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Index to Financial Statements

Table of Contents

As filed with the Securities and Exchange Commission on July 31, 2015

Registration No. 333-205355

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933



ZYNERBA PHARMACEUTICALS, INC.
(Exact Name Of Registrant As Specified In Its Charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  26-0389433
(I.R.S. Employer
Identification Number)

80 W. Lancaster Avenue, Suite 300
Devon, PA 19333
(484) 581-7505
(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)



Armando Anido
Chairman and Chief Executive Officer
80 W. Lancaster Avenue, Suite 300
Devon, PA 19333
(484) 581-7505

(Name, address, including zip code and telephone number, including area code, of agent for service)



Copies to:

Jeffrey P. Libson, Esq.
Steven J. Abrams, Esq.
Rachael M. Bushey, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
18 th  and Arch Streets
Philadelphia, PA 19103
(215) 981-4241

 

Steven D. Singer, Esq.
Lisa Firenze, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
7 World Trade Center
250 Greenwich Street
New York, NY 10007
(212) 295-6307



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box.     o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

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. (Check one):

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý
(Do not check if a
smaller reporting company)
  Smaller reporting company  o



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered (1)

  Proposed Maximum
Offering Price
Per Share (2)

  Proposed Maximum
Aggregate Offering
Price (1)(2)

  Amount of
Registration Fee (3)

 

Common Stock, par value $0.001 per share

  3,450,000   $15.00   $51,750,000   $6,013.35

 

(1)
Includes 450,000 shares of common stock that may be sold if the underwriters exercise their option to purchase additional shares.

(2)
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.

(3)
Previously paid.



The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 31, 2015

PRELIMINARY PROSPECTUS

3,000,000 Shares

GRAPHIC

Zynerba Pharmaceuticals, Inc.

Common Stock

We are offering 3,000,000 shares of our common stock. This is our initial public offering, and no public market currently exists for our common stock. We expect the initial public offering price to be between $13.00 and $15.00 per share. We have applied to list our common stock on The NASDAQ Global Market under the symbol "ZYNE." We are an "emerging growth company" as defined by the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

Investing in our common stock involves a high degree of risk. Please read "Risk Factors" beginning on page 12 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


 
  PER SHARE   TOTAL  

Public Offering Price

  $     $    

Underwriting Discounts and Commissions (1)

  $     $    

Proceeds to Zynerba Pharmaceuticals, Inc. before expenses

  $     $    

(1)
We refer you to "Underwriting" beginning on page 138 of this prospectus for information regarding expenses reimbursable by us to the underwriters in connection with FINRA filings.

Certain of our existing investors, including Perceptive Advisors, LLC, have indicated an interest in purchasing up to an aggregate of approximately $12 million in our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities may determine to not purchase any shares in this offering. It is also possible that these entities could indicate an interest in purchasing more shares of common stock. In addition, the underwriters could determine to sell fewer shares of common stock to any of these entities than such entities indicate an interest in purchasing or to not sell any shares to these entities.

Delivery of the shares of common stock is expected to be made on or about                                             , 2015. We have granted the underwriters an option for a period of 30 days to purchase up to an additional 450,000 shares of common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $               , and the total proceeds to us, before expenses, will be $               .

Joint Book-Running Managers

 

 

 
Jefferies   Piper Jaffray

 

 

 
Co-Managers

 

 

 
Canaccord Genuity   Oppenheimer & Co.

   

Prospectus dated                             , 2015.


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Table of Contents

Prospectus Summary

    1  

Risk Factors

    12  

Special Note Regarding Forward-Looking Statements

    45  

Use of Proceeds

    46  

Dividend Policy

    48  

Capitalization

    49  

Dilution

    50  

Selected Financial Data

    53  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    55  

Business

    67  

Management

    104  

Executive and Director Compensation

    113  

Certain Relationships and Related Party Transactions

    121  

Principal Stockholders

    125  

Description of Capital Stock

    128  

Shares Eligible for Future Sale

    132  

Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of our Common Stock

    134  

Underwriting

    138  

Legal Matters

    143  

Experts

    143  

Where You Can Find More Information

    143  

Index to Financial Statements

    F-1  

Neither we nor any of the underwriters has authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we may have referred you in connection with this offering. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor any of the underwriters is making an offer to sell or seeking offers to buy these securities in any jurisdiction where, or to any person to whom, the offer or sale is not permitted. The information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates.

Through and including                                             , 2015 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. We believe this data is accurate in all material respects as of the date of this prospectus. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors."

We have applied to register Zynerba™ as a U.S. trademark based on an intent to use in the United States. This prospectus contains references to our trademark and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.


Table of Contents

 


PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially the "Risk Factors" beginning on page 12 and our financial statements and related notes, before deciding to buy shares of our common stock.

Unless the context indicates otherwise, as used in this prospectus, the terms "Zynerba," "Zynerba Pharmaceuticals," "we," "us," "our," "our company" and "our business" refer to Zynerba Pharmaceuticals, Inc.

Company Overview

We are a ten-year-old specialty pharmaceutical company focused on developing and commercializing proprietary next-generation synthetic cannabinoid therapeutics formulated for transdermal delivery. Our management team is highly experienced and has a successful history of development, regulatory approval and commercialization of patch and gel transdermal delivery products. We are evaluating two patent-protected product candidates, ZYN002 and ZYN001, in five indications. We intend to study ZYN002 in patients with refractory epilepsy, Fragile X syndrome, or FXS, and osteoarthritis, or OA. We intend to study ZYN001 in patients with fibromyalgia and peripheral neuropathic pain. We expect to initiate Phase 1 clinical trials for ZYN002 in the second half of 2015 and ZYN001 by mid-2016.

Cannabinoids are a class of compounds derived from Cannabis plants. The two primary cannabinoids contained in Cannabis are cannabidiol, or CBD, and D 9-tetrahydrocannabinol, or THC. Clinical and preclinical data suggest that CBD has positive effects on treating refractory epilepsy, FXS and arthritis and THC has positive effects on treating pain. Interest in cannabinoid therapeutics has increased significantly over the past several years as preclinical and clinical data has emerged highlighting the potential efficacy and safety benefits of cannabinoid therapeutics. The cannabinoid therapeutics market is expected to grow significantly due to the potential benefits these products may provide over existing therapies. In addition to ZYN002 and ZYN001 potentially offering first-line therapies to patients suffering from FXS, OA, fibromyalgia and peripheral neuropathic pain, we believe ZYN002 may provide a complementary treatment for patients suffering from epilepsy who are refractory to their current treatment regimens.

We believe that we offer an attractive alternative to existing cannabinoid therapies by synthetically manufacturing and transdermally delivering our product candidates. Most cannabinoid therapies have drawbacks and limitations due to their botanical (plant-derived) nature, as well as the fact that they are administered orally. Botanical cannabinoids create significant challenges for drug manufacturers because of the natural resources and security measures required to grow Cannabis , as well as the strict batch controls required by regulatory agencies in pharmaceutical manufacturing. In addition, we believe all currently approved and development-stage cannabinoid therapeutics, except ZYN002 and ZYN001, are designed to be administered orally which can lead to limitations in safety and efficacy including low bioavailability, inconsistent plasma levels, degradation by stomach acids, and significant first-pass liver metabolism. First-pass liver metabolism refers to the process by which the liver breaks down therapeutics ingested directly or indirectly through the gastrointestinal system, such as through oral or oral mucosal delivery methods, allowing only a small amount of drug to be absorbed into the circulatory system. In contrast, transdermal therapeutics are absorbed through the skin directly into the systemic circulation, avoiding first-pass liver metabolism and degradation by stomach acids, and potentially enabling lower dosage levels of active pharmaceutical ingredients and rapid and reliable absorption with high bioavailability, fewer negative psychoactive effects and fewer drug-drug interactions.

 

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We have assembled a highly experienced management team, each of whom has over 25 years of pharmaceutical industry experience, including our chief executive officer and president, who have a track record of success for obtaining regulatory approval of and commercializing products using transdermal delivery. Armando Anido, our chairman and chief executive officer, previously served as the chief executive officer of two publicly traded companies, Auxilium Pharmaceuticals Inc., or Auxilium, and NuPathe, Inc., or NuPathe. Terri B. Sebree, our president, previously co-founded NuPathe and served as senior vice president, development at Auxilium, and has successfully developed ten products from Investigational New Drug Application to regulatory approval. Ms. Sebree most recently oversaw the development and regulatory approval of Testim® gel and Zecuity® patch. Richard A. Baron, our chief financial officer, has extensive experience as chief financial officer of public and private pharmaceutical companies, most recently having served as chief financial officer of Globus Medical, Inc. and, prior to that, at Avid Radiopharmaceuticals, Inc.

Our Product Candidates

Our patent-protected synthetic transdermal cannabinoid product candidates, ZYN002 and ZYN001, represent next-generation cannabinoid therapeutics for several indications including refractory epilepsy, FXS, OA, fibromyalgia and peripheral neuropathic pain. Treatments for these indications represent markets with underserved patient populations which we believe can benefit from cannabinoid therapies. With the FXS indication, we have requested orphan drug designation from the Food and Drug Administration, or FDA, in the second half of 2015. We believe our proprietary synthetic transdermal product candidates will effectively address these indications and provide a solution to the limitations of botanically-derived and oral and oral mucosal delivered cannabinoid therapeutics.

ZYN002 is the first and only synthetic CBD formulated as a permeation-enhanced gel for transdermal delivery, and is patent-protected through 2030. In preclinical animal studies, ZYN002's permeation enhancer increased delivery of CBD through the layers of the skin and into the circulatory system. These preclinical studies suggest increased bioavailability, consistent plasma levels and the avoidance of first-pass liver metabolism. In addition, an in vitro study performed by us demonstrated that CBD is degraded to THC in an acidic environment such as the stomach. We believe such degradation may lead to increased psychoactive effects, which may be avoided or minimized with the transdermal delivery of ZYN002, which avoids the gastrointestinal tract and potential stomach acid degradation. ZYN002 is being developed as a clear, odorless gel with once- or twice-daily dosing.

We plan to evaluate ZYN002 in patients with refractory epilepsy, FXS and OA. Epilepsy is a disease characterized by an enduring predisposition to generate epileptic seizures (transient symptoms due to abnormal neuronal activity in the brain) and by the neurobiological, cognitive, psychological and social consequences of the condition. FXS is a genetic condition that causes autism-like symptoms including intellectual disability, anxiety disorders, behavioral and learning challenges and various physical characteristics. OA is a degenerative joint disease that leads to wear and tear of the joints and, in some patients, significant inflammation and involves the cartilage, joint lining, ligaments and bone.

 

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The table below summarizes our target indications, expected type of therapy and market size with regard to each target indication for ZYN002.


 
   
  2012 U.S. Market Size (1)
Target Indication
  Expected Type Of Therapy   Patient Population   Current Market

Refractory Epilepsy

  Adjunctive, second-line therapy in patients with partial seizures with secondary generalization on a stable dose of an anticonvulsant with a history of failure   2.2 million   $1.7 billion

Fragile X Syndrome

  Monotherapy, first-line therapy in patients with FXS   71,000   There are no FDA-approved therapies

Osteoarthritis

  Monotherapy, first-line therapy in patients with OA   129.5 million   $670.0 million

(1)
Except for FXS data, based on data provided by Decision Resources. Data for epilepsy represents the market size for all types of epilepsy. FXS data based on 2012 U.S. Census data and data provided by the National Fragile X Foundation.

