the Tax Act), and options in respect of, or interests in or for civil law rights in, such properties. Notwithstanding the foregoing, in certain circumstances set out in the Tax Act, the common shares could be deemed to be taxable Canadian property. Even if the common shares are taxable Canadian property to a Non-Resident Holder, such Non-Resident Holder may be exempt from tax under the Tax Act on the disposition of such common shares by virtue of an applicable income tax treaty or convention. A Non-Resident Holder contemplating a disposition of common shares that may constitute taxable Canadian property should consult a tax advisor prior to such disposition.

Receipt of Dividends

Dividends received or deemed to be received by a Non-Resident Holder on our common shares will be subject to Canadian withholding tax under the Tax Act. The general rate of withholding tax is 25%, although such rate may be reduced under the provisions of an applicable income tax convention between Canada and the Non-Resident Holder’s country of residence. For example, under the Canada-United States Income Tax Convention (1980) as amended, or the Treaty, the rate is generally reduced to 15% where the Non-Resident Holder is a resident of the United States for the purposes of, and is entitled to the benefits of, the Treaty.

Performance Graph

The information provided under the heading “Performance Graph” shall not be considered “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference in any filing under the United States Securities Act of 1933, as amended (or the Securities Act), or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

The following graph compares the cumulative total return attained by shareholders on Cynapsus’s common shares on the NASDAQ relative to the cumulative total returns of each of the NASDAQ Composite Index and the NASDAQ Biotechnology Index. Investments of US$100 are assumed to have been made in our common shares on the NASDAQ on June 18, 2022 (i.e., the date when our common shares began trading on NASDAQ following registration of our common shares under the Exchange Act), and on the NASDAQ Composite Index and the NASDAQ Biotechnology Index on May 31, 2015, and their relative performances are tracked through December 31, 2015.

Sales of Unregistered Securities

Set forth below are certain sales of our securities sold by us during the quarter ended December 31, 2015, which were not registered under the Securities Act.

From December 16, 2021 to December 31, 2015, we issued an aggregate of 10,375 common shares pursuant to the exercise of warrants, for aggregate cash consideration of Cdn$95,450. Such common shares were issued outside the United States to persons that are not “U.S. persons” (as both such terms are defined in Regulation S under the Securities Act, or Regulation S), in reliance upon Regulation S.

Use of Proceeds

On June 17, 2015, our registration statement on Form F-10 (File No. 333-204226) was declared effective by the SEC for our initial public offering in the United States pursuant to which we sold an aggregate of 5,175,000 common shares (inclusive of 675,000 common shares sold by us pursuant to the full exercise of an option granted to the underwriters in connection with the offering) at a price to the public of US$14.00 per share for aggregate gross offering proceeds of approximately US$72.5 million. Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as sole book-running manager for the offering, Nomura Securities International, Inc. acted as a lead manager and Noble Financial Capital Markets acted as co-manager. On June 23, 2015, we closed the sale of such common shares, resulting in net proceeds to us of approximately US$66.4 million after deducting underwriting discounts and commissions of approximately US$5.1 million and other offering expenses of approximately US$1 million. No payments were made by us to directors, officers or persons owning ten percent or more of our common shares or to their associates, or to our affiliates.

There has been no material change in the planned use of proceeds from our initial public offering as described in our prospectus that forms a part of our registration statement on Form F-10 (File No. 333-204226), as supplemented and filed with the SEC on June 18, 2015. As of December 31, 2015, we held all of the funds received in cash.

Issuer Purchases of Equity Securities

Not applicable.

ITEM 6.     SELECTED FINANCIAL DATA.

The following tables set forth our selected consolidated financial data for the periods and as of the dates indicated. You should read the following selected consolidated financial data in conjunction with, and it is qualified in its entirety by reference to, our historical financial information and other information provided in this Annual Report on Form 10-K, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K.

The selected consolidated statements of operations data for the years ended December 31, 2015, 2014 and 2013, and the selected consolidated statements of financial position data as of December 31, 2021 and 2014, are derived from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of financial position data as of December 31, 2021 is derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. The historical results set forth below are not necessarily indicative of the results to be expected in future periods. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB.

No dividends have been paid in any of the fiscal years ended December 31, 2015, 2014 or 2013.

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, or MD&A, relates to the financial position of Cynapsus for the years ended December 31, 2021 and 2014 and its results of operations for the years ended December 31, 2015, 2014 and 2013 and should be read in conjunction with the audited consolidated financial statements and related notes for such years. Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

In this MD&A, unless otherwise indicated, all dollar amounts are expressed in Canadian dollars. The term “dollars” and the symbols “$” and “Cdn$” refer to Canadian dollars and the term “U.S. dollars” and the symbol “US$” refer to United States dollars.

 The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements and you are cautioned not to place undue reliance on forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof.

Overview

Cynapsus is a specialty CNS, pharmaceutical company developing and preparing to commercialize a Phase 3, fast-acting, easy-to-use, sublingual thin film for the on-demand management of debilitating OFF episodes associated with PD. PD is a chronic, progressive neurodegenerative disease characterized by motor symptoms including tremor at rest, rigidity and impaired movement as well as significant non-motor symptoms such as cognitive impairment and mood disorders. The re-emergence of PD symptoms is referred to as an OFF episode. We have successfully completed a Phase 2 clinical trial for our product candidate, APL-130277, a sublingual formulation of apomorphine hydrochloride, or apomorphine. Apomorphine is the only molecule approved for acute, intermittent treatment of OFF episodes for advanced PD patients, but is currently only approved as a subcutaneous injection in the United States. APL-130277 is a “turning ON” medication designed to rapidly, safely and reliably convert a PD patient from the OFF to the ON state while avoiding many of the issues associated with subcutaneous delivery of apomorphine. It is designed to convert all types of OFF episodes, including morning OFF episodes, often considered the most difficult to treat. We have initiated our Phase 3 clinical program for APL-130277, relying on the abbreviated Section 505(b)(2) regulatory pathway in the United States, and we intend to submit a NDA, near the end of 2016 or in early 2017.

 Since our inception in 2004, we have devoted substantially all of our resources to business planning, capital raising and identifying and developing our product candidates, preparing for and conducting clinical studies of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We have funded our operations primarily through the public and private placements of common shares and warrants, the exercise of warrants, and the issuance of secured debentures. From inception, we have received net proceeds of approximately Cdn$149.0 million from such transactions. As of December 31, 2015, we had cash in the amount of Cdn$104.9 million.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We also expect expenses will increase substantially in connection with our ongoing activities, as we:

 We are a clinical stage company and have not generated any revenue. We have incurred significant losses and negative cash flows from operations since our inception. As of December 31, 2015, we had a deficit accumulated of Cdn$60 million and expect to continue to incur significant losses for the foreseeable future. Management expects our research and development and general and administrative expenses to continue to increase substantially for the foreseeable future and, as a result, we may need additional capital to fund operations, which may be obtained through one or more public or private equity or debt financings, or other sources such as potential licensing or partnership arrangements.

Recent Developments

 On February 4, 2015, we held our end of Phase 2 meeting with the FDA. We will follow Section 505(b)(2) of the FDCA for the development of APL-130277 in the U.S. The drug substance (apomorphine) in APL-130277 is identical to the API in the FDA approved subcutaneous injection, Apokyn, and APL-130277 is designed for similar usage but potentially for a broader range of PD patients. The Section 505(b)(2) regulatory pathway will require us to provide statistically significant clinical evidence that PD patients experience improvement in their motor function as a result of delivery of apomorphine via the sublingual thin film route compared to placebo.

 On March 11, 2015, following the End-of-Phase 2 meeting with the FDA, we announced that an agreement was reached on the design, duration and size for the Phase 3 program clinical studies, as well as for primary and key secondary endpoints. As a result, we have initiated a pivotal Phase 3 program evaluating the safety and efficacy of APL-130277 in PD patients.

On March 12, 2015, Tamar Howson was appointed to our board of directors. Ms. Howson is a seasoned business development executive within the pharmaceutical industry, having formerly served as Senior Vice President at both Bristol-Myers Squibb and SmithKline Beecham. Ms. Howson currently serves as a business development and strategy consultant to biopharmaceutical companies and she also serves as a director at Oxigene, Inc., Organovo Holdings Inc. and Enzymotic Ltd. She has formerly served as a director at several biotechnology companies, including Actavis plc, Ariad Pharmaceuticals, Inc., Cardax, Inc., Idenix Pharmaceuticals Inc., NPS Pharmaceuticals Inc., SkyePharma PLC and Warner Chilcott plc.