ZYN001 is a pro-drug of THC that enables transdermal delivery via a patch and is patent-protected through 2031. A pro-drug is a drug administered in an inactive or less active form and designed to enable more effective delivery, which is then converted into an active form through a normal metabolic process. In addition, we expect that ZYN001 will be classified by the FDA as a new chemical entity, or NCE. The transdermal patch is a non-invasive, non-oral dosage form that has been proven to be an effective method of delivery in other FDA approved products. In our preclinical animal studies, ZYN001 demonstrated effective skin permeation with sustained delivery and rapid conversion of ZYN001 to THC. These preclinical studies suggest increased bioavailability, consistent plasma levels and the avoidance of first-pass liver metabolism.

We intend to study ZYN001 in patients with fibromyalgia and peripheral neuropathic pain. Fibromyalgia is a chronic pain syndrome that can be considered a neurosensory disorder characterized in part by abnormalities in pain processing by the central nervous system. Patients suffer from widespread pain, stiffness, fatigue, disrupted and unrefreshing sleep, and cognitive difficulties. Patients may also experience symptoms such as headache, anxiety and/or depression and gastrointestinal distress, all of which lead to impairment of daily activities. Fibromyalgia typically presents in middle-aged women, but it can affect patients of either sex and at any age. Neuropathic pain is defined as pain initiated or caused by a primary lesion or dysfunction of the central or peripheral nervous systems. In patients with peripheral neuropathic pain, the pain is a symptom of another disease that has caused nerve damage — such as a herniated disc (lower back pain), diabetes (diabetic neuropathy), cancer (neuropathic cancer pain), or herpes zoster infection (postherpetic neuralgia) — but it is recognized as a clinical condition on its own. Because the damage does not involve the brain or spinal cord, the resulting neuropathic pain is defined as peripheral.

The table below summarizes our target indications, expected type of therapy and market size with regard to each target indication for ZYN001.


 
   
  2012 U.S. Market Size (1)
Target Indication
  Expected Type Of Therapy   Patient Population   Current Market

Fibromyalgia

  Monotherapy, first-line therapy in patients with fibromyalgia   5.6 million   $1.6 billion

Peripheral Neuropathic Pain

  Monotherapy, first-line therapy in patients with peripheral neuropathic pain   14.0 million   $4.0 billion

(1)
Based on data provided by Decision Resources.

 

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Product Development

We plan to evaluate the tolerability and pharmacokinetics, or PK, profile of both ZYN002 and ZYN001 in Phase 1 single rising dose clinical trials in healthy human subjects (and in patients with refractory epilepsy for ZYN002). Subsequent to the single rising dose clinical trials, we intend to conduct Phase 1 multiple rising dose clinical trials to examine the tolerability, PK and pharmacodynamics, or PD, of multiple doses of each compound in healthy human subjects and in patients with refractory epilepsy for ZYN002 and in patients with fibromyalgia for ZYN001. To complete the Phase 1 program for both product candidates, we will conduct bioequivalence clinical trials assessing the PK when applied to various parts of the body (e.g., arm, thigh and back).

We intend to initiate a Phase 2a randomized, double-blind, placebo-controlled clinical trial comparing the efficacy and safety of multiple doses of ZYN002 to placebo in refractory epilepsy and OA. We intend to initiate an open label Phase 2a clinical trial in FXS to evaluate efficacy and safety. We also intend to initiate a Phase 2a randomized, double-blind, placebo-controlled clinical trial comparing the efficacy and safety of multiple doses of ZYN001 to placebo in fibromyalgia and peripheral neuropathic pain.

Depending on the results of the ZYN002 and ZYN001 Phase 2a clinical trials, we may need to further define the dosing in Phase 2b clinical trials or we may proceed directly into Phase 3 clinical trials.

We intend to use the data from the Phase 2 clinical trials outlined above to select doses of ZYN002 and ZYN001 for our Phase 3 program, which will consist of two randomized, double-blind, placebo-controlled clinical trials for each indication and open-label long-term clinical trials.

We plan to conduct our Phase 1, and possibly Phase 2, clinical trials for ZYN002 in Australia (subject to applicable regulatory approval), and do not expect at this time to file an Investigational New Drug Application, or IND, with the FDA prior to the commencement of those clinical trials. We must file an IND with the FDA and receive approval from the U.S. Drug Enforcement Agency, or DEA, prior to commencement of any clinical trial in the United States. We plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. We plan to submit New Drug Applications, or NDAs, for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials.

Our key development programs and expected timelines for the development of ZYN002 and ZYN001 are shown in the table below:


Product
Candidate
  Target Indication   Delivery Method   Current
Development
Status
  Expected Next Steps
ZYN002   Refractory Epilepsy   Permeation-enhanced Gel   Preclinical   2H15: Initiate Phase 1
    Fragile X Syndrome           2H16: Initiate Phase 2a
    Osteoarthritis            
ZYN001   Fibromyalgia   Transdermal Patch   Preclinical   Mid-2016: Initiate Phase 1
    Peripheral Neuropathic Pain           1H17: Initiate Phase 2a

Our Intellectual Property

Our intellectual property related to ZYN002 and ZYN001 was internally developed. Our ZYN002 patent portfolio currently consists of two issued patents in the United States, five issued patents in France, Germany, Ireland, Switzerland and the United Kingdom and two pending patent applications in Canada and Japan. The issued patents will expire between 2026 and 2029, and any patents that issue from our currently pending patent applications will expire in 2030. Our ZYN001 patent portfolio currently consists of two issued patents in the United States, one issued patent in Japan, one allowed patent in Europe and patent applications pending in the United States, Europe, Canada and Japan. The issued patents will expire

 

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between 2028 and 2031, and any patents that issue from our currently pending patent applications will expire in 2028.

Our Strengths

We are the first and only company developing patent-protected synthetic transdermal cannabinoid therapeutics with the following key distinguishing characteristics:

Exceptional and experienced management team with proven track record.     We have a sophisticated and experienced management team, each of whom has over 25 years of pharmaceutical industry experience, including our chief executive officer and president, who have a successful history of development, regulatory approval and commercialization of patch and gel transdermal delivery products.

Unique delivery methods.     We are the first and only company developing patent-protected synthetic cannabinoid therapeutics for transdermal delivery. Transdermal delivery has a range of potential benefits including the ability to provide sustained and consistent plasma levels, controlled delivery and convenient dosing, as well as the avoidance of the first-pass liver metabolism and stomach acid degradation and an alternative for patients for whom oral formulations are suboptimal.

Synthetically manufactured pure cannabinoid therapeutics.     Our product candidates are synthetically manufactured rather than extracted from Cannabis plants. We believe synthetically produced cannabinoids offer several advantages to botanically-derived cannabinoids, including consistent, reproducible pharmaceutical-grade active ingredients with well-defined impurity profiles.

Targeting indications with significant unmet medical need.     We believe that our product candidates can provide effective treatment to patients with significant unmet medical needs in large markets, which will increase the probability of commercial success if our product candidates are approved.

Strong intellectual property protection for our product candidates.     Our patent portfolio provides a long window for development and commercialization and is not specific to any single indication, which we believe will allow us to develop products for additional patient populations in markets with significant unmet medical need.

Our Business Strategy

Our goal is to become a leader in the cannabinoid pharmaceuticals market by pursuing the following strategies:

    §
    Rapidly advance ZYN002 and ZYN001 through clinical development to regulatory approval in the United States.

    §
    Explore collaborations to develop and pursue regulatory approval of ZYN002 and ZYN001 outside the United States.

    §
    Explore additional indications and product candidates for synthetic CBD and THC.

    §
    Strengthen our competitive position by maintaining leadership in the transdermal synthetic cannabinoid therapeutics market and broadening our intellectual property rights.

    §
    Commercialize ZYN002 and ZYN001 in the United States independently or with third parties.

 

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Risks Associated with Our Business

Our ability to implement our business strategy is subject to numerous risks and uncertainties. As a preclinical-stage specialty pharmaceutical company, we face many risks inherent in our business and our industry generally. You should carefully consider all of the information set forth in this prospectus and, in particular, the information under the heading "Risk Factors," beginning on page 12, prior to making an investment in our common stock. These risks include, among others, the following:

    §
    We have no commercial revenue, may never become profitable and will incur substantial and increasing net losses for the foreseeable future as we continue development of, and seek regulatory approvals for, ZYN002 and ZYN001;

    §
    We will need to raise additional capital to continue operations, including the development of ZYN002 and ZYN001;

    §
    We have limited resources which may inhibit our ability to commence clinical trials of ZYN002 in 2015 and ZYN001 in 2016;

    §
    We are subject to regulatory approval processes that are lengthy, time consuming and unpredictable, and we may not obtain approval for ZYN002 or ZYN001 from the FDA or foreign regulatory authorities;

    §
    Even if we achieve regulatory approval, our success is dependent on the effective commercialization of ZYN002 and ZYN001;

    §
    Our product candidates will be subject to controlled substances laws and regulations, including approval, oversight and scheduling by the DEA;

    §
    It is difficult and costly to protect our intellectual property rights;

    §
    We may be unable to recruit or retain key employees, including our senior management team;

    §
    We depend on the performance of third parties, including contract research organizations, or CROs, and third-party manufacturers; and

    §
    Our government grants are conditioned upon audits and could require us to repay funds previously awarded to us.

Our Corporate Information

We were incorporated in Delaware in January 2007 under the name AllTranz, Inc., and in June 2007 we merged with AllTranz LLC, a Kentucky limited liability company that was founded in 2004 by Audra Stinchcomb, a pharmacologist and transdermal expert, with AllTranz, Inc. surviving. In May 2014, we were reorganized and recapitalized pursuant to an agreement and plan of merger whereby BCM Partners IV, Corp., a non-operating entity owned by BCM X1 Holdings, LLC and Audra Stinchcomb, two of our principal stockholders at that time, was merged with and into Alltranz, Inc., with Alltranz, Inc. surviving. In August 2014, AllTranz, Inc. changed its name to Zynerba Pharmaceuticals, Inc. See "Certain Relationships and Related Party Transactions — Agreements with Broadband Capital Management — Agreement and Plan of Merger" in this prospectus.

Our primary executive offices are located at 80 W. Lancaster Avenue, Suite 300, Devon, PA 19333 and our telephone number is (484) 581-7505. Our website address is www.zynerba.com. The information contained in, or that can be accessed through, our website is not part of this prospectus.

We have applied to register Zynerba as a U.S. trademark. All other trademarks, trade names or service marks referred to in this prospectus are the property of their respective owners.

 

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Implications of Being an Emerging Growth Company

We are an "emerging growth company," as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or JOBS Act. As such, we are eligible to take advantage of exemptions from various disclosure and reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to:

    §
    our exemption from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002;
    §
    being permitted to present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations, in each case, instead of three years;
    §
    being permitted to present the same number of years of selected financial data as the years of audited financial statements presented, instead of five years;
    §
    reduced disclosure obligations regarding executive compensation, including no Compensation Disclosure and Analysis;
    §
    our exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements; and
    §
    our exemption from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We may rely on these provisions until the last day of our fiscal year following the fifth anniversary of the closing of this offering. However, if certain events occur prior to the end of such period, including if we become a "large accelerated filer," our annual gross revenue exceeds $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such period.

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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THE OFFERING

Common stock offered by us

  3,000,000 shares

Common stock to be outstanding after this offering

 

8,733,963 shares

Option to purchase additional shares

 

We have granted to the underwriters the option, exercisable for 30 days from the date of this prospectus, to purchase up to 450,000 additional shares of common stock.