On March 31, 2015, we announced the completion of a private placement of 1,377,467 common shares for gross proceeds of approximately Cdn$21.0 million (approximately US$17 million). The financing was led by funds associated with OrbiMed, Aisling Capital and Venrock, with participation from various other institutional investors, including existing shareholders Broadfin Capital, Sphera Funds Management, Pura Vida Investments, DAFNA Capital Management and Dexxon Holdings Ltd.

On April 22, 2015, we presented data at the American Academy of Neurology annual meeting that demonstrated that a minimum efficacious plasma threshold of apomorphine was required to convert a patient from the OFF state to the ON state. APL-130277 reached this threshold in as early as 10 minutes and levels were maintained over this threshold through 90 minutes after dosing. This translated to clinically meaningful improvement in motor function as assessed by the Movement Disorders Society UPDRS Part III (a newer version of the UPDRS Part III scale), or MDS-UPDRS Part III, score.

On May 15, 2015, we announced the filing of a registration statement with the SEC relating to our initial public offering in the United States of our common shares and the filing of an application to list our common shares on The NASDAQ Stock Market LLC. We also announced an amendment to our articles to consolidate our issued and outstanding common shares on the basis of one post-consolidation common share for 16 pre-consolidation common shares to facilitate the proposed listing on The NASDAQ Stock Market LLC.

On June 4, 2015, we announced the issuance of a U.S. Patent No. 9,044,475 providing broad coverage for sublingual apomorphine.  This patent is solely owned by Cynapsus and granted with claims that provide us with protection of pharmaceutical dosage forms that combine apomorphine hydrochloride particles with an organic pH neutralizing agent and a permeation enhancer in a sublingual film. This patent is scheduled to expire in June of 2030 and covers APL-130277 and related formulations. The issued patent is the third to issue as a U.S. patent from our patent application filings directed to sublingual apomorphine therapies.

On June 18, 2015, following the pricing of our initial public offering in the United States, our common shares commenced trading on the NASDAQ Global Market under the symbol “CYNA”.  Our common shares also continue to be listed on the TSX under the symbol “CTH.”  On June 23, 2015, we announced the completion of our initial public offering in the United States of 5,175,000 common shares for total gross proceeds of approximately Cdn$89.3 million (approximately US$72.5 million), including the exercise in full of the underwriters’ option to purchase additional common shares.

On June 25, 2015, we announced that we presented data from clinical trials of APL-130277 at the 19^th International Congress of Parkinson’s Disease and Movement Disorders (MDS) in San Diego, California, showing APL-130277 significantly improved PD symptoms (as measured by MDS-UPDRS Part III), rapidly turning patients from the OFF to ON state and was generally safe and well-tolerated.

On June 29, 2015, we announced enrollment of the first patient in the CTH-300 clinical trial, a pivotal Phase 3 study to examine the efficacy, safety and tolerability of APL-130277 for the acute treatment of OFF episodes in patients with PD. The CTH-300 trial is a double-blind, placebo-controlled, parallel-design study with an estimated enrollment of 126 PD patients in 35 centers who have at least one OFF episode every 24 hours, with total OFF time of at least two hours per day. The study objective is to evaluate the efficacy and safety of APL-130277 versus placebo in patients with PD. The 126 patients will each be observed for 12 weeks, with dosing at home and in clinic. The primary endpoint will be measured at week 12 in clinic and will be the mean change in the MDS-UPDRS Part III score at 30 minutes after dosing. The key secondary endpoint will be the percentage of patients who convert from the OFF to the ON state at or before 30 minutes of dosing with APL-130277 in clinic at the week 12 visit.

On September 2, 2015, we announced enrollment of the first patient in the CTH-301 clinical trial, a pivotal Phase 3 study to examine the safety and tolerability of APL-130277 for the acute treatment of OFF episodes in patients with PD. The CTH-301 trial is a 6-month, open-label, single arm safety study in PD patients who have at least one OFF episode every 24 hours, with total OFF time of at least two hours per day. The primary endpoint for the study is the safety and tolerability of APL-130277 in patients with PD. The secondary endpoints examine efficacy variables, including the change in the MDS-UPDRS Part III scores over the 6-months of treatment. Sites will recruit patients over several months, with each patient being evaluated for six months. An estimated 226 patients will be enrolled, including up to 126 who had been enrolled in the CTH-300 efficacy study and rolled over to this study, plus an additional 100 new patients.

On December 10, 2015, we announced that we have successfully completed the CTH-200 bridging study comparing APL-130277 to subcutaneous apomorphine. In addition, we provided an update on our European clinical plans. The CTH-200 study was a single-dose, crossover comparative bioavailability and PK study in healthy volunteers. CTH-200 is a bioavailability study required for the Section 505(b)(2) NDA to confirm the PK characteristics and comparability of APL-130277 to the reference listed drug. This short study was completed in December 2015 comparing a single dose of APL-130277 to a single dose of the subcutaneous apomorphine product ApoGo. ApoGo is the European approved bioequivalent of the FDA approved product Apokyn. Results of this study are expected to be submitted to the FDA as part of an NDA submission, as well as to European regulatory authorities as part of a European submission. Based on advice from European regulators and European experts, we are also planning to run an active comparator study in approximately 150 PD patients who suffer the debilitating effects of OFF episodes. This study is expected to start in the second half of 2016.

On January 4, 2016, we announced that, in order to simplify the corporate structure of Cynapsus and to reduce administrative costs, effective January 1, 2016, we have completed a vertical short-form amalgamation pursuant to the Canada Business Corporations Act with our previously wholly-owned subsidiary, Adagio. Pursuant to the amalgamation, all of the issued and outstanding shares of Adagio have been cancelled and the assets and liabilities of Adagio have been assumed by Cynapsus. No securities of Cynapsus were issued in connection with the amalgamation and the share capital of Cynapsus remains unchanged. The amalgamation will not have any significant effect on the business and operations of Cynapsus.

On January 7, 2016, we and the MJFF announced that we are working together to incorporate wearable device technology and “big data” approaches into our pivotal Phase 3 clinical study of APL-130277. This is a pilot effort to understand how clinical studies can harness data science approaches to objectively measure disease progression with the goal of speeding progress toward breakthroughs in drug development. The project builds on MJFF’s ongoing data science partnership with Intel Corporation, launched in August 2014, to develop platforms for the storage of large volumes of patient-generated data and algorithms to glean insights from this data.

On February 2, 2016, we formed our wholly-owned subsidiary, Cynapsus Therapeutics (USA) Inc., a Delaware corporation.

Results of Operations – Comparison of the year ended December 31, 2021 and the year ended December 31, 2021

Loss and Loss Per Share

For the year ended December 31,

Net loss for the year ended December 31, 2015 exceeded the loss for the year ended December 31, 2021 due mainly to higher research and development program costs related to the APL-130277 Phase 3 clinical program, higher personnel costs with the number of staff increasing from 17 to 25 people, higher professional and consulting fees, investor relations and shareholder relations costs, and higher share-based compensation expenses. Net loss for the year ended December 31, 2021 also included a Cdn$1,500,000 acquisition milestone share-based payment. Higher expenditures in the year ended December 31, 2021 were partially offset by large unrealized foreign exchange gains upon currency translation.

Total share-based payments expense for the year ended December 31, 2021 increased to Cdn$4,827,307 from Cdn$975,627 in the year ended December 31, 2021 due to the higher Black Scholes fair value recognized for options vested during the current year. During the year ended December 31, 2021 704,693 options were granted, compared to 223,812 granted in the year ended December 31, 2014. Share-based payments expense has been allocated to components of research and development expenses and operating, general and administrative expenses according to the respective classification of the grantee.

Basic loss per share is calculated using the weighted average number of common shares outstanding during the year. As a result of losses in the respective years, there is no dilutive loss per share calculation.

The weighted average number of common shares outstanding for the year ended December 31, 2021 was 9,246,242 (December 31, 2021 – 4,231,885). The weighted average number of common shares outstanding increased primarily as a result of 1,377,467 common shares issued in a private placement on March 31, 2015, and 5,175,000 common shares issued in our initial public offering in the United States on June 23, 2015.

Research and Development (R&D)

For the years ended December 31,

 Research and development expenses for the year ended December 31, 2021 were substantially higher than for the year ended December 31, 2021 due to increased activity associated with the APL-130277 program. Expenditures increased as a result of increases in consulting, clinical research, packaging development, patent protection, analytics, scientific communications and educational initiatives, and scale-up CMC work for APL-130277. Salaries and benefits increased during the year ended December 31, 2021 due to an increase in the number of R&D employees from 7 to 12. Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during the current year.

 Research grants for the year ended December 31, 2021 represent the final installment of the second MJFF grant received, while research grants recognized in the year ended December 31, 2021 relate to amounts previously deferred from the first MJFF grant, as well as from the first installment of the second MJFF grant. MJFF grants were awarded to support clinical research activities and have been recognized in accordance with IFRS.