Use of proceeds

 

We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $36.3 million. This assumes a public offering price of $14.00, which is the midpoint of the price range set forth on the cover page of this prospectus. We intend to use the net proceeds from this offering for the following purposes:

 

§

approximately $16.4 million to fund development efforts of ZYN002;

 

§

approximately $14.2 million to fund development efforts of ZYN001; and

 

§

the remainder to fund working capital and research and development and for general corporate purposes.

 

See "Use of Proceeds" for more information.

Directed share program

 

The underwriters have reserved for sale, at the initial public offering price, up to approximately 5% of the shares of our common stock being offered. These shares will be offered for sale to our directors and director nominees; officers; existing stockholders and their affiliates and employees of both; and business associates, as well as certain friends and family members of our directors and officers. We will offer these shares to the extent permitted under applicable regulations in the United States. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares.

Risk factors

 

You should read the "Risk Factors" section beginning on page 12 of this prospectus for a discussion of certain of the factors to consider carefully before deciding to purchase any shares of our common stock.

Listing

 

We have applied to list our common stock on The NASDAQ Global Market under the symbol "ZYNE."

 

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Dividend Policy

 

We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. See "Dividend Policy" for more information.

Lock-Up Agreements

 

We, along with our directors, executive officers and substantially all of our other securityholders, have agreed with the underwriters that for a period of 180 days, after the date of this prospectus, subject to specified exceptions, we or they will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock.

The number of shares of our common stock to be outstanding after this offering is based on 2,029,747 shares of common stock outstanding as of March 31, 2015, and assumes:

    §
    the issuance by us of 3,000,000 shares of our common stock in this offering; and

    §
    the conversion of all of our convertible preferred stock outstanding immediately prior to the closing of this offering into an aggregate of 3,704,216 shares of common stock.

and excludes:

    §
    606,379 shares of common stock issuable upon the exercise of outstanding stock options as of July 31, 2015, at a weighted-average exercise price of $3.98 per share; and

    §
    1,263,739 shares of our common stock reserved for future issuance under our Amended and Restated 2014 Omnibus Incentive Compensation Plan, or the 2014 Equity Plan, as amended effective upon the closing of this offering.

Unless otherwise indicated, all information contained in this prospectus assumes or gives effect to:

    §
    a 1 for 1.88 reverse stock split of our common stock effected on July 30, 2015;

    §
    the filing of our sixth amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering; and

    §
    no exercise by the underwriters of their option to purchase up to an additional 450,000 shares of our common stock.

 

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SUMMARY FINANCIAL DATA

The following summary financial data should be read together with our financial statements and accompanying notes, "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. We derived the summary statements of operations data for the years ended December 31, 2013 and 2014 from our audited financial statements and accompanying notes appearing elsewhere in this prospectus. We derived the summary statements of operations data for the three months ended March 31, 2014 and 2015 and the summary balance sheet data as of March 31, 2015 from our unaudited financial statements and accompanying notes appearing elsewhere in this prospectus. The summary financial data in this section are not intended to replace our financial statements and the related notes. Our unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, include adjustments, consisting of normal recurring adjustments and accruals necessary for a fair statement of the information for the interim periods. Our historical results are not necessarily indicative of the results that may be expected in the future and results from our interim period may not necessarily be indicative of the results of the entire year.


Statements of Operation Data:

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2013   2014   2014   2015  
 
   
   
  (unaudited)
 

Revenues

  $ 943,904   $ 810,012   $ 146,287   $ 14,828  

Operating expenses:

                         

Research and development

    1,134,041     2,401,406     285,725     853,704  

General and administrative

    444,302     4,076,339     99,704     653,773  

Total operating expenses

    1,578,343     6,477,745     385,429     1,507,477  

Loss from operations

    (634,439 )   (5,667,733 )   (239,142 )   (1,492,649 )

Other income (expense):

                         

Interest (expense) income, net

    (2,351 )   (1,844 )   (1,217 )   680  

Net loss

    (636,790 )   (5,669,577 )   (240,359 )   (1,491,969 )

Accretion of redeemable convertible preferred stock

    (161,834 )   (87,954 )   (87,954 )    

Net loss applicable to common stockholders

  $ (798,624 ) $ (5,757,531 ) $ (328,313 ) $ (1,491,969 )

Per share information:

                         

Net loss per share basic and diluted

  $ (1.63 ) $ (6.44 ) $ (0.67 ) $ (0.74 )

Basic and diluted weighted average shares outstanding

    490,760     894,575     490,760     2,029,747  

Pro forma net loss (unaudited) (1)

       
$

(5,669,577

)
     
$

(1,491,969

)

Pro forma net loss per share basic and diluted (unaudited) (1)

        $ (2.56 )       $ (0.26 )

Pro forma basic and diluted weighted average shares outstanding (unaudited) (1)

          2,215,507           5,733,963  

(1)
Refer to note 2(k) of our audited financial statements and note 1(e) to our unaudited financial statements for a description of the method used to calculate net loss per share, basic and diluted, and pro forma net loss per share basic and diluted and the basic and diluted weighted average shares outstanding.

 

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  As of March 31, 2015  
 
  Actual   Pro forma (1)   Pro forma as
adjusted (2)
 
 
   
  (unaudited)
  (unaudited)
 

BALANCE SHEET DATA:

                   

Cash and cash equivalents

  $ 7,375,975   $ 7,375,975   $ 43,635,975  

Total assets

    10,316,797     10,316,797     46,576,797  

Total liabilities

    3,337,630     3,337,630     3,337,630  

Convertible preferred stock

    16,522,811          

Total stockholders' equity (deficit)

    (9,543,644 )   6,979,167     43,239,167  

(1)
Pro forma summary balance sheet data includes the effects of the impact of the automatic conversion of all outstanding shares of Series 1 convertible preferred stock into shares of common stock upon the closing of this offering. The shares of common stock and any related proceeds are excluded from the pro forma information.

(2)
Reflects on a pro forma as adjusted basis the automatic conversion of our Series 1 convertible preferred stock described in (1) and the sale and issuance by us of 3,000,000 shares of common stock in this offering at the assumed initial public offering price of $14.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses. Each $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) each of cash and cash equivalents, total assets and total stockholders' equity (deficit) by approximately $2.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 100,000 in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, total assets and total stockholders' equity (deficit) by approximately $1.3 million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Financial Position and Capital Needs

We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.

We are a preclinical stage specialty pharmaceutical company, engaged in developing next-generation transdermal synthetic cannabinoid therapeutics. Since our inception in January 2007, we have devoted substantially all of our resources to the development of our product candidates, ZYN002 and ZYN001. We have generated significant operating losses since our inception. Our net losses for the years ended December 31, 2013 and 2014 and for the three months ended March 31, 2015 were approximately $636,790, $5.7 million and $1.5 million, respectively. As of March 31, 2015, we had an accumulated deficit of $11.5 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses will increase as we continue the research and development of, and clinical trials for, our product candidates. In addition to budgeted expenses, we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. If either of our product candidates fails in clinical trials or does not gain regulatory approval, or even if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

Due to our limited operating history and history of losses, any predictions about our future success, performance or viability may not be accurate.

We currently have no commercial revenue and may never become profitable.

To date, the only revenue we have generated has been from the receipt of research grants and payments for research services. Our ability to generate revenue and become profitable depends upon our ability to obtain regulatory approval for, and successfully commercialize, ZYN002, ZYN001 or other product candidates that we may develop, in-license or acquire in the future.

Even if we are able to successfully achieve regulatory approval for these product candidates, we do not know what the reimbursement status of our product candidates will be or when any of these products will generate revenue for us, if at all. We have not generated, and do not expect to generate, any product revenue for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies and clinical trials and the regulatory approval process for our product candidates. The amount of future losses is uncertain and will depend, in part, on the rate of growth of our expenses.

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Our ability to generate revenue from our product candidates also depends on a number of additional factors, including our ability to:

We are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the processes described above, we anticipate incurring significant costs associated with commercializing our product candidates.

We will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete the development and commercialization of ZYN002 or ZYN001.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial and increasing amounts to conduct further research and development, preclinical testing and clinical trials of our product candidates, to seek regulatory approvals and reimbursement for our product candidates and to launch and commercialize any product candidates for which we receive regulatory approval. As of March 31, 2015, we had approximately $7.4 million in cash and cash equivalents. We expect that the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to fund our operations and capital requirements for the next 24 months. We believe that these available funds will be sufficient to complete (i) Phase 1 clinical trials for ZYN002 and three Phase 2a clinical trials for this product candidate, one for each target indication of refractory epilepsy, FXS and OA and (ii) Phase 1 clinical trials for ZYN001 and two Phase 2a clinical trials for this product candidate, one for each target indication of fibromyalgia and peripheral neuropathic pain. The progress of ZYN002 and ZYN001 for each target indication is uncertain due to numerous factors, including, without limitation, the rate of progress of clinical trials, the results of preclinical studies and clinical trials for such indication, the costs and timing of seeking and obtaining FDA and other regulatory approvals for clinical trials and FDA guidance regarding clinical trials for such indication. In addition, it is difficult to predict our spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control. For these reasons, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

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We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives.

Our federal and state government grants could subject us to audits and could require us to repay substantial amounts of funds previously awarded to us.

To date, most of our revenue has been from the receipt of state and federal research grants. As of March 31, 2015 we have been granted approximately $7.9 million in federal and state research grants. In connection with these grants, we may be subject to routine audits by government agencies. As part of an audit, these agencies may review our performance, cost structures and compliance with applicable laws, regulations, policies and standards and the terms and conditions of the grant. If any of our expenditures are found to be unallowable or allocated improperly or if we have otherwise violated terms of the grant, the expenditures may not be reimbursed and/or we may be required to repay funds already disbursed. Accordingly, an audit could result in a material adjustment to our results of operations and financial condition.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing ownership interests will be diluted and the terms of such financings may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders' ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us.

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Risks Related to our Business and Industry

We are largely dependant on the success of our product candidates, ZYN002 and ZYN001, which are still in preclinical development and will require significant capital resources and years of clinical development effort.

We currently have no products on the market, and our product candidates, ZYN002 and ZYN001, are still in preclinical development. Our business depends almost entirely on the successful clinical development, regulatory approval and commercialization of ZYN002 and ZYN001, and additional preclinical testing and substantial clinical development and regulatory approval efforts will be required before we are permitted to commence commercialization, if ever. It will be several years before we can commence and complete a pivotal study for ZYN002 or ZYN001, if ever. For ZYN002, we plan to conduct Phase 1, and possibly Phase 2, clinical trials in Australia, subject to applicable regulatory approval. We plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. We plan to submit NDAs for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials. The clinical trials and manufacturing and marketing of ZYN002 and ZYN001 will be subject to extensive and rigorous review and regulation by numerous government authorities in the United States, Australia, the European Union, Canada, and other jurisdictions where we intend to test and, if approved, market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through preclinical testing and clinical trials that the product candidate is safe and effective for use in each target indication, and potentially in specific patient populations. This process can take many years and may include post-marketing studies and surveillance, which would require the expenditure of substantial resources beyond the proceeds we raise in this offering. Of the large number of drugs in development for approval in the United States and the European Union, only a small percentage successfully complete the FDA or EMA regulatory approval processes, as applicable, and are commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our research, development and clinical programs, we cannot assure you that any of our product candidates will be successfully developed or commercialized.

Because the results of preclinical testing are not necessarily predictive of future results, ZYN002 and ZYN001 may not have favorable results in our planned clinical trials.