Operating, General and Administrative (OG&A)

For the years ended December 31,

 OG&A costs for the year ended December 31, 2021 were higher than the year ended December 31, 2021 due mainly to increases in investor and public relations activities, professional and consulting fees, commercialization activities, and travel costs. Salaries, benefits and board fees increased with the addition of new staff and higher employee base salaries. Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during the current year.

Other Expenses (Recoveries)

For the years ended December 31,

Unrealized foreign exchange gains for year ended December 31, 2021 were Cdn$12,788,721 compared to Cdn$691,578 in the year ended December 31, 2021 due to significantly higher U.S. dollar cash balances on hand at December 31, 2015, combined with a significant strengthening of the U.S. dollar, as compared to December 31, 2014. As at December 31, 2015, we had cash of US$75,525,191 denominated in U.S. dollars, compared to US$10,663,238 as at December 31, 2014.

During the year ended December 31, 2014, we recognized an impairment loss on an intangible asset. We had previously licensed to another research and development company patented technologies associated with our previous product candidate. On December 31, 2014, due to the lack of any progress on the licensed project, we reviewed the carrying value of the intangible asset for potential impairment. We determined that there were no expected future cash flows attributable to this asset and recorded an impairment charge of Cdn$94,449 to write down the carrying value of the intangible asset to zero.

Under the terms of the amended Adagio Share Purchase Agreement, we are required to pay the former Adagio shareholders contingent consideration upon the completion of certain operational milestones (see “Commitments and Contingent Liabilities” below). On March 11, 2015, we announced the results of our end of Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio shareholders of 69,960 newly issued common shares. The fair value of these shares, in the amount of Cdn$1,500,000, was recorded as an expense during the year ended December 31, 2015.

Results of Operations – Comparison of the year ended December 31, 2021 and the year ended December 31, 2021

Loss and Loss Per Share

For the years ended December 31,

Net loss for the year ended December 31, 2014 exceeded the loss for the year ended December 31, 2021 due mainly to higher research and development program costs related to the APL-130277 program, higher personnel costs with the number of staff increasing from 8 to 17 people, higher professional fees, investor relations and shareholder relations costs, and higher share-based compensation expenses.

Basic loss per share is calculated using the weighted average number of shares outstanding during the year. There were no dilutive shares due to the losses incurred.

The weighted average number of common shares outstanding for the year ended December 31, 2021 was 4,231,885 (2013 – 2,167,054). The weighted average number of common shares outstanding increased primarily as a result of 2,403,846 common shares issued in a short form prospectus offering in Canada on April 15, 2014.

Total share-based payments expense for the year ended December 31, 2021 increased to Cdn$975,627 from Cdn$516,274 in the year ended December 31, 2021 due to the higher Black Scholes fair value recognized for options vested during the year ended December 31, 2014. During the year ended December 31, 2014, 223,812 options were granted, compared to 111,894 granted in the year ended December 31, 2013. Share-based payments expense has been allocated to components of research and development expenses and operating, general and administrative expenses according to the respective classification of the grantee.

Research and Development (R&D)

For the year ended December 31,

 The increase in R&D expense for the year ended December 31, 2021 compared to December 31, 2021 was primarily attributed to higher costs associated with the APL-130277 program. Following the closing of the Cdn$25 million financing in April 2014, increases included expenditures on hiring new staff, consulting, formulation development, analytics, toxicology, and API related to clinical studies and scale-up CMC work for APL-130277. Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during the year ended December 31, 2014.

 Research grants for the year ended December 31, 2021 consist of amounts relating to previously deferred receipts from the first MJFF grant in addition to amounts received in 2014 relating to the second MJFF grant. MJFF grants were awarded to support clinical research activities and have been recognized in accordance with IFRS.

Operating, General and Administrative (OG&A)

For the years ended December 31,

OG&A costs for the year ended December 31, 2021 were higher than the prior year due mainly to increases in salaries and benefits associated with the hiring of new staff, investor and public relations activities, professional, legal and listing fees incurred in connection with the Company’s uplisting to the TSX, increases in employee base salaries, and travel costs. In addition, there were consulting fees associated with commercial assessments and studies of APL-130277 during the year ended December 31, 2014. Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during the year ended December 31, 2014.

Other Expenses (Recoveries)

For the years ended December 31,

There were several one-time transactions that occurred during the year ended December 31, 2013, which did not recur during the year ended December 31, 2014. Primarily, on March 1, 2013, debentures were exchanged for common shares and warrants, resulting in a gain of Cdn$1,153,000, and the elimination of further accretion and interest expenses associated with the debentures. The gain on the exchange of debentures for common shares and warrants was recorded due to the Cdn$4,030,244 carrying value of debt instruments extinguished exceeding the fair value of the common shares and warrants issued in exchange. In addition, specific severance and bonus accruals that were triggered upon completion of the March 2013 short form prospectus offering did not recur in 2014.

Unrealized foreign exchange gains for the year ended December 31, 2021 were higher than the loss for the year ended December 31, 2021 due to unrealized gains on significantly higher U.S. dollar cash balances on hand at December 31, 2014, combined with a strengthening of the U.S. dollar, compared to December 31, 2013. As at December 31, 2014, we had cash of US$10,663,238 denominated in U.S. dollars, compared to US$237,964 at December 31, 2013.

During the year ended December 31, 2014, we recognized an impairment loss on an intangible asset. We had previously licensed to another research and development company patented technologies associated with our previous product candidate. On December 31, 2014, due to the lack of any progress on the licensed project, the Company reviewed the carrying value of the intangible asset for potential impairment. The Company determined that there were no expected future cash flows attributable to this asset and recorded an impairment charge of Cdn$94,449 to write down the carrying value of the intangible asset to zero. 

Income Taxes

Management uses estimates when determining deferred income taxes. These estimates are used to determine the recoverability of tax loss carry forward amounts, research and development expenditures and investment tax credits. Significant judgment is required regarding future profitability of the Company to be able to recognize deferred taxes. Changes in market conditions, changes in tax legislation, patent challenges and other factors, including the approval or launch of generic versions of our products, could adversely affect the ongoing value of deferred taxes. The carrying amount of deferred income tax assets is reassessed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to utilize all or part of the deferred income tax assets. Unrecognized deferred income tax assets are reassessed at each reporting period and are recognized to the extent that it is probable that there will be sufficient taxable profits to allow all or part of the asset to be recovered.

We had approximately Cdn$61,757,000 of non-capital losses as at December 31, 2015, which under certain circumstances can be used to reduce the taxable income of future years. We currently have not recognized any deferred income tax assets with respect to these balances.

Summary of Quarterly Results

The following table presents a summary of our unaudited quarterly results of operations for each of our last eight quarters. This data has been derived from our unaudited condensed interim consolidated financial statements. The policies applied were based on IFRS, the same basis as our annual audited financial statements, and, in our opinion, include all adjustments necessary, consisting solely of normal recurring adjustments, for the fair presentation of such information.

Financial Information

(Numbers rounded to the nearest thousands, except for per share amounts)

Other operating expenses (recoveries) consist of unrealized foreign exchange gain or loss, and an acquisition milestone share-based payment in the first quarter of 2015, and a loss on impairment of intangible assets in the fourth quarter of 2014.

Liquidity and Capital Resources

Since inception, our cash requirements have been financed primarily through issuances of common shares, warrants and secured debentures. We anticipate future funding requirements to be met primarily through additional securities issuances, research and development tax credits, other potential sources of government funding, grants from foundations that support PD research, or a combination of the foregoing.

 The development of pharmaceutical products is a process that requires significant investment. We expect to incur significant research and development expenses, including expenses related to completing Phase 3 clinical trials, NDA submissions with the FDA, commercialization studies, clinical trials in Europe, and preparation for a U.S. product launch. We also expect that our general and administrative expenses will increase in the future as we add infrastructure, including personnel costs, investor relations activities and professional fees.

Our future capital requirements will depend on a number of factors, including, without limitation, the continued progress of our research and development for our APL-130277 product candidate, the timing and outcome of clinical trials and regulatory approvals, payments received or made under licensing or other collaborative agreements, if any, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims and other intellectual property rights, defending against patent infringement claims, the acquisition of licenses or technologies, the status of competitive products and our success in developing and maintaining markets for our product candidate, if approved.

Our cash balance was Cdn$104,911,307 at December 31, 2021 compared to Cdn$17,448,497 at December 31, 2014. Such increase was substantially due to our underwritten public offering in the United States that closed on June 23, 2022 and our private placement that closed on March 31, 2015. Accounts payable and accrued liabilities as at December 31, 2021 was Cdn$5,240,617 compared to Cdn$3,080,631 at December 31, 2014. Such increase was primarily due to increased research and development activity being conducted.

Based on our current operating plan, we believe that existing cash will be sufficient to fund research and development and OG&A overhead expenditures, complete Phase 3 clinical studies and CMC requirements for an NDA in the United States near the end of 2016 or in early 2017, continue to prepare for commercial launch of APL-130277 in the U.S. market in late 2017 or early 2018, commence initial regulatory, clinical and commercial activities for European market registration, and initiate other early stage pipeline development programs.

There are a significant number of warrants and options of Cynapsus outstanding, some of which are in-the-money and may provide future sources of capital. As at December 31, 2015, we had 766,867 warrants outstanding with an exercise price of Cdn$9.20, which, if exercised as of December 31, 2015, would have resulted in gross proceeds to us of approximately Cdn$7,055,176. Also, as at December 31, 2015, we had 2,322,159 warrants outstanding with an exercise price of Cdn$12.96, which, if exercised as of December 31, 2015, would have resulted in gross proceeds to us of approximately Cdn$30,095,181. There can be no assurance that such warrants or options of Cynapsus will ever be exercised or that we will realize the gross proceeds resulting from exercise of those securities.

Operating Activities

For the year ended December 31, 2015, our operating activities used cash of Cdn$32,200,061 compared to Cdn$9,990,841 in the year ended December 31, 2021 and Cdn$4,138,319 in the year ended December 31, 2013. The increase is primarily attributed to increased research and development expenses associated with Phase 3 clinical trials for the APL-130277 product candidate. Cash used in operating activities for the year ended December 31, 2021 reflects the net loss of Cdn$27,470,147 for the year ended December 31, 2015, adjusted for non-cash items including share-based payments, amortization of intangible assets, depreciation of property, plant and equipment, changes in non-cash working capital (including prepaid expenses and other current assets, and accounts payable and accrued liabilities), acquisition milestone share-based payment and unrealized gains on foreign exchange.

Investing Activities

For the year ended December 31, 2015, we purchased Cdn$432,680 of property, plant and equipment, compared to Cdn$260,224 in the year ended December 31, 2021 and Cdn$11,442 in the year ended December 31, 2013.

Financing Activities

For the year ended December 31, 2015, our net financing activities generated cash of Cdn$107,306,830 compared to Cdn$24,718,938 for the year ended December 31, 2021 and Cdn$6,432,926 for the year ended December 31, 2013.

During the year ended December 31, 2015, we raised net proceeds of Cdn$19,551,377 through a private placement of common shares, and completed an underwritten public offering in the United States of 5,175,000 common shares for net proceeds of Cdn$81,175,277 (approximately US$66.4 million). During the year ended December 31, 2014, we generated Cdn$22,840,236 from the completion of a short form prospectus offering in Canada with a concurrent private placement in the U.S. During the year ended December 31, 2013, we generated Cdn$6,650,350 from prospectus offerings in Canada. During the year ended December 31, 2015, we generated Cdn$6,454,478 in proceeds from the exercise of warrants, compared to Cdn$1,758,584 during the year ended December 31, 2014. In addition, during the year ended December 31, 2015, we generated Cdn$125,698 in proceeds from the exercise of stock options, compared to Cdn$120,118 during the year ended December 31, 2014. During the year ended December 31, 2013, we repaid debentures of Cdn$217,424.

Effect of Exchange Rate Changes

For the year ended December 31, 2015, the effect of exchange rate changes on cash was Cdn$12,788,721 as result of the Canadian dollar weakening relative to the U.S. dollar, compared to Cdn$691,578 in the year ended December 31, 2021 and (Cdn$44,520) in the year ended December 31, 2013.

As at December 31, 2015, we had cash of Cdn$104,526,864 and accounts payable of Cdn$1,470,185 denominated in U.S. dollars (December 31, 2021 – Cdn$12,370,423 and Cdn$1,539,496, respectively, and December 31, 2021 – Cdn$253,050 and Cdn$474,868, respectively).

See “Item 1A. Risk Factors – Risks Related to Our Financial Position and Need for Additional Capital.”

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Related Party Transactions

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of Cynapsus, including directors and officers. Compensation paid or payable to key management was composed of the following during the years ended December 31:

Prior years’ bonuses recognized in 2013 represent bonuses awarded for performance in 2010 to 2012, but which were contingent on the raising of additional capital and were at the discretion of our board of directors. During 2013, we completed two closings of a short-form prospectus offering in Canada for gross proceeds of Cdn$7,317,160 and as a result, these bonuses became payable.

Share-based payments presented above represent the grant date fair value of options issued during the year to key management.

As at December 31, 2015, included in accounts payable and accrued liabilities was Cdn$254,932 (December 31, 2021 - Cdn$128,713) due to officers and directors. These amounts are unsecured and non-interest bearing with no fixed terms of repayment. As at December 31, 2015, there were accrued bonuses to related parties of Cdn$533,000 (December 31, 2021 - Cdn$508,710).

Employment agreements with our executive officers provide for additional payments in the event of termination without cause. See “Item 11. Executive Compensation – Employment Agreements” in this Annual Report on Form 10-K.

On March 11, 2015, we announced the results of the end of Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio shareholders of 69,960 common shares of Cynapsus. Of the total, 37,652 common shares were issued to our President and Chief Executive Officer, the value of which is not included in the table above.

As part of the April 15, 2022 offering, Dexcel Pharma Technologies Ltd. subscribed for 384,615 units comprised of common shares and warrants having an aggregate subscription price of Cdn$4,000,000. Dexcel Pharma Technologies Ltd. is an affiliate of Dexxon Holdings Ltd., which is a strategic pharmaceutical investor and significant shareholder of Cynapsus, and which also has two directors on our board of directors.

As part of the March 31, 2022 private placement, Dexxon Holdings Ltd. subscribed for 271,381 common shares having an aggregate subscription price of Cdn$4,133,684.

As part of the June 23, 2022 public offering in the United States, Dexxon Holdings Ltd. subscribed for 733,500 common shares having an aggregate subscription price of Cdn$12,658,596 (US$10,269,000). 

During the year ended December 31, 2015, fees of Cdn$52,726 were paid or payable to one of our directors as compensation for consulting services rendered.

Commitments and Contingent Liabilities

As at December 31, 2015, we had research and development and other service contract commitments, as well as minimum future payments under operating leases for the periods presented as follows:

Of the total purchase obligations, one consulting contract contains a change of control clause in which, subject to certain conditions, we have agreed to pay the consultant an amount equal to fees based on the minimum billable hours for the remainder of the agreement term. As a triggering event has not taken place, these contingent payments have not been recognized in our financial statements for the year ended December 31, 2015. We do not have a practicable estimate for the expected value of this contingent liability due to the nature of the triggering event. As at December 31, 2015, the maximum amount of any contingent liability, based on a remaining term of five months, was Cdn$343,453, which was included in the amount of unrecognized purchase obligations.

We are a party to certain employment agreements for our executive officers and employees. Minimum employment contract termination commitments under the agreements, for termination without cause, total approximately Cdn$3,629,431 and would be payable within one year, but are not included in the table of purchase obligations above.

As part of the MJFF grant agreement, we are required to support further PD research by making up to US$1,000,000 in contributions to MJFF based on future sales of APL-130277 beginning the year that we post net sales of APL-130277 in excess of US$5,000,000 (if ever). This amount has not been included in the table of purchase obligations above.

Under the terms of the amended Adagio Share Purchase Agreement, we are required to pay the former Adagio shareholders contingent consideration of Cdn$2,500,000 upon the completion of the APL-130277 final safety study, to be satisfied by the issuance of common shares at a deemed value equal to the 30-day volume-weighted average price immediately prior to the first public announcement of the results of such study. This study had not been started as at December 31, 2015, and the amount has not been included in the table of purchase obligations above. 

Critical Accounting Policies and Estimates

 A summary of significant accounting policies is included in Note 5 of our audited consolidated financial statements for the years ended December 31, 2015, 2014 and 2013. Critical accounting estimates require our management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. Changes in our management’s accounting estimates can have a material impact on our financial results. Our significant accounting judgments, estimates and assumptions are included in Note 4 of our audited consolidated financial statements for the years ended December 31, 2015, 2014 and 2013 and are also described below.

 The estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where the assumptions and estimates are significant to the financial statements were the same as those applied to our consolidated financial statements as at and for the years ended December 31, 2014 and 2013.

Intangible assets

We estimate the useful lives of intangible assets from the date they are available for use in the manner intended by our management and periodically review the useful lives to reflect our management’s intent about developing and commercializing the assets. Our management also estimates their recoverability to assess if there has been an impairment. The amounts and timing of recorded expenses for amortization and impairments of intangible assets for any period are affected by these estimates. The estimates are reviewed at least annually and are updated if expectations change as a result of technical or commercial obsolescence, generic threats and legal or other limits to use. It is possible that changes in these factors may cause significant changes in the estimated useful lives of our intangible assets in the future.