Any positive results from our preclinical testing of ZYN002 and ZYN001 may not necessarily be predictive of the results from our planned clinical trials in humans. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after achieving positive results in preclinical development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. If we fail to produce positive results in our clinical trials of ZYN002 and ZYN001, the development timeline and regulatory approval and commercialization prospects for ZYN002 and ZYN001, and, correspondingly, our business and financial prospects, would be materially adversely affected.

We may not be able to commence clinical trials in 2015; even if ZYN002 and ZYN001 advance into clinical trials, we may experience difficulties in managing our growth and expanding our operations.

We have not begun clinical trials for any of our product candidates. While we expect to commence clinical trials in Australia in 2015 for ZYN002, we have limited resources to carry out these objectives. In addition, we do not expect at this time to file an IND with the FDA prior to the commencement of these trials. Our company has no history of conducting clinical trials, which is a time-consuming, expensive and uncertain process. In addition, while we have experienced management and expect to contract out many of the

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activities related to conducting clinical trials, we are a small company with only seven employees and therefore have limited internal resources both to conduct clinical trials and to monitor third-party providers. As our product candidates enter into and advance through preclinical studies and any clinical trials, we will need to expand our development, regulatory and manufacturing operations, either by expanding our internal capabilities or contracting with other organizations to provide these capabilities for us. In the future, we expect to have to manage additional relationships with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures.

Failures or delays in the completion of our preclinical studies or the commencement and completion of our planned clinical trials of ZYN002 or ZYN001 could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.

To date, we have not commenced any clinical trials for ZYN002 or ZYN001. Successful completion of such clinical trials is a prerequisite to submitting an NDA to the FDA or an MAA to the EMA. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A product candidate can unexpectedly fail at any stage of clinical development. The historic failure rate for product candidates is high due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. We expect to initiate clinical trials for ZYN002 in the second half of 2015. However, we do not know whether our clinical trials will begin or be completed on schedule, if at all, as the commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including, among others:

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In addition, a clinical trial may be suspended or terminated by us, the FDA, IRBs, ethics committees, data safety monitoring board or other foreign regulatory authorities overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including, among others:

We intend to expend our limited resources to pursue ZYN002 and ZYN001 for certain indications, and may fail to capitalize on other product candidates or other indications for ZYN002 or ZYN001 that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we are focusing on research programs relating to ZYN002 and ZYN001 for certain indications, which concentrates the risk of product failure in the event ZYN002 or ZYN001 proves to be unsafe or ineffective or inadequate for clinical development or commercialization. In particular, we intend to study ZYN002 in patients with refractory epilepsy, Fragile X syndrome, or FXS, and osteoarthritis and we intend to study ZYN001 in patients with fibromyalgia and peripheral neuropathic pain. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications for ZYN002 or ZYN001 that could later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on proprietary research and development programs relating to ZYN002 and ZYN001 may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for ZYN002 and ZYN001, we may relinquish valuable rights to ZYN002 or ZYN001 through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to ZYN002 or ZYN001.

The regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

We are not permitted to market our product candidates in the United States or the European Union until we receive approval of an NDA from the FDA or an MAA from the EMA, respectively, or in any foreign countries until we receive the requisite approval from such countries. Prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our product candidates we will need to complete our ongoing preclinical studies, as well as Phase 1, Phase 2 and Phase 3 clinical trials. We are still conducting preclinical studies and have not yet commenced our clinical program or tested ZYN002 or ZYN001 in humans. For ZYN002, we plan to conduct Phase 1, and possibly Phase 2, clinical trials in Australia, subject to applicable regulatory approval. We plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. We plan to submit NDAs for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials. Successfully initiating and completing our clinical program and obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain process, and the FDA or EMA may delay, limit or deny approval of our product candidates for many reasons, including, among others, because:

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Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market ZYN002 or ZYN001. Moreover, because our business is almost entirely dependent upon these two product candidates, any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

We plan to conduct clinical trials for ZYN002 and ZYN001 outside the United States and the FDA may not accept data from such trials.

We plan to conduct clinical trials outside the United States. For ZYN002, we plan to conduct Phase 1, and possibly Phase 2, clinical trials in Australia, subject to applicable regulatory approval. We plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. We plan to submit NDAs for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the clinical trial must be conducted in accordance with Good Clinical Practices, or GCP, requirements and the FDA must be able to validate the data from the clinical trial through an onsite inspection if it deems such inspection necessary.

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Where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice, the clinical trials were performed by clinical investigators of recognized competence, and the data is considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, such clinical trials would be subject to the applicable local laws of the foreign jurisdictions where the clinical trials are conducted. There can be no assurance the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our development plan.

In addition, the conduct of clinical trials outside the United States could have a significant impact on us. Risks inherent in conducting international clinical trials include:

Even if ZYN002 or ZYN001 receive regulatory approval, they may still face future development and regulatory difficulties.

If we obtain regulatory approval for ZYN002 or ZYN001, such approval would be subject to extensive ongoing requirements by the DEA, FDA, EMA and other foreign regulatory authorities related to the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of any product will continue to be closely monitored by the FDA, EMA and other comparable foreign regulatory authorities. If the FDA, EMA or any other comparable foreign regulatory authority becomes aware of new safety information after approval of any of our product candidates, these regulatory authorities may require labeling changes or establishment of a REMS, impose significant restrictions on a product's indicated uses or marketing, impose ongoing requirements for potentially costly post-approval studies or post-market surveillance or impose a recall.

In addition, manufacturers of therapeutic products and their facilities are subject to continual review and periodic inspections by the FDA, the EMA and other comparable foreign regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations. Further, manufacturers of controlled substances must obtain and maintain necessary DEA and state registrations and registrations with applicable foreign regulatory authorities, and must establish and maintain processes to ensure compliance with DEA and state requirements and requirements of applicable foreign regulatory authorities governing, among other things, the storage, handling, security, recordkeeping and reporting for controlled substances. If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may, among other things:

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The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and may otherwise have a material adverse effect on our business, financial condition and results of operations.

ZYN002 and ZYN001 will be subject to controlled substance laws and regulations; failure to receive necessary approvals may delay the launch of our products and failure to comply with these laws and regulations may adversely affect the results of our business operations.

ZYN002 and ZYN001 contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, have no currently "accepted medical use" in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription.

While Cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain Cannabis or Cannabis extracts must be placed in Schedules II - V, since approval by the FDA satisfies the "accepted medical use" requirement. If and when ZYN002 or ZYN001 receives FDA approval, the DEA will make a scheduling determination and place it in a schedule other than Schedule I in order for it to be prescribed to patients in the United States. If approved by the FDA, we expect the finished dosage forms of ZYN002 and ZYN001 to be listed by the DEA as a Schedule II or III controlled substance. Consequently, their manufacture, importation, exportation, domestic distribution, storage, sale and legitimate use will be subject to a significant degree of regulation by the DEA. The scheduling process may take one or more years beyond FDA approval, thereby significantly delaying the launch of ZYN002 or ZYN001. Furthermore, if the FDA, DEA or any foreign regulatory authority determines that ZYN002 or ZYN001 may have potential for abuse, it may require us to generate more clinical data than that which is currently anticipated, which could increase the cost and/or delay the launch of ZYN002 or ZYN001.

Because ZYN002 and ZYN001 contain active ingredients of Cannabis , which are Schedule I substances, to conduct preclinical studies and clinical trials with ZYN002 and ZYN001 in the United States prior to approval, each of our research sites must submit a research protocol to the DEA and obtain and maintain a DEA researcher registration that will allow those sites to handle and dispense ZYN002 and ZYN001 and to obtain the product from our manufacturer. If the DEA delays or denies the grant of a research registration to one or more research sites, the preclinical studies or clinical trials could be significantly delayed, and we could lose and be required to replace clinical trial sites, resulting in additional costs.

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We expect that ZYN002 and ZYN001 will be scheduled as Schedule II or III, as a result of which we will also need to identify wholesale distributors with the appropriate DEA registrations and authority to distribute the products to pharmacies and other healthcare providers, and these distributors would need to obtain Schedule II or III distribution registrations. The failure to obtain, or delay in obtaining, or the loss of any of those registrations could result in increased costs to us. If ZYN002 or ZYN001 is a Schedule II drug, pharmacies would have to maintain enhanced security with alarms and monitoring systems and they must adhere to recordkeeping and inventory requirements. This may discourage some pharmacies from carrying the product. Furthermore, state and federal enforcement actions, regulatory requirements, and legislation intended to reduce prescription drug abuse, such as the requirement that physicians consult a state prescription drug monitoring program, may make physicians less willing to prescribe, and pharmacies to dispense, Schedule II products.

We may manufacture the commercial supply of ZYN002 and ZYN001 outside of the United States. If ZYN002 or ZYN001 is approved by the FDA and classified as a Schedule II or III substance, an importer can import for commercial purposes if it obtains from the DEA an importer registration and files an application with the DEA for an import permit for each import. The DEA provides annual assessments/estimates to the International Narcotics Control Board which guides the DEA in the amounts of controlled substances that the DEA authorizes to be imported. The failure to identify an importer or obtain the necessary import authority, including specific quantities, could affect the availability of ZYN002 or ZYN001 and have a material adverse effect on our business, results of operations and financial condition. In addition, an application for a Schedule II importer registration must be published in the Federal Register, and there is a waiting period for third party comments to be submitted.

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

We currently manufacture the API for ZYN002 and ZYN001 in the United States and Canada. For ZYN002, we plan to conduct Phase 1, and possibly Phase 2, clinical trials in Australia, subject to applicable regulatory approval. We plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. In addition, we may decide to develop, manufacture or commercialize our product candidates in additional countries. As a result, ZYN002 and ZYN001 will also be subject to controlled substance laws and regulations from the Therapeutic Goods Administration in Australia, Health Canada's Office of Controlled Substances in Canada, and from other regulatory agencies in other countries where we may develop, manufacture or commercialize ZYN002 or ZYN001 in the future. We plan to submit NDAs for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials and will require additional DEA approvals at such time as well.

Product shipment delays could have a material adverse effect on our business, results of operations and financial condition.

The shipment, import and export of ZYN002 and ZYN001 and the API used to manufacture ZYN002 and ZYN001 will require import and export licenses. In the United States, the FDA, U.S. Customs and Border Protection, and the DEA, in Canada, where our API is manufactured, the Canada Border Services Agency and Health Canada, in Australia, where we will commence clinical trials, the Australian Customs and Board Protection Service and the Therapeutic Goods Administration, and in other countries, similar regulatory

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authorities, regulate the import and export of pharmaceutical products that contain controlled substances. Specifically, the import and export process requires the issuance of import and export licenses by the relevant controlled substance authority in both the importing and exporting country. We may not be granted, or if granted, maintain, such licenses from the authorities in certain countries. Even if we obtain the relevant licenses, shipments of API and our product candidates may be held up in transit, which could cause significant delays and may lead to product batches being stored outside required temperature ranges. Inappropriate storage may damage the product shipment resulting in delays in clinical trials or, upon commercialization, a partial or total loss of revenue from one or more shipments of API or ZYN002 or ZYN001. A delay in a clinical trial or, upon commercialization, a partial or total loss of revenue from one or more shipments of API or ZYN002 or ZYN001 could have a material adverse effect on our business, results of operations and financial condition.

Failure to obtain regulatory approval in jurisdictions outside the United States and the European Union would prevent our product candidates from being marketed in those jurisdictions.