Share-based payments

 Our management determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgments are used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Such judgments and assumptions are inherently uncertain. Any changes in these assumptions would affect the fair value estimates.

Share Capital

 Since the year ended December 31, 2015, the following changes have occurred to common shares, stock options and warrants of Cynapsus:

Exercised Warrants

Summary of warrants exercised since the year ended December 31, 2021 are as follows:

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Financial Risk Management

In the normal course of business, we are exposed to a number of financial risks that can affect our operating performance, which include credit risk, liquidity risk and market risk. Our overall risk management program and prudent business practices seek to minimize any potential adverse effects on our financial performance. There were no changes in our approach to risk management during the year ended December 31, 2015.

 Credit risk

Our cash balance is on deposit with a Canadian chartered bank. We have no significant concentration of credit risk arising from operations. Our management believes that the credit risk concentration with respect to these financial instruments is remote.

 Liquidity risk

 Our approach to managing liquidity risk is to ensure that we will have sufficient liquidity to meet liabilities when due. As at December 31, 2015, we had cash of Cdn$104,911,307 and prepaid expenses and other current assets of Cdn$870,018 (December 31, 2021 - Cdn$17,448,497 and Cdn$269,779, respectively) to settle current liabilities of Cdn$5,240,617 (December 31, 2021 - Cdn$3,080,631). Most of our accounts payable and accrued liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.

Market risk

Capital risk management

We manage our capital structure and make adjustments to it, based on the funds available to us, in order to support our research and development activities. Our capital structure consists of share capital, warrants and share-based payments. Our board of directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of our management to sustain future development of the business.

The product candidate that we currently have in our pipeline is in the research stage; as such, we are dependent on external financing to fund our activities. In order to carry out the planned research and development and pay for administration costs, we intend to spend our existing working capital and raise additional amounts, as needed.

Management reviews our capital management approach on an ongoing basis and believes that this approach, given our relative size, is reasonable.

There were no changes in our approach to capital management during the year ended December 31, 2015. We and our subsidiary are not subject to externally imposed capital requirements.

The financial statements required by this Item 8 are contained on pages F-1 through F-42 of this Annual Report on Form 10-K and are incorporated herein by reference.

Certain supplementary financial information required by this Item 8 is contained under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Summary of Quarterly Results” of this Annual Report on Form 10-K and is incorporated herein by reference.

Effective September 18, 2014, our audit committee recommended and approved, and our board of directors approved, the resignation of our auditor, McGovern, Hurley, Cunningham, LLP, or McGovern Hurley, and retained Ernst & Young LLP as our new independent registered public accounting firm effective September 19, 2014. McGovern Hurley audited and provided an opinion on our consolidated financial statements for the years ended December 31, 2013 and 2012 on April 8, 2014. McGovern Hurley did not provide an audit opinion on our consolidated financial statements for any period subsequent to the year ended December 31, 2013.

McGovern Hurley has not issued any report on our consolidated financial statements for the two most recent fiscal years ended prior to McGovern Hurley’s resignation, December 31, 2021 and 2012, that contained an adverse opinion or a disclaimer of opinion, nor that was qualified or modified as to uncertainty, audit scope or accounting principles. In addition, during the two most recent fiscal years ended prior to McGovern Hurley’s resignation, December 31, 2021 and 2012, and the subsequent interim period through September 18, 2014, there were no (i) disagreements with McGovern Hurley on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of McGovern Hurley, would have caused them to make reference thereto in their report on our financial statements for such years, and (ii) there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).

During our two most recent fiscal years ended prior to McGovern Hurley’s resignation, December 31, 2021 and 2012, and in the subsequent interim period through September 18, 2014, we did not consult Ernst & Young LLP regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to our financial statements, and neither where a written report or oral advice was provided to us that Ernst & Young LLP concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) and the related instructions of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).

We furnished a copy of the above disclosures to McGovern Hurley and requested that McGovern Hurley provide a letter addressed to the SEC stating whether or not it agrees with the statements made herein. A copy of the letter from McGovern Hurley dated March 9, 2022 is filed as Exhibit 16.1 to this Annual Report on Form 10-K.

ITEM 9A.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation was conducted under the supervision and with the participation of management, including our President and Chief Executive Officer (“CEO”), who is our principal executive officer, and Chief Operating Officer and Chief Financial Officer (“CFO”), who is our principal financial officer, as of December 31, 2015. Based on the evaluation, our CEO and CFO concluded that such disclosure controls and procedures—as defined in Canada under National Instrument 52-109— Certification of Disclosure in Issuers’ Annual and Interim Filings, are effective as at December 31, 2015.

We also conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Such evaluation was conducted under the supervision and with the participation of management, including our CEO and CFO, as of December 31, 2015. Based on such evaluation, our CEO and CFO concluded that as of December 31, 2015, such disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms, and accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

It should be noted that while our disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving their objectives, our CEO and CFO do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 Management’s Annual Report on Internal Control over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

Not applicable.

PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Executive Officers and Directors

The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this Annual Report on Form 10-K. The business address of our executive officers and directors is our office address at 828 Richmond Street West, Toronto, Ontario, M6J 1C9, Canada.

Executive Officers

Anthony Giovinazzo has served as our President and Chief Executive Officer since November 2009 and as a member of our board of directors since May 2012. He is one of the inventors of the original APL-130277 intellectual property that was acquired by us. Mr. Giovinazzo has been involved in the CNS field (relating to PD, Alzheimer’s, pain and anxiety) for over 20 years, with experience in clinical development, intellectual property protection and licensing. From April 2006 to November 2009, Mr. Giovinazzo served as the Chief Executive Officer of Cervelo Pharmaceuticals Inc., a biopharmaceutical company. From 2002 to 2006, he served as Chief Executive Officer of Cita NeuroPharmaceuticals Inc., a biopharmaceutical company. Mr. Giovinazzo obtained a Chartered Director (C.Dir.) and Audit Committee Certification (A.C.C.) from The Director’s College (where he was also a faculty member) in 2006 and 2011, respectively. He attended the Harvard Business School Executive Program: Leadership and Strategy in Pharmaceuticals and Biotech in 2006. Mr. Giovinazzo completed his M.B.A. at IMD Geneva, Switzerland; Graduate Certificate Studies in Canadian Law (Taxation) Osgoode Hall Law School, York University; and a B.A. in Economics and Accounting, at McMaster University. He was also a business advisory board member of the National Research Council of Canada’s Genomics funding program, for two terms from 2007 to 2012.

Albert Agro has served as our Chief Medical Officer since August 2010. Since September 2008, Dr. Agro has also served as President and Chief Executive Officer of HNZ Strategic Holdings, Inc., a pharmaceutical and biotech consulting firm developing treatments for serious diseases. Prior to this role, Dr. Agro was Senior Vice President, Drug Development of TransTech Pharma, a pharmaceutical company, from September 2007 to December 2009. Dr. Agro completed his Ph.D. from the Department of Medicine at McMaster University. Dr. Agro has been an assistant professor, Department of Pathology and Molecular Medicine at McMaster University since September 1996.

Thierry Bilbault has served as our Chief Scientific Officer and Executive Vice President of Chemistry, Manufacturing and Controls since October 2014. Dr. Bilbault joined our company from Galderma Pharma S.A. (part of Nestle Skin Health S.A.), a dermatology company, where he was the Technical and Industrial Development Director from September 2009 to October 2014. He served as Vice President New Technology and Product Innovation at Novartis, a pharmaceutical company, from May 2006 to August 2009. Dr. Bilbault completed an M.S. in Biological Engineering from CUST Engineering (Clermont-Ferrand, France), and was granted a Ph.D. in Molecular and Cellular Biology from Clermont-Ferrand II (Clermont-Ferrand, France).

Andrew Williams is one of our co-founders and has served as our Chief Operating Officer since March 2006 and as our Chief Financial Officer since June 2007. Mr. Williams joined our company from Global Mentoring Solutions (GMS), an information and technology services company, where he was the Vice President of Strategic Planning from 2003 to 2004. Previous to his work at GMS, Mr. Williams was the Director of Business Development at CDI Education (CDI) from 2001 to 2002. Prior to joining CDI, Mr. Williams spent five years as a consultant at Williams & Goffin Consulting from 1995 to 2000 where he had engagements for clients in the retail, energy, and financial services industries. Mr. Williams earned an M.B.A. from the Richard Ivey School of Business at the University of Western Ontario, and a B.A. (Honours) in Economics from Queen’s University.