In order to market and sell our products in jurisdictions other than the United States and the European Union, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the United States and the European Union generally includes all of the risks associated with obtaining FDA and EMA approval, but can involve additional testing. We may need to partner with third parties in order to obtain approvals outside the United States and the European Union. In addition, in many countries worldwide, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States and the European Union on a timely basis, if at all. Even if we were to receive approval in the United States or the European Union, approval by the FDA or the EMA does not ensure approval by regulatory authorities in other countries or jurisdictions. Similarly, approval by one regulatory authority outside the United States and the European Union would not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA or the EMA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of our product candidates by regulatory authorities in other foreign jurisdictions, the commercial prospects of those product candidates may be significantly diminished and our business prospects could decline.

Healthcare legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates.

In the United States there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities or affect our ability to profitably sell any product candidates for which we obtain marketing approval.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or Affordable Care Act, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms, any of which could negatively impact our business. A significant number of provisions are not yet, or have only recently become effective, but the Affordable Care Act is likely to continue the downward pressure on pharmaceutical and medical device pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

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In addition, other legislative changes have been proposed and adopted since passage of the Affordable Care Act. The Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion for the fiscal years 2012 through 2021, triggering the legislation's automatic reduction to several government programs. This included aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which went into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. If we ever obtain regulatory approval and successfully commercialize ZYN002, ZYN001 or other product candidates that we may develop, these new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations.

We expect that the Affordable Care Act, as well as other healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.

We have requested orphan drug status for ZYN002 for the treatment of FXS, but we may be unable to obtain such designation or to maintain the benefits associated orphan drug status, including market exclusivity, which may cause our revenue, if any, to be reduced.

Regulatory authorities in some jurisdictions, including the United States and European Union, may designate drugs for relatively small patient populations as orphan drugs. The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals annually in the United States, or, if the disease or condition affects more than 200,000 individuals annually in the United States, if there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales in the United States. In the European Union, the EMA's Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug.

In the United States, orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product receives the first FDA approval for the indication for which it has orphan drug designation, the product is entitled to seven years of market exclusivity, which means the FDA may not approve any other application for the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable so that market exclusivity is no longer justified.

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As a result, even if ZYN002 receives orphan drug exclusivity in FXS, the FDA or EMA can still approve other drugs that have a different active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan drug exclusivity if we are unable to manufacture sufficient supply of ZYN002 or the EMA could reduce the term of exclusivity if ZYN002 is sufficiently profitable.

We have requested orphan drug designation for ZYN002 in FXS with the FDA and may seek orphan drug designation in the future with the EMA, but exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA or EMA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. In addition, although we have requested orphan drug designation for ZYN002, we may never receive such designation, or there may be a delay in receiving such designation that would impact our expected timeframe for clinical development.

Even if we are able to commercialize ZYN002 or ZYN001, the products may not receive coverage and adequate reimbursement from third-party payors, which could harm our business.

The availability of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of our product candidates, if approved, will depend substantially on the extent to which the costs of these product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize ZYN002 or ZYN001. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, established the Medicare Part D program and provided authority for limiting the number of drugs that will be covered in any therapeutic class thereunder. The Medicare Modernization Act, including its cost reduction initiatives, could decrease the coverage and reimbursement rate that we receive for any of our approved products. Furthermore, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.

The intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable under Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular product may be uncertain.

Outside the United States, particularly in member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations or the successful completion of health technology assessment procedures 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

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containment measures. Certain countries allow companies to fix their own prices for medicines, but monitor and control company profits. 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, we or our collaborators may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates 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 any product candidate approved for marketing is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations or prospects could be adversely affected.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our ability to operate include the following:

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Comparable laws and regulations exist in the countries within the European Economic Area, or EEA. Although such laws are partially based upon European Union law, they may vary from country to country. Healthcare specific, as well as general European Union and national laws, regulations and industry codes constrain, for example, our interactions with government officials and healthcare practitioners, and the handling of healthcare data. Non-compliance with any of these laws or regulations could lead to criminal or civil liability.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare 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 healthcare 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, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal control policies and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, licensees or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.

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Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could subject us to significant liability and harm our reputation.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with DEA, FDA or EMA regulations or similar regulations of other foreign regulatory authorities or to provide accurate information to the DEA, FDA, EMA or other foreign regulatory authorities. In addition, misconduct by employees could include intentional failures to comply with certain manufacturing standards, to comply with U.S. federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. 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. We plan to adopt, and will implement and enforce, a Code of Business Conduct and Ethics, which will be effective as of the effectiveness of the registration statement of which this prospectus forms a part, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity, such as employee training on enforcement of the Code of Business Conduct and Ethics, 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 and results of operations, including the imposition of significant fines or other sanctions.

If we are unable to develop sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions on acceptable terms, we may be unable to generate revenue.

We do not currently have any sales, marketing or distribution capabilities. If ZYN002 or ZYN001 is approved, we will need to develop internal sales, marketing and distribution capabilities to commercialize such products, which would be expensive and time-consuming, or enter into collaborations with third parties to perform these services. If we decide to market our products directly, we will need to commit significant financial and managerial resources to develop a marketing and sales force with technical expertise and supporting distribution, administration and compliance capabilities. If we rely on third parties with such capabilities to market our products or decide to co-promote products with collaborators, we will need to establish and maintain marketing and distribution arrangements with third parties, and there can be no assurance that we will be able to enter into such arrangements on acceptable terms or at all. In entering into third-party marketing or distribution arrangements, any revenue we receive will depend upon the efforts of the third parties and there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be successful in gaining market acceptance of any approved product. If we are not successful in commercializing any product approved in the future, either on our own or through third parties, our business, financial condition and results of operations could be materially adversely affected.

Our product candidates, if approved, may be unable to achieve broad market acceptance and, consequently, limit our ability to generate revenue from new products.

Even when product development is successful and regulatory approval has been obtained, our ability to generate significant revenue depends on the acceptance of our products by physicians and patients. The market acceptance of any product depends on a number of factors, including the indication statement and warnings approved by regulatory authorities in the product label, continued demonstration of efficacy and safety in commercial use, physicians' willingness to prescribe the product, reimbursement from third-party

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payors such as government healthcare systems and insurance companies, the price of the product, the nature of any post-approval risk management plans mandated by regulatory authorities, competition, and marketing and distribution support. Any factors preventing or limiting the market acceptance of our product candidates could have a material adverse effect on our business, results of operations and financial condition.

If we receive regulatory approvals, we intend to market ZYN002 and ZYN001 in multiple jurisdictions where we have limited or no operating experience and may be subject to increased business and economic risks that could affect our financial results.

If we receive regulatory approvals, we plan to market ZYN002 and ZYN001 in jurisdictions where we have limited or no experience in marketing, developing and distributing our products. Certain markets have substantial legal and regulatory complexities that we may not have experience navigating. We are subject to a variety of risks inherent in doing business internationally, including risks related to the legal and regulatory environment in non-U.S. jurisdictions, including with respect to privacy and data security, trade control laws and unexpected changes in laws, regulatory requirements and enforcement, as well as risks related to fluctuations in currency exchange rates and political, social and economic instability in foreign countries. If we are unable to manage our international operations successfully, our financial results could be adversely affected.

In addition, controlled substance legislation may differ in other jurisdictions and could restrict our ability to market our products internationally. Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances, including Cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to us obtaining marketing approval for ZYN002 or ZYN001 in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit ZYN002 or ZYN001 to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. We would be unable to market ZYN002 or ZYN001 in countries with such obstacles in the near future or perhaps at all without modification to laws and regulations.

ZYN002 and ZYN001 contain controlled substances, the use of which may generate public controversy.

Since our product candidates contain controlled substances, their regulatory approval may generate public controversy. Political and social pressures and adverse publicity could lead to delays in approval of, and increased expenses for, our product candidates. These pressures could also limit or restrict the introduction and marketing of our product candidates. Adverse publicity from Cannabis misuse or adverse side effects from Cannabis or other cannabinoid products may adversely affect the commercial success or market penetration achievable by our product candidates. The nature of our business attracts a high level of public and media interest, and in the event of any resultant adverse publicity, our reputation may be harmed.

Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.

Our success largely depends on the continued service of key management and other specialized personnel, including Armando Anido, our chairman and chief executive officer, Terri B. Sebree, our president, Richard A. Baron, our chief financial officer, and Suzanne M. Hanlon, our general counsel and vice president of human resources. The loss of one or more members of our management team or other key employees could delay our research and development programs and materially harm our business, financial condition, results of operations and prospects. The relationships that our team has cultivated within the life sciences industry makes us particularly dependent upon their continued employment with us. Because our management team is not obligated to provide us with continued service, they could terminate their employment or services with us at any time without penalty, subject to providing any required advance notice. We do not maintain key person life insurance policies for any members of our management team.

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Our future success and growth will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation and commercialization. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations.

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

The development and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies, as well as products and processes being developed at universities and other research institutions. Our competitors have developed, are developing or will develop product candidates and processes competitive with our product candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments that enter the market. We believe that a significant number of products are currently available, under development, and may become commercially available in the future, for the treatment of indications for which we may try to develop product candidates. If either of our product candidates, ZYN002 or ZYN001, is approved for the indications we are currently pursuing, it will compete with a range of therapeutic treatments that are either in development or currently marketed.

We are aware of multiple companies that are working in the Cannabis therapeutic area, including pharmaceutical companies such as GW Pharmaceuticals PLC, or GW, which markets Sativex, a botanical cannabinoid oral mucosal for the treatment of spasticity due to multiple sclerosis and which is also in development in neuropathic pain in several foreign countries and is seeking FDA approval in the United States, and is developing Epidiolex, a liquid formulation of highly purified CBD extract, as a treatment for Dravet's Syndrome, Lennox Gastaut Syndrome, and various childhood epilepsy syndromes; Insys Therapeutics, Inc., which is seeking FDA approval for an orally-administered liquid formulation of its synthetic CBD compound as a treatment for Dravet's Syndrome, Lennox Gastaut Syndrome, and other childhood epilepsy syndromes; and Nemus Bioscience, Inc. which is focused on the discovery, development and commercialization of Cannabis therapeutics.

More established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may have an advantage in marketing their approved products and may obtain regulatory approval of their product candidates before we are able to, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less expensive than ours, and may also be more successful than us in manufacturing and marketing their products. These advantages could materially impact our ability to develop and commercialize ZYN002 or ZYN001 successfully.

Our product candidates may compete with non-synthetic cannabinoid drugs, including therapies such as GW's Sativex. Our product candidates may also compete with medical and recreational marijuana, in markets where the recreational and/or medical use of marijuana is legal. There is support in the United States for further legalization of marijuana. In markets where recreational and/or medical marijuana is not legal, our product candidates may compete with marijuana purchased in the illegal drug market. We cannot assess the extent to which patients may utilize marijuana obtained illegally for the treatment of the indications for which we are developing ZYN002 and ZYN001.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining

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qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

The market opportunity for refractory epilepsy will be limited to those patients who are not currently receiving adequate relief from current treatment regimens, which may reduce our targeted market.

Pre-existing treatments may be adequate to treat certain patients with refractory epilepsy. Whenever the first-line therapy fails or is unsuccessful, then second-line therapy may be administered. For refractory epilepsy, ZYN002 is particularly targeted to provide an additional treatment option for patients not currently receiving adequate relief from current treatment regimens. If a more successful first-line therapy is developed, it may significantly reduce the patient population to which we can supply, which may affect our ability to successfully commercialize ZYN002 for refractory epilepsy.

Product liability lawsuits against us could cause us to incur substantial liabilities.