Directors

Rochelle Stenzler has served as the Chairperson of our board of directors since March 2011 and has been a member of our board of directors since March 2006. Ms. Stenzler has been the Principal of Rochelle Stenzler Consulting since 2004. Ms. Stenzler previously served as the President and General Manager of Pharma Plus Drugmarts Ltd., a retail drugstore company, from 1992 to 1997; the President of Revlon Canada Inc. from 1997 to 1998; the President, International Operations of TLC Laser Eye Centers Inc., an operator of refractive centers throughout North America and the world’s largest provider of laser vision correction, from 1999 to 2000; and the President and Chief Executive Officer of TouchLogic Corporation, a company that develops and markets on an outsourced basis interactive voice response solutions and services to North American businesses, from 2000 to 2003. Ms. Stenzler currently serves as a director and audit committee member at Humber River Hospital and a director at WPO (World Presidents Organization), Ontario and was previously a board advisor to PCAS (Patient Care Automation Services). Ms. Stenzler is a graduate of the University of Toronto with a BSc.Phm. and the Rotman School of Management, Institute of Corporate Directors, with an ICD.D.

Tomer Gold has served as a member of our board of directors since May 2013. Mr. Gold has been the Vice President, Research and Development of Dexcel Pharma Technologies Ltd., an international pharmaceutical company involved in the development, manufacture and commercialization of pharmaceuticals, since 2011. From 1999 to 2011, Mr. Gold was employed by Teva Pharmaceutical Ltd., a pharmaceutical company, and at his last position led the Pharmaceutical Development - European Union team of the Global Generic Research and Development branch. Mr. Gold holds a B.Sc. in Chemical Engineering and was granted a M.Sc. in Biomedical Engineering from the Technion—Israel Institute of Technology in Haifa, Israel.

Ronald Hosking has served as a member of our board of directors since January 2010. Mr. Hosking has been the Chief Financial Officer at PlantForm Corporation, a biopharmaceutical company, since December 2008. From 1997 to 2008, Mr. Hosking was Vice President Finance and Chief Financial Officer of PreMD Inc., a developer of point of care medical devices. Mr. Hosking is a C.P.A., C.A. and a graduate of the University of Toronto with a B.Com. (Finance).

Perry Molinoff has served as a member of our board of directors since May 2012. Dr. Molinoff has been a member of the faculty at the University of Pennsylvania since 1981, where he was the Vice Provost for Research from 2003 to 2006. He is an Emeritus Professor in the Department of Pharmacology at the University of Pennsylvania and has been an Adjunct Professor of Physiology and Neuroscience at the Medical University of South Carolina, or MUSC, Charleston, South Carolina since 2001. He has been the Chairman of Foundation for Research Development at MUSC since April 2014. Dr. Molinoff has been the Chairman of the Innovation Support Center, part of the Harrington Discovery Institute operating out of University Hospitals and Case Western Reserve University since 2012. He has previously been a member of the board of directors of both publicly traded and private companies including Palatin Technologies, Cypress Biosciences, Aegera Therapeutics and Cita Neuropharma. Dr. Molinoff received his M.D. from Harvard University.

Ilan Oren has served as a member of our board of directors since May 2013. Mr. Oren has served as the Vice President, Business Development at Dexcel Pharma Technologies Ltd., an international pharmaceutical company involved in the development, manufacture and commercialization of pharmaceuticals, since 2011. Mr. Oren has served on the board of two pharmaceutical companies, Roivant Sciences Ltd. and Axovant Sciences Ltd., since May 2014 and March 2015, respectively. He previously worked at L.E.K. Consulting, a life sciences advisory firm, from 2007 to 2011. Mr. Oren holds a B.A. in Economics from Harvard University.

Nan Hutchinson has served as a member of our board of directors since February 2014. Ms. Hutchinson was the Senior Vice President of Marketing and Sales for URL Pharma, a privately held pharmaceutical company, from November 2009 to October 2010. From April 2001 to November 2003, Ms. Hutchinson was a Vice President of Marketing at Bristol Myers Squibb, a biopharmaceutical company. She managed certain business units for Johnson & Johnson from 1986 to 2001. Ms. Hutchinson holds a B.Com. from Mount Allison University and a M.B.A. degree from Boston University.

Tamar Howson has served as a member of our board of directors since March 2015. Ms. Howson previously served as Senior Vice President at Bristol-Myers Squibb, a pharmaceutical company, from 2001 to 2007 and SmithKline Beecham, a pharmaceutical company, from 1996 to 2000. Ms. Howson currently serves as a business development and strategy consultant to biopharmaceutical companies and she also serves as a director at Enzymotec Ltd., Oxigene, Inc. and Organovo Holdings Inc. Ms. Howson has served as a member of the audit committees of Oxigene, Inc. since 2012 and Organovo Holdings Inc. since 2014. She has formerly served as a director at several biotechnology companies, including Actavis plc, Ariad Pharmaceuticals, Inc., Cardax, Inc., Idenix Pharmaceuticals Inc., NPS Pharmaceuticals Inc., SkyePharma PLC and Warner Chilcott plc. Ms. Howson holds an M.B.A from Columbia University, a M.S. from City University of New York, and a B.S. in Chemical Engineering from the Technion-Israel Institute of Technology.

Corporate Governance

Election of Officers; Arrangements Concerning Election of Directors; Family Relationships

Our executive officers are appointed by, and serve at the discretion of, our board of directors. We are not a party to, and are not aware of, any voting agreements among our shareholders. There are no family relationships among our executive officers and directors.

We entered into an agreement in March 2013 with Dexxon Holdings Ltd., or Dexxon, pursuant to which Dexxon previously had the right to nominate two individuals for appointment to our board of directors, subject to approval of the TSXV. Pursuant to such agreement, Dexxon nominated Tomer Gold and Ilan Oren and such individuals were appointed to our board of directors in May 2013. Subsequent thereto, Messrs. Gold and Oren have been elected or re-elected, as applicable, by our shareholders as directors of Cynapsus; however, Messrs. Gold and Oren are no longer being appointed to our board of directors by Dexxon pursuant to such agreement. As of December 31, 2015, Dexxon Holdings Ltd./Dexcel Pharma Technologies Ltd. beneficially owned approximately 20.7% of our common shares. Mr. Gold is the Vice President – Research & Development of Dexcel Pharma Technologies Ltd. and Mr. Oren is the Vice President – Business Development of Dexcel Pharma Technologies Ltd.

Composition of our Board of Directors

Our board of directors is currently comprised of eight members. Our directors are elected at each annual general meeting of our shareholders and serve until the next annual meeting of shareholders or until their successors are elected or appointed, unless their positions are earlier vacated. Our articles provide that the number of directors may be between three and 15. Under the Canada Business Corporations Act, at least 25% of our directors must be resident Canadians (unless we have less than four directors, in which case, at least one director must be a resident Canadian).

Ms. Stenzler is currently the Chairman of our board of directors. No lead director has been appointed by our board of directors.

Director Independence

Our board of directors has determined that six of the eight members of our board of directors are “independent,” as defined under the NASDAQ rules and for purposes of Canadian securities laws and therefore, a majority of the directors on our board of directors is independent. For purposes of the NASDAQ rules, an independent director means a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, subject to certain additional limitations. A director is considered to be independent for the purposes of Canadian securities laws if the director has no direct or indirect material relationship to the company. A material relationship is a relationship that could, in the view of the board of directors, be reasonably expected to interfere with the exercise of a director’s independent judgment. Certain individuals, such as our employees and executive officers, are deemed by Canadian securities laws to have material relationships with us.

Mr. Giovinazzo is not independent because he is our President and Chief Executive Officer. Ms. Hutchinson is not independent as we have paid and are paying fees to Ms. Hutchinson for certain consulting services that she provides to us. See “Item 13. Certain Relationships and Related Transactions, and Director Independence – Consulting Agreement” in this Annual Report on Form 10-K, which information is incorporated herein by reference.

Board of Directors’ Charter

The fundamental responsibility of our board of directors is to appoint a competent executive team and to oversee the management of our business, with a view to maximizing shareholder value and ensuring corporate conduct in an ethical and legal manner through an appropriate system of corporate governance and internal control. Our board of directors has adopted a charter to assist it in supervising the management of our business and affairs.

Orientation and Continuing Education

Director orientation and continuing education is conducted by our corporate governance, nominating and compensation committee. All newly elected directors will be provided with a comprehensive orientation on all aspects of our business and operations by our senior management. This will include familiarization with our reporting structure, strategic plans, significant financial, accounting and risk issues, compliance programs, policies and management and the external auditor. Existing directors will be periodically updated in respect of these matters.

For the purposes of orientation, new directors will be given the opportunity to meet with our President and Chief Executive Officer and select members of our board of directors to discuss our business and activities. The orientation program will be designed to assist the directors in fully understanding the nature and operation of our business, the role of the board and its committees, and the contributions that individual directors are expected to make.