Our planned use of ZYN002 and ZYN001 in clinical trials and the sale of ZYN002 and ZYN001, if approved, exposes us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others selling or otherwise coming into contact with ZYN002 or ZYN001. For example, we may be sued if any 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, including as a result of interactions with alcohol or other drugs, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we become subject to product liability claims and cannot successfully defend ourselves against them, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in, among other things:

We will need to obtain product liability insurance coverage for our clinical trials. We may not be able to obtain such coverage at a reasonable cost or in sufficient amounts to protect us against losses, including if insurance coverage becomes increasingly expensive. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly in light of the size of our business and financial resources. A product liability claim or series of claims brought against us could cause our share price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial condition, results of operations, business and prospects could be materially adversely affected.

Our business and operations would suffer in the event of computer system failures.

Despite the implementation of security measures, our information technology and other internal infrastructure systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and

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telecommunication and electrical failures. A significant disruption in the availability of our information technology and other internal infrastructure systems could cause delays in our research and development work. For instance, the loss of preclinical data or data from any future clinical trial involving our product candidates could result in delays in our development and regulatory filing efforts and significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our product candidates could be delayed.

Risks Related to Our Dependence on Third Parties

We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates.

We rely on CROs, clinical data management organizations and consultants to design, conduct, supervise and monitor preclinical studies of our product candidates and may do the same for our planned clinical trials. We and our CROs are required to comply with various regulations, including GCP, which are enforced by the FDA, and guidelines of the Competent Authorities of Member States of the EEA and comparable foreign regulatory authorities to ensure that the health, safety and rights of patients are protected in clinical development and clinical trials, and that trial data integrity is assured. Regulatory authorities ensure compliance with these requirements through periodic inspections of trial sponsors, principal investigators and trial sites. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. If we or any of our CROs fail to comply with applicable requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or other comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with such requirements. In addition, our clinical trials must be conducted with products produced under cGMP requirements, which mandate the methods, facilities and controls used in manufacturing, processing and packaging of a drug product to ensure its safety and identity. Failure to comply with these regulations may require us to repeat preclinical and clinical trials, which would delay the regulatory approval process.

Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

Because we have relied on third parties, our internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. 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. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers. To the extent we are unable to identify and successfully manage the performance of third-party service providers in the future, our business may be adversely affected. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

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We rely on third-party manufacturers and suppliers and we intend to rely on third parties to produce preclinical, clinical and commercial supplies of active pharmaceutical ingredients, or APIs, for ZYN002 and ZYN001.

We rely on third parties to supply the materials for, and manufacture, our research and development, preclinical and clinical trial APIs. We do not own manufacturing facilities or supply sources for such components and materials. There can be no assurance that our supply of research and development, preclinical and clinical development drugs and other materials will not be limited, interrupted, restricted in certain geographic regions or of satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of our API manufacturer could require significant effort and expertise because there may be a limited number of qualified manufacturers.

The manufacturing process for our product candidates is subject to FDA, EMA, DEA and other foreign regulatory authority review. Suppliers and manufacturers must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards such as cGMP. In addition, our manufacturers must ensure therapeutic consistency among batches, including preclinical, clinical and, if approved, marketing batches. Demonstrating such consistency may require typical manufacturing controls as well as clinical data. Our manufacturers must also ensure that our batches conform to complex release specifications. Further, manufacturers of controlled substances must obtain and maintain necessary DEA and state registrations and registrations with applicable foreign regulatory authorities, and must establish and maintain processes to ensure compliance with DEA and state requirements and requirements of applicable foreign regulatory authorities governing, among other things, the storage, handling, security, recordkeeping and reporting for controlled substances. In the event that any of our suppliers or manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.

We expect to continue to rely on third-party manufacturers if we receive regulatory approval for any product candidate. To the extent that we have existing, or enter into future, manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner consistent with contractual and regulatory requirements, including those related to quality control and assurance. If we are unable to obtain or maintain third-party manufacturing for product candidates, or to do so on commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully. Our or a third party's failure to execute on our manufacturing requirements could adversely affect our business in a number of ways, including:

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If a collaborative partner terminates or fails to perform its obligations under an agreement with us, the commercialization of ZYN002 or ZYN001, if approved, could be delayed or terminated.

We are not currently party to any collaborative arrangements for the commercialization of ZYN002 or ZYN001, if approved, or similar arrangements, although we may pursue such arrangements before any commercialization of ZYN002 or ZYN001, if approved. If we entered into future collaborative arrangements for the commercialization of any product candidate or similar arrangements and any of our collaborative partners does not devote sufficient time and resources to a collaboration arrangement with us, we may not realize the potential commercial benefits of the arrangement, and our results of operations may be materially adversely affected. In addition, if any such future collaboration partner were to breach or terminate its arrangements with us, the commercialization of any product candidate could be delayed, curtailed or terminated.

Much of the potential revenue from future collaborations may consist of contingent payments, such as payments for achieving regulatory milestones or royalties payable on sales of drugs. The milestone and royalty revenue that we may receive under these collaborations will depend upon our collaborators' ability to successfully develop, introduce, market and sell new products. In addition, collaborators may decide to enter into arrangements with third parties to commercialize products developed under collaborations using our technologies, which could reduce the milestone and royalty revenue that we may receive, if any. Future collaboration partners may fail to develop or effectively commercialize products using our products or technologies, which could have a material adverse effect on our operating results and financial condition.

Business disruptions affecting our third-party suppliers, manufacturers and CROs could harm our future revenues and financial condition and increase our costs and expenses.

We rely on third parties to supply the materials for, and manufacture our APIs for, our preclinical and clinical trials. There are only a limited number of suppliers and manufacturers of our APIs and our ability to obtain these materials could be disrupted if the operations of these manufacturers is affected by earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. We also rely on CROs, clinical data management organizations and consultants to design, conduct, supervise and monitor preclinical studies of our product candidates and will do the same for our planned clinical trials. If their facilities are unable to operate because of an accident or incident, even for a short period of time, some or all of our research and development programs may be harmed or delayed and our operations and financial condition could suffer.

Our third-party manufacturers may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.

Our third-party manufacturers may use hazardous materials, including chemicals and compounds that could be dangerous to human health and safety or the environment. The operations of our third-party manufacturers may also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. In the event of contamination or injury, our third-party manufacturers could be held liable for damages or be penalized with fines in an amount exceeding their resources, which could result in our clinical trials or regulatory approvals being delayed or suspended.

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Risks Related to Our Intellectual Property

If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the U.S. and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our novel technologies and products that are important to our business.

The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents are highly uncertain. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the United States. Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. We do not know whether any of the pending patent applications for any of our product candidates will result in the issuance of patents that protect our technology or products, or if any of our issued patents will effectively prevent others from commercializing competitive technologies and products. The rights already granted under any of our currently issued patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected. It is also possible that we will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.

Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our issued patents may be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing. Therefore we cannot be certain that we were the first to make the inventions claimed in our owned patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

Protecting against the unauthorized use of our patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

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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 United States Patent and Trademark Office, or U.S. PTO, and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and various foreign national or international patent agencies in several stages over the lifetime of the patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on our international patent application, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.

We may become subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates, and to use our related proprietary technologies without violating the intellectual property rights of others. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates, including interference or derivation proceedings before the U.S. PTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party's intellectual property rights, we could be required to obtain a license from such third party to continue commercializing our product candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to cease commercializing the applicable product candidate. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.

While our preclinical studies and clinical trials are ongoing, we believe that the use of ZYN002 and ZYN001 in these preclinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA, or the Clinical Development Exemption. As ZYN002 and ZYN001 progress toward commercialization, the possibility of a patent infringement claim against us increases. We attempt to ensure that our product candidates and the methods we employ to manufacture them, as well as the methods for their uses we intend to promote, do not infringe other parties' patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.

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We are aware of an allowed U.S. patent owned by a third party with claims that are directed to a method of treating partial seizures by administering a medication containing CBD at doses at or above 400mg. This patent could be construed to cover ZYN002 for our refractory epilepsy development program if the therapeutic dose for CBD contained in ZYN002 is determined to be at or above 400mg. According to our current understanding of ZYN002 dosing and gel formulation at 400mg or more, the application of gel quantities required to attain a dosing of 400mg or more would not be practicable. While our preclinical studies are ongoing, we believe that our development during both preclinical and clinical trials will fall within the Clinical Development Exemption. If and when ZYN002 is approved by the FDA for treatment of refractory epilepsy, if it has a label that contains dosing of ZYN002 with CBD at or above 400mg, such third party may then seek to enforce its patent, if issued, by filing a patent infringement lawsuit against us. In such lawsuit, we may incur substantial expenses defending our rights to commercialize ZYN002 for refractory epilepsy, and in connection with such lawsuit and under certain circumstances, it is possible that we could be required to cease or delay the commercialization of ZYN002 for refractory epilepsy and/or be required to pay monetary damages or other amounts, including royalties on the sales of ZYN002 for refractory epilepsy. Moreover, such lawsuit may also consume substantial time and resources of our management team and board of directors. The threat or consequences of such a lawsuit may also result in royalty and other monetary obligations, which may adversely affect our results of operations and financial condition.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and have a material adverse effect on the success of our business.

Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Also, third parties may initiate legal proceedings against us to challenge the validity or scope of intellectual property rights we own. These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their 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 resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by 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. 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 this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.

If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our current and former employees, consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of

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confidential information. In addition, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets. Any party with whom we or they have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.

Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they disclose such trade secrets, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third-party, our competitive position would be harmed.

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

Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Therefore, we have filed applications and/or obtained patents only in key markets such as the United States, Canada, Japan and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may be able to export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our products 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 certain 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. For example, an April 2014 report from the Office of the United States Trade Representative identified a number of countries, including India and China, where challenges to the procurement and enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the report every year since 1989. As a result, proceedings to enforce our patent rights in certain foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business and could be unsuccessful.

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the U.S. PTO, and any equivalent regulatory authorities in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

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Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

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

Risks Related to This Offering and Ownership of Our Common Stock

We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and as a result it may be difficult for you to sell your shares of our common stock.

Prior to this offering there has been no market for shares of our common stock. An active trading market for our shares may never develop or be sustained following this offering. The initial public offering price for our common stock in this offering has been determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of our common stock after this offering. The market value of our common stock may decrease from the initial public offering price. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price in this offering. In addition, approximately 66% of our publicly traded common stock will be held by our executive officers, directors and existing investors after the closing of this offering. Certain of our existing investors have indicated an interest in purchasing shares of our common stock in this offering, and if they make such purchases, this percentage could increase. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into collaborations or acquire companies or products by using our shares of common stock as consideration.

The market price of our stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this prospectus, these factors include:

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In addition, the stock market in general, and pharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Moreover, some institutional investors and mutual funds cannot invest in stocks priced below $5.00 per share. The realization of any of these risks or any of a broad range of other risks, including those described in these "Risk Factors," could have a dramatic and material adverse impact on the market price of our common stock.

We may be subject to securities litigation, which is expensive and could divert our management's attention.

The market price of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

Insiders have substantial influence over us and could delay or prevent a change in corporate control.

Prior to this offering, our executive officers, directors, and holders of 5.0% or more of our capital stock collectively beneficially owned approximately 50.46% of our voting stock. After giving effect to this offering, that same group will hold approximately 33.23% of our common stock. Certain of our existing investors have indicated an interest in purchasing shares of our common stock in this offering, and if they make such purchases, this percentage could increase. This concentration of ownership could harm the market price of our common stock by:

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The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including by seeking a premium value for their common stock, and might negatively affect the prevailing market price for our common stock.

If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The initial public offering price is substantially higher than the net tangible book value per share of our common stock. Investors purchasing shares of common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing shares of common stock in this offering will incur immediate dilution of $9.05 per share, which assumes an initial public offering prices of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus).

The exercise of any of our outstanding options would result in additional dilution. These issuances of common stock will result in additional dilution to investors purchasing shares in this offering. As a result of this dilution, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. Further, because we will need to raise additional capital to fund our clinical development programs, we may in the future sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of equity or equity-linked securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in further dilution to investors.

We are an "emerging growth company" and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our common stock being less attractive to investors and could make it more difficult for us to raise capital as and when we need it.

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be for up to five years. See "Summary — Implications of Being an Emerging Growth Company" above.

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If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. Commencing with our annual report on Form 10-K for the year ending December 31, 2016, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the independent registered public accounting firm attestation requirement.

Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its Section 404 reviews, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the NASDAQ Stock Market, the Securities and Exchange Commission, or SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon the closing of this offering, we will become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the

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controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer an "emerging growth company." We will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC and NASDAQ Stock Market. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. The increased costs will increase our net loss. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the sufficient coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Immediately after this offering, we will have 8,733,963 outstanding shares of common stock. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our directors, officers or existing securityholders and therefore subject to lock-up agreements. See "Underwriting" in this prospectus. 5,687,367 shares of our common stock will be restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the "Shares Eligible for Future Sale" section of this prospectus. Moreover, after this offering, holders of an aggregate of 3,658,895 shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under the 2014 Equity Plan. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the "Underwriting" section in this prospectus.

Future sales and issuances of our common stock or rights to purchase common stock pursuant to our equity incentive plan could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

Pursuant to our equity incentive plan, our compensation committee is authorized to grant equity-based incentive awards to our directors, executive officers and other employees and service providers. As of July 31, 2015, there are 102,320 shares of our common stock available for future grant under our 2014

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Equity Plan. Future equity incentive grants and issuances of common stock under the 2014 Equity Plan may result in material dilution to our investors and may have an adverse effect on the market price of our common stock.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Although we currently intend to use the net proceeds from this offering in the manner described in the "Use of Proceeds" section in this prospectus, our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our business, including our preclinical and clinical development programs, or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the market price of our common stock to decline and delay the development of ZYN002 and ZYN001. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. If we do not invest the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected clinical development progression, which could cause the price of our common stock to decline.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and bylaws that will become effective in connection with the closing of this offering, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, or remove our current management. These include provisions that will:

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general, engage in a

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business combination with any holder of 15.0% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our certificate of incorporation will also provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation that will become effective in connection with the closing of this offering provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

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

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements. We may, in some cases, use words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

ZYN002 and ZYN001 are investigational drugs undergoing preclinical development and have not yet been submitted to the FDA for approval. Neither ZYN002 nor ZYN001 has been, nor may either ever be, approved by any regulatory agency or marketed anywhere in the world. Statements contained in this prospectus should not be deemed to be promotional.

These forward-looking statements reflect our management's beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. We discuss many of these risks in greater detail under "Risk Factors." Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $36.3 million (or approximately $42.1 million if the underwriters' option to purchase additional shares is exercised in full) from the sale of the shares of common stock offered by us in this offering, based on an assumed initial public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) the net proceeds to us from this offering by approximately $2.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Similarly, a 100,000 share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by approximately $1.3 million, based on an assumed initial public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to obtain additional capital to support our operations, to establish a public market for our common stock and to facilitate our future access to the public equity markets. We intend to use the net proceeds from this offering for the following purposes:

The remaining $5.7 million of the net proceeds from this offering will be used to fund working capital, research and development and general corporate purposes.

We may also use a portion of the remaining net proceeds to in-license, acquire, or invest in complementary businesses, intellectual property, products or assets. However, we have no current commitments or obligations to do so.

We expect that the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to fund our operations and capital requirements for the next 24 months. We believe that these available funds will be sufficient to complete (i) Phase 1 clinical trials for ZYN002 and three Phase 2a clinical trials for this product candidate, one for each target indication of refractory epilepsy, FXS and OA and (ii) Phase 1 clinical trials for ZYN001 and two Phase 2a clinical trials for this product candidate, one for each target indication of fibromyalgia and peripheral neuropathic pain. The progress of ZYN002 and ZYN001 for each target indication is uncertain due to numerous factors, including, without limitation, the rate of progress of clinical trials, the results of preclinical studies and clinical trials for such indication, the costs and timing of seeking and obtaining FDA, DEA and other regulatory approvals for clinical trials and FDA guidance regarding clinical trials for such indication. In addition, it is difficult to predict our required

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spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.

Our expected use of the net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including our ability to gain access to additional financing, the relative success and cost of our research, preclinical and clinical development programs and whether we are able to enter into future licensing arrangements. As a result, our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering.

Pending their use, we plan to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

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DIVIDEND POLICY

We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, and our capitalization as of March 31, 2015:

The pro forma information below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing elsewhere in this prospectus.

 
  As of March 31, 2015  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 

Cash and cash equivalents

  $ 7,375,975   $ 7,375,975   $ 43,635,975  

Series 1 convertible preferred stock, $0.001 par value per share: 7,807,502 shares authorized, 6,964,053 shares issued and outstanding, actual; 7,807,502 shares authorized, no shares issued or outstanding, pro forma and 10,000,000 shares authorized, and no shares issued or outstanding pro forma as adjusted

    16,522,811          

Stockholders' equity (deficit):

   
 
   
 
   
 
 

Common stock, $0.001 par value per share: 50,000,000 shares authorized, 2,029,747 shares issued and outstanding, actual; 50,000,000 shares authorized, 5,733,963 shares issued and outstanding, pro forma; and 200,000,000 shares authorized, 8,733,963 shares issued and outstanding, pro forma as adjusted

    2,030     5,734     8,734  

Additional paid-in capital

    1,975,000     18,494,107     54,751,107  

Accumulated deficit

    (11,520,674 )   (11,520,674 )   (11,520,674 )

Total stockholders' equity (deficit)

    (9,543,644 )   6,979,167     43,239,167  

Total capitalization

  $ 6,979,167   $ 6,979,167   $ 43,239,167  

The number of shares of our common stock to be outstanding after this offering is based on 2,029,747 shares of common stock outstanding as of March 31, 2015, and assumes:

and excludes:

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our historical net tangible deficit as of March 31, 2015, was approximately $9.5 million, or $(4.70) per share of our common stock. Our historical net tangible deficit is the amount of our total tangible assets less our liabilities and convertible preferred stock. Historical net tangible deficit per share is our historical net tangible deficit divided by the number of shares of common stock outstanding as of March 31, 2015.

Our pro forma net tangible book value as of March 31, 2015, was $7.0 million, or $1.22 per share of common stock. Pro forma net tangible book value gives effect to the conversion of all shares of our convertible preferred stock outstanding as of March 31, 2015 into an aggregate of 3,704,216 shares of our common stock in connection with the closing of this offering.

Pro forma as adjusted net tangible book value is our pro forma net tangible book value (deficit), plus the effect of the sale of shares of our common stock in this offering at an assumed initial public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $3.73 per share to our existing stockholders, and an immediate dilution of $9.05 per share to new investors participating in this offering.

The following table illustrates this dilution on a per share basis:


Assumed initial public offering price per share

        $ 14.00  

Historical net tangible book value (deficit) per share as of March 31, 2015

  $ (4.70 )      

Pro forma increase in net tangible book value per share attributable to the conversion of all outstanding shares of our preferred stock into 3,704,216 shares of our common stock immediately prior to the closing of this offering

    5.92        

Pro forma net tangible book value per share as of March 31, 2015

    1.22        

Increase in pro forma net tangible book value per share attributable to investors participating in this offering

    3.73        

Pro forma as adjusted net tangible book value per share after this offering

          4.95  

Dilution per share to investors participating in this offering

        $ 9.05  

A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $0.32 per share and decrease (increase) the dilution per share to investors participating in this offering by approximately $0.68 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Similarly, a 100,000 share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $0.09 per share and decrease (increase) the dilution per share to investors participating in this offering by approximately $0.09 per share, assuming the assumed initial

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public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus) remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise in full their option to purchase additional shares of our common stock in this offering, the pro forma as adjusted net tangible book value will increase to $5.35 per share, representing an immediate increase in pro forma as adjusted net tangible book value to existing stockholders of $0.40 per share and an immediate decrease of dilution of $0.40 per share to new investors participating in this offering.

The following table summarizes, on a pro forma as adjusted basis as of March 31, 2015, the number of shares purchased or to be purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us by existing stockholders and investors participating in this offering at an assumed initial public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus), before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table below shows, investors participating in this offering will pay an average price per share substantially higher than our existing stockholders paid.


 
  Shares Purchased   Total Consideration    
 
 
  Average Price Per Share  
 
  Number   Percent   Amount   Percent  

Existing stockholders before this offering

    5,154,081 (1)   63 % $ 18,087,350 (2)   30 % $ 3.51  

Investors participating in this offering

    3,000,000     37     42,000,000     70     14.00  

Total

    8,154,081     100.0 % $ 60,087,350     100.0 % $ 7.37  

(1)
Shares exclude 579,882 of restricted stock shares outstanding.

(2)
Includes $2,086,196 of noncash consideration.

A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase (decrease) the total consideration paid by investors participating in this offering, total consideration paid by all stockholders and the average price per share paid by all stockholders by approximately $3.0 million, $3.0 million and $0.37, respectively, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and before deducting the estimated underwriting discount and commissions and estimated offering expenses payable by us.

Similarly, a 100,000 share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by investors participating in this offering, total consideration paid by all stockholders and the average price per share paid by all stockholders by approximately $1.4 million, $1.4 million and $0.08, respectively, assuming the assumed initial public offering price of $14.00 per share (the mid-point of the price range set forth on the cover page of this prospectus) remains the same, and before deducting the estimated underwriting discount and commissions and estimated offering expenses payable by us.

If the underwriters exercise in full their option to purchase additional shares of our common stock in this offering, the number of shares of common stock held by existing stockholders will be reduced to 60% of the total number of shares of common stock to be outstanding after this offering, and the number of shares of common stock held by investors participating in this offering will be further increased to 3,450,000, or

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40% of the total number of shares of common stock to be outstanding after this offering (excluding the 579,882 restricted stock shares outstanding).

The number of shares of our common stock to be outstanding after this offering is based on 2,029,747 shares of common stock outstanding as of March 31, 2015, and assumes:

and excludes:

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SELECTED FINANCIAL DATA

This section should be read together with our financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. We derived the selected statements of operations data for the years ended December 31, 2013 and 2014 and the selected balance sheet data as of December 31, 2013 and 2014 from our audited financial statements and accompanying notes appearing elsewhere in this prospectus. We derived the selected statements of operations data for the three months ended March 31, 2014 and 2015 and the selected balance sheet data as on March 31, 2015 from our unaudited financial statements and accompanying notes appearing elsewhere in this prospectus. The selected financial data in this section are not intended to replace our financial statements and the related notes. Our unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, include adjustments, consisting of normal recurring adjustments and accruals necessary for a fair statement of the information for the interim periods. Our historical results are not necessarily indicative of the results that may be expected in the future and results from our interim period may not necessarily be indicative of the results of the entire year.