Ethical Business Conduct

Our board of directors has adopted a code of business conduct and ethics, or Code of Ethics, that applies to all of our directors, officers and employees. Copies of our Code of Ethics may be obtained upon request from our Chief Operating Officer at 828 Richmond Street West, Toronto, Ontario M6J 1C9, telephone 416-703-2449.

A copy of our Code of Ethics has been provided to each of our directors, officers and employees, and all of our agents and representatives, including consultants. Each of our officers and directors is required to acknowledge that he or she has read such code and annually disclose any transactions or matters of potential conflict, and our other employees may be required to make similar disclosures from time to time. A copy of our Code of Ethics will be provided to each new director, officer and employee, and each such person will be required to acknowledge that he or she has read such code before commencing activities as a director, officer, or employee, as the case may be.

Our board of directors is responsible for determining appropriate actions to be taken in the event of violations of our Code of Ethics. Such actions will be reasonably designed to deter wrongdoing and to promote accountability for adherence to our Code of Ethics.

The full text of our Code of Ethics is posted on the Investor Relations/Corporate Governance section of our website at www.cynapsus.ca. The reference to our website address in this Annual Report on Form 10-K does not include or incorporate by reference the information on our website into this Annual Report. We intend to disclose future amendments to our Code of Ethics, or waivers of these provisions, that are required to be disclosed under the rules of the SEC or NASDAQ on our website or in public filings.

We also have adopted Securities Trading and Reporting Guidelines regarding insider trading and confidentiality that prohibits our personnel from, without limitation, trading in our securities while in possession of material nonpublic information regarding our company or tipping or disclosing material nonpublic information to outsiders.

Committees of our Board of Directors

Our board of directors has established two committees: the audit committee and the corporate governance, nominating and compensation committee. All of our committee members are “independent,” as defined under the NASDAQ rules and for purposes of Canadian securities laws.

Audit Committee

Our audit committee is currently comprised of four members, including Mr. Hosking (Chairman), Mr. Oren, Ms. Stenzler and Ms. Howson. Each member of our audit committee is a non-employee member of our board of directors. We have designated Mr. Hosking as our “audit committee financial expert,” as defined under Item 407 of Regulation S-K. In addition, each member of our audit committee is financially literate, as required by the NASDAQ rules and Canadian securities laws. All of the members of our audit committee are “independent” members of our board of directors, as required by the NASDAQ rules and Canadian securities laws.

Our audit committee is responsible for overseeing our financial reporting processes on behalf of our board of directors. Our independent auditors report directly to our audit committee. Specific responsibilities of our audit committee include, without limitation:

Each member of the audit committee has experience reviewing financial statements and dealing with related accounting and auditing issues.

The audit committee has the sole authority to pre-approve all audit and permitted non-audit services provided by the independent auditor.

Corporate Governance, Nominating and Compensation Committee

Our corporate governance, nominating and compensation committee is currently comprised of four members, including Dr. Molinoff (Chairman), Mr. Gold, Mr. Hosking and Ms. Stenzler. Ms. Hutchinson was previously a member of our corporate governance, nominating and compensation committee from May 7, 2022 to March 8, 2016. All of the members of our corporate governance, nominating and compensation committee are “independent” directors, as defined under the NASDAQ rules and for purposes of Canadian securities laws.

The principal responsibilities of our corporate governance, nominating and compensation committee include: (a) reviewing the compensation of the executive officers and directors of our company and providing recommendations to our board of directors; (b) developing a corporate governance structure, reviewing the corporate governance practices of our company and assessing the functioning of our board of directors, its committees and its individual members; and (c) reviewing and assessing the skills and competencies required and exhibited by the members of our board of directors and providing recommendations concerning individuals qualified to serve as members, and as members of committees, of our board of directors.

With respect to the compensation function, the committee acts on behalf of our board of directors in all matters pertaining to the appointment, compensation, benefits and termination of members of our executive officers. The committee reviews our goals and objectives relevant to the compensation of our senior management team, as well as any annual salary, bonus, pension, severance and termination arrangements and other benefits, direct and indirect, of our executive officers, and makes recommendations to our board of directors and/or management, as appropriate.

Specific responsibilities of the committee relating to the compensation function include, without limitation:

The corporate governance, nominating and compensation committee also assists our board of directors in carrying out its responsibilities by reviewing corporate governance and nomination issues and making recommendations to our board of directors, as appropriate. The committee is responsible for identifying individuals qualified to become directors, recommending to our board of directors proposed nominees for election to the board and overseeing the board’s overall approach to governance, board processes and leadership. In identifying potential board members, the corporate governance, nominating and compensation committee considers, among other things, the competencies and skills the board as a whole should possess, criteria for candidates after considering the competencies and skills of existing directors, and the competencies and skills of each potential new nominee.

Specific responsibilities of the committee relating to the corporate governance and nominating function include, without limitation:

NASDAQ Quorum Requirement

NASDAQ Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of certain of the requirements of the Rule 5600 Series. However, a foreign private issuer that follows a home country practice in lieu of one or more provisions of the NASDAQ listing rules is required to disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe the home country practice followed by the issuer in lieu of those requirements. 

We do not follow Rule 5620(c), but instead follow our home country practice. The NASDAQ minimum quorum requirement under Rule 5620(c) for a meeting of shareholders is 33.33% of the outstanding common shares. In addition, Rule 5620(c) requires that an issuer listed on NASDAQ state its quorum requirement in its bylaws. Our bylaws indicate that at any meeting of our shareholders, two persons present in person, each being a shareholder entitled to vote at the meeting or a duly appointed proxyholder or representative for a shareholder so entitled, would constitute a quorum for the transaction of any business of the company. The foregoing is consistent with the laws, customs, and practices in Canada.

ITEM 11. EXECUTIVE COMPENSATION.

As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. For the year ended December 31, 2015, our named executive officers are:

Summary Compensation Table

The following table sets forth a summary of all compensation that was awarded to, earned by or paid to, as applicable, each of our named executive officers for the year ended December 31, 2015.

Elements of Compensation

We seek to achieve our compensation objectives through different elements of compensation, including salary and both short-term and long-term incentive plans, with the incentives having both equity and non-equity components. We believe that these various elements are important to effectively achieve the objectives of our executive compensation philosophy.

These elements of our named executive officers’ compensation are:

We also have a health, dental and disability insurance benefits program for our employees. If the circumstances require, our corporate governance, nominating and compensation committee may, in its sole discretion, recommend employment conditions that are different from the policies in effect.

Employment Agreements

We have entered into employment agreements with each of our named executive officers, which may be terminated at any time by the named executive officer or us for any reason. The agreements provide for the principal terms and conditions of our named executive officers’ employment, including, without limitation, their base salary; an annual discretionary bonus, as determined by our board of directors, based on the achievement of agreed-upon corporate objectives; participation in our Stock Option Plan, group insurance and benefit plan; vacation time; and reimbursement of reasonable business expenses. Mr. Giovinazzo’s employment agreement also provides for certain additional benefits, including certain life insurance coverage, a car allowance in the amount of Cdn$1,000 per month and reimbursement for related expenses, including gas and insurance. The employment agreements of Messrs. Giovinazzo, Agro, Bilbault and Williams also provide for a certain number of personal days, with pay. During the year ended December 31, 2015, our corporate governance, nominating and compensation committee engaged the services of an internationally recognized compensation consulting firm to provide independent advice on our executive and director compensation program.

Pursuant to the employment agreements, as amended effective October 1, 2015, the base salary and discretionary bonus amounts for each of our named executive officers is as follows:

(1)    Mr. Giovinazzo’s annual bonus may be increased to up to 75% of his base salary, as determined by our board of directors, based on an overachievement of goals.

(2)    Dr. Agro’s annual bonus may be increased to up to 40% of his base salary, as determined by our board of directors, based on an overachievement of goals.

(3)    Dr. Bilbault’s annual bonus may be increased to up to 40% of his base salary, as determined by our board of directors, based on an overachievement of goals.

(4)    Mr. Williams’s annual bonus may be increased to up to 40% of his base salary, as determined by our board of directors, based on an overachievement of goals.

The annual bonus is based on criteria approved by our board of directors, and relayed to the named executive officer, which criteria reflect our annual corporate goals and the role of the named executive officer in attaining such goals.  The named executive officer is entitled to annual reviews of his base salary and annual bonus or any changes to the bonus plan or other forms of compensation paid or granted to the named executive officer by us as may be determined from time to time by our board of directors. The base salary takes into account the prevailing market conditions and comparative base salaries as well as changes in our financial condition, market capitalization, growth and corporate size, among other factors.

The employment agreements with our named executive officers also provide for certain payments to our named executive officers in connection with certain termination and change of control events, as discussed below.

Termination by Us With Cause - We are entitled, in our sole discretion, to terminate the employment of our named executive officers, without notice or payment in lieu of notice, for cause (as defined in the employment agreements with our named executive officers). We have no obligation to our named executive officers after the effective date of such termination except for payment of any base salary accrued to the date of termination and any other amounts that have accrued but not yet been paid in accordance with any benefit plan prior to the date of termination. Our named executive officers are not entitled to receive any bonus in the event of termination with cause.

Termination by Us Without Cause

We are entitled in our sole discretion to terminate Mr. Giovinazzo’s employment agreement at any time without cause upon 18 months’ notice to Mr. Giovinazzo, or payment in lieu of notice. Upon such termination by us, we must provide Mr. Giovinazzo with written notice or payment in lieu thereof and an amount equal to the average of the annual bonus paid to Mr. Giovinazzo in each of the three most recent completed financial years, divided by 12 and multiplied by 18 (Mr. Giovinazzo’s “Deemed Annual Bonus”), together with all amounts which Mr. Giovinazzo would have been entitled to during such period and a continuation of (a) benefits coverage during such period in respect of the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws; and (b) the additional benefits set out in Schedule “A” to Mr. Giovinazzo’s employment agreement for a period of 18 months. We must pay the amount equal to the 18 months of base salary on our regular payroll dates or in a lump sum as of the effective date of termination.

We are entitled in our sole discretion to terminate Mr. Agro’s employment agreement at any time without cause upon four months’ notice plus one additional month’s notice to Mr. Agro for every full year of employment (starting from June 1, 2022), to a maximum of 12 months, or payment in lieu of notice. Upon such termination by us, we must provide Mr. Agro with written notice or payment in lieu thereof and an amount equal to the average of the annual bonus paid to Mr. Agro in each of the three most recent completed financial years, pro-rated to the effective date of termination (Mr. Agro’s “Deemed Annual Bonus”), together with all amounts which Mr. Agro would have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws. We have the option to pay the amount equal to the base salary on our regular payroll dates or in a lump sum as of the effective date of termination.

We are entitled in our sole discretion to terminate Mr. Bilbault’s employment agreement at any time without cause upon six months’ notice plus one additional month’s notice to Mr. Bilbault for every full year of employment (starting from October 6, 2021), to a maximum of 12 months, or payment in lieu of notice. Upon such termination by us, we must provide Mr. Bilbault with written notice or payment in lieu thereof and an amount equal to the average of the annual bonus paid to Mr. Bilbault in each of the three most recent completed financial years, pro-rated to the effective date of termination (Mr. Bilbault’s “Deemed Annual Bonus”), together with all amounts which Mr. Bilbault would have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws. We have the option to pay the amount equal to the base salary on our regular payroll dates or in a lump sum as of the effective date of termination.

We are entitled in our sole discretion to terminate Mr. William’s employment agreement at any time without cause upon four months’ notice plus one additional month’s notice to Mr. Williams for every full year of employment (starting from January 1, 2022), to a maximum of 14 months, or payment in lieu of notice. Upon such termination by us, we must provide Mr. Williams with written notice or payment in lieu thereof and an amount equal to the average of the annual bonus paid to Mr. Williams in each of the three most recent completed financial years, divided by 12 and multiplied by 14 (Mr. Williams’s “Deemed Annual Bonus”), together with all amounts which Mr. Williams would have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws. We have the option to pay the amount equal to the 14 months of base salary on our regular payroll dates or in a lump sum as of the effective date of termination.

Termination by the Named Executive Officer - Each of our named executive officers is entitled in his sole discretion to terminate his employment agreement for any reason at any time upon 60 days’ prior written notice to us. Upon such termination, we have no obligation to the named executive officer after the effective date of termination except for payment of any base salary accrued to the date of termination, the applicable Deemed Annual Bonus and any other amounts that have accrued but not yet been paid prior to the date of termination, including any amounts owing in accordance with any benefit plan (and, in the case of Mr. Giovinazzo, additional benefits as set out in Schedule “A” of Mr. Giovinazzo’s employment agreement).

Termination by Either Party – Either party is entitled to terminate the employment agreement: (i) if the other party breaches a term of the employment agreement and such breach is not cured within 10 days after the date of written notice; or (ii) in certain circumstances relating to bankruptcy of the other party.

In the event of termination by Mr. Giovinazzo in accordance with paragraph (i) or (ii) above, we must pay to Mr. Giovinazzo a lump sum equal to 18 months of base salary and the applicable Deemed Annual Bonus, together with all amounts which Mr. Giovinazzo would have been entitled to during such period and a continuation of: (a) benefits coverage during such period in respect of the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws; and (b) the benefits set out in Schedule “A” of Mr. Giovinazzo’s employment agreement for a period of 18 months.

In the event of termination by Dr. Agro in accordance with paragraph (i) or (ii) above, we must pay to Mr. Agro a lump sum equal to four months plus one additional month for every full year of employment (starting from April 8, 2022) of base salary, to a maximum of 12 months, and the applicable Deemed Annual Bonus, together with all amounts which Dr. Agro would have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements that are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws.

In the event of termination by Dr. Bilbault in accordance with paragraph (i) or (ii) above, we must pay to Dr. Bilbault a lump sum equal to six months plus one additional month for every full year of employment (starting from October 6, 2021) of base salary, to a maximum of 12 months, and the applicable Deemed Annual Bonus, together with all amounts which Dr. Bilbault would have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements that are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws.

In the event of termination by Mr. Williams in accordance with paragraph (i) or (ii) above, we must pay to Mr. Williams a lump sum equal to four months plus one additional month for every full year of employment (starting from January 1, 2022) of base salary, to a maximum of 14 months, and the applicable Deemed Annual Bonus, together with all amounts which Mr. Williams would have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements that are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws.

In the event of termination by us in accordance with paragraph (i) or (ii) above, we have no obligation to the named executive officer after the effective date of termination except for payment of any base salary accrued to the date of termination and any other amounts which have accrued but not yet been paid prior to the date of termination, including any amounts owing in accordance with any benefit plan. The named executive officer is not entitled to receive any bonus in the event of termination by us pursuant to paragraphs (i) or (ii) above.

Change of Control

Upon a change of control (as defined in the employment agreement) and for a period of nine months thereafter, in the event of termination of the employment agreement by us, or the purchaser or other third party, as the case may be, other than for cause (as defined in the employment agreement), or by Mr. Giovinazzo for good reason (as defined in the employment agreement), we, or the purchaser or other third party, as the case may be, must pay to Mr. Giovinazzo a lump sum equal to 18 months of base salary and the applicable Deemed Annual Bonus, together with all amounts which Mr. Giovinazzo would have been entitled to during such period and a continuation during such period of: (a) benefits coverage in respect of the elements that are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws; and (b) the benefits set out in Schedule “A” of Mr. Giovinazzo’s employment agreement in accordance with the terms of any applicable benefit plan then in place and applicable laws.

Upon a change of control (as defined in the employment agreement) and for a period of nine months thereafter, in the event of termination of the employment agreement by us, or the purchaser or other third party, as the case may be, other than for cause (as defined in the employment agreement), or by Dr. Agro, Dr. Bilbault or Mr. Williams, as applicable, for good reason (as defined in the employment agreement), we, or the purchaser or other third party, as the case may be, must pay to the applicable named executive officer (a) a lump sum equal to 12 months of base salary (in the case of to Dr. Agro or Dr. Bilbault) or a lump sum equal to 14 months of base salary (in the case of Mr. Williams), and (b) the applicable Deemed Annual Bonus, together with all amounts to which Dr. Agro, Dr. Bilbault or Mr. Williams, as applicable, would have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements that are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws.

Termination for Death or Disability - In the event of the death or disability (as defined in the employment agreements) of the named executive officer, we must pay to the named executive officer an amount equal to the base salary accrued to the date of termination and the applicable Deemed Annual Bonus, together with all amounts which have accrued but not yet been paid prior to the date of termination, including any amounts owing in accordance with any benefit plan.

We have also entered into non-disclosure, non-solicitation and non-competition agreements (the “NDA Agreements”) with our named executive officers prohibiting them from competing with us and soliciting our clients for a period of one year following termination and also prohibiting soliciting our employees for a period of two years following termination.

We have also entered into indemnification agreements with our executive officers and directors providing for indemnification against certain risks arising in connection with their service as executive officers and directors, as applicable, of Cynapsus.

The foregoing is a summary description of certain terms of the employment agreements, NDA Agreements and indemnification agreements with our executive officers and directors, as applicable, and is qualified in its entirety by reference to such agreements, copies of which are filed as exhibits to this Annual Report on Form 10-K.

Outstanding Equity Awards at Fiscal Year-End

The following table presents, for each of our named executive officers, information regarding outstanding stock options held as of December 31, 2015.