Statements of Operation Data:

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2013   2014   2014   2015  
 
   
   
  (unaudited)
 

Revenues

  $ 943,904   $ 810,012   $ 146,287   $ 14,828  

Operating expenses:

                         

Research and development

    1,134,041     2,401,406     285,725     853,704  

General and administrative

    444,302     4,076,339     99,704     653,773  

Total operating expenses

    1,578,343     6,477,745     385,429     1,507,477  

Loss from operations

    (634,439 )   (5,667,733 )   (239,142 )   (1,492,649 )

Other income (expense):

                         

Interest (expense) income, net

    (2,351 )   (1,844 )   (1,217 )   680  

Net loss

    (636,790 )   (5,669,577 )   (240,359 )   (1,491,969 )

Accretion of redeemable convertible preferred stock

    (161,834 )   (87,954 )   (87,954 )    

Net loss applicable to common stockholders

  $ (798,624 ) $ (5,757,531 ) $ (328,313 ) $ (1,491,969 )

Per share information:

                         

Net loss per share basic and diluted

  $ (1.63 ) $ (6.44 ) $ (0.67 ) $ (0.74 )

Basic and diluted weighted average shares outstanding

    490,760     894,575     490,760     2,029,747  

Pro forma net loss (unaudited) (1)

       
$

(5,669,577

)
     
$

(1,491,969

)

Pro forma net loss per share basic and diluted (unaudited) (1)

        $ (2.56 )       $ (0.26 )

Pro forma basic and diluted weighted average shares outstanding (unaudited) (1)

          2,215,507           5,733,963  

(1)
Refer to note 2(k) of our audited financial statements and note 1(e) to our unaudited financial statements for a description of the method used to calculate net loss per share, basic and diluted, and pro forma net loss per share basic and diluted and the basic and diluted weighted average shares outstanding.

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  As of December 31,    
 
 
  As of
March 31,
2015
 
 
  2013   2014  
 
   
   
  (unaudited)
 

BALANCE SHEET DATA:

                   

Cash and cash equivalents

  $ 154,695   $ 9,330,681   $ 7,375,975  

Total assets

    1,860,840     11,616,671     10,316,797  

Total liabilities

    3,057,546     3,145,535     3,337,630  

Convertible preferred stock

    3,162,373     16,522,811     16,522,811  

Total stockholders' equity (deficit)

    (4,359,079 )   (8,051,675 )   (9,543,644 )

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with "Prospectus Summary — Summary Financial Information," "Selected Financial Information" and the financial statements and the related notes thereto included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the section entitled "Risk Factors."

Overview

Company Overview

We are a ten-year-old specialty pharmaceutical company focused on developing and commercializing proprietary next-generation synthetic cannabinoid therapeutics formulated for transdermal delivery. Our management team is highly experienced and has a successful history of development, regulatory approval and commercialization of patch and gel transdermal delivery products. We are evaluating two patent-protected product candidates, ZYN002 and ZYN001, in five indications. We intend to study ZYN002 in patients with refractory epilepsy, Fragile X syndrome, or FXS, and osteoarthritis, or OA. We intend to study ZYN001 in patients with fibromyalgia and peripheral neuropathic pain. We believe these product candidates will provide new treatment options for patients, as well as additional treatment options for patients not currently receiving adequate relief from current treatment regimens. We expect to initiate Phase 1 clinical trials for ZYN002 in the second half of 2015 and ZYN001 by mid-2016. We plan to conduct our Phase 1, and possibly Phase 2, clinical trials for ZYN002 in Australia, subject to applicable regulatory approval, and do not expect at this time to file an investigational new drug application, or IND, with the U.S. Food and Drug Administration, or the FDA, prior to the commencement of those clinical trials. We must file an IND with the FDA and receive approval from the U.S. Drug Enforcement Agency, or DEA, prior to commencement of any clinical trials in the United States. We plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. We plan to submit New Drug Applications, or NDAs, for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials.

Cannabinoids are a class of compounds derived from Cannabis plants. The two primary cannabinoids contained in Cannabis are cannabidiol, or CBD, and D 9-tetrahydrocannabinol, or THC. Clinical and preclinical data suggest that CBD has positive effects on treating refractory epilepsy, FXS and arthritis and THC has positive effects on treating pain. Interest in cannabinoid therapeutics has increased significantly over the past several years as preclinical and clinical data has emerged highlighting the potential efficacy and safety benefits of cannabinoid therapeutics. The cannabinoid therapeutics market is expected to grow significantly due to the potential benefits these products may provide over existing therapies. In addition to ZYN002 and ZYN001 potentially offering first-line therapies to patients suffering from FXS, OA, fibromyalgia and peripheral neuropathic pain, we believe ZYN002 may provide a complementary treatment for patients suffering from epilepsy who are refractory to their current treatment regimens.

ZYN002 is the first and only synthetic CBD formulated as a permeation-enhanced gel for transdermal delivery, which is patent-protected through 2030. CBD is the primary non-psychoactive component of Cannabis . In preclinical animal studies, ZYN002's permeation enhancer increased delivery of CBD through the layers of the skin and into the circulatory system. These preclinical studies suggest increased bioavailability, consistent plasma levels and the avoidance of first-pass liver metabolism. In addition, an in vitro study performed by us demonstrated that CBD is degraded to THC in an acidic environment such as the stomach. We believe such degradation may lead to increased psychoactive effects, which may be

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avoided or minimized with the transdermal delivery of ZYN002, which avoids the gastrointestinal tract and potential stomach acid degradation. ZYN002 is targeting treatment of refractory epilepsy, FXS and OA, which collectively affect millions of patients using treatments that currently comprise a multi-billion dollar market. FXS may qualify for orphan drug designation in the United States because the number of patients in the United States with FXS is less than 100,000. We have requested orphan drug designation from the FDA in the second half of 2015.

ZYN001 is a pro-drug of THC that enables effective transdermal delivery via a patch and is patent-protected through 2031. In addition, we expect that ZYN001 will be classified by the FDA as a new chemical entity, or NCE. In our preclinical animal studies, ZYN001 demonstrated effective skin permeation with sustained delivery and rapid conversion of ZYN001 to THC. These preclinical studies suggest increased bioavailability, consistent plasma levels and the avoidance of first-pass liver metabolism. In addition, preclinical toxicology models conducted to date have not shown any toxicology or genotoxicity findings. ZYN001 is targeting two pain indications (fibromyalgia and peripheral neuropathic pain) which collectively affect millions of patients using treatments that currently comprise a multi-billion dollar market.

Our key development programs and expected timelines for the development of ZYN002 and ZYN001 are shown in the table below:


Product
Candidate
  Target Indication   Delivery Method   Current
Development
Status
  Expected Next Steps
ZYN002   Refractory Epilepsy   Permeation-enhanced Gel   Preclinical   2H15: Initiate Phase 1
    Fragile X Syndrome           2H16: Initiate Phase 2a
    Osteoarthritis            
ZYN001   Fibromyalgia   Transdermal Patch   Preclinical   Mid-2016: Initiate Phase 1
    Peripheral Neuropathic Pain           1H17: Initiate Phase 2a

We have never been profitable and have incurred net losses since inception. Our net losses were $636,790 and $5.7 million for the years ended December 31, 2013 and 2014, respectively, and $1.5 million for the three months ended March 31, 2015. We expect to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability.

Financial Operations Overview

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.

Our revenues consist of state and federal research grants and fees received from research services for third-party product development. These revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Our research and development expenses consist of expenses incurred in development and preclinical studies relating to our product candidates, including:

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We expense all research and development costs as incurred. Preclinical development expenses for our product candidates are a significant component of our current research and development expenses. Product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development, primarily due to increased size and duration of the clinical trials. We track and record information regarding external research and development expenses for each grant, study or trial that we conduct. From time to time, we use third-party CROs, contractor laboratories and independent contractors in preclinical studies. We recognize the expenses associated with third parties performing these services for us in our preclinical studies based on the percentage of each study completed at the end of each reporting period.

We incurred research and development expenses of $1.1 million and $2.4 million for the years ended December 31, 2013 and 2014, respectively, and $853,704 for the three months ended March 31, 2015.

We expect that our research and development expenses in 2015 and for the next several years will be higher than in 2014 as a result of the work needed for our expected initiation of our Phase 1 clinical trials of ZYN002 in the second half of 2015 and ZYN001 by mid-2016. These expenditures are subject to numerous uncertainties regarding timing and cost to completion. Completion of our preclinical development and clinical trials may take several years or more and the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

Due to the early stages of our research and development, we are unable to determine the duration or completion costs of our development of ZYN002 and ZYN001. As a result of the difficulties of forecasting research and development costs of ZYN002 and ZYN001 as well as the other uncertainties discussed above, we are unable to determine when and to what extent we will generate revenues from the commercialization and sale of an approved product candidate.

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our executive, finance, accounting, legal and human resource functions. Our general and administrative expenses also include facility and related costs not included in research and development expenses, professional fees for legal services, including patent-related expenses, consulting, tax and accounting services, insurance and general corporate expenses. We expect that our general and administrative expenses will increase with the continued development and potential commercialization of our product candidates.

We expect that our general and administrative expenses in 2015 and for the next several years will be higher than in 2014 as we increase our headcount. We also anticipate increased expenses relating to our operations as a public company, including increased costs for the hiring of additional personnel, and for payment to outside consultants, including lawyers and accountants, to comply with additional regulations, corporate governance, internal control and similar requirements applicable to public companies, as well as increased costs for insurance.

Interest expense consists of interest expense on our note payable that was paid off during 2014. Interest income consists primarily of interest earned on our money market bank account.

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As of December 31, 2014, we had $6.9 million of federal operating loss carryforwards and $161,000 of research tax credit carryforwards available to offset future taxable income. These operating loss and research tax credit carryforwards will begin to expire in 2028 and 2027, respectively. The Tax Reform Act of 1986, or the Act, provides for limitation on the use of net operating loss and research and development tax credit carryforwards following certain ownership changes (as defined by the Act) that could limit our ability to utilize these carryforwards. We may have experienced various ownership changes, as defined by the Act, as a result of past financings. Accordingly, our ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes; therefore, we may not be able to take full advantage of these carryforwards for federal income tax purposes.

The closing of this offering, together with private placements and other transactions that have occurred since our inception, may trigger, or may have already triggered, an "ownership change" pursuant to Section 382 of the Internal Revenue Code of 1986. If an ownership change is triggered, it will limit our ability to use some of our net operating loss carryforwards. In addition, since we will need to raise substantial additional funding to finance our operations, we may undergo further ownership changes in the future, which could further limit our ability to use net operating loss carryforwards. As a result, if we generate taxable income, our ability to use some of our net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could result in increased future tax liability to us.

Critical Accounting Policies and Use of Estimates

We have based our management's discussion and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to preclinical development expenses and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully discussed in note 2 to our audited financial statements appearing at the end of this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.

Research and Development Expenses

We rely on third parties to conduct our preclinical studies and to provide services, including data management, statistical analysis and electronic compilation. Once our clinical trials begin, at the end of each reporting period, we will compare the payments made to each service provider to the estimated progress towards completion of the related project. Factors that we will consider in preparing these estimates include the number of patients enrolled in studies, milestones achieved and other criteria related to the efforts of our vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, we will record net prepaid or accrued expenses related to these costs.

Fair Value of Common Stock and Stock-Based Compensation

We account for grants of stock options and restricted stock to employees based on their grant date fair value and recognize compensation expense over the vesting periods. We estimate the fair value of stock options as of the date of grant using the Black-Scholes option pricing model, and we estimate the fair value of restricted stock based on the fair value of the underlying common stock as determined by our board of directors or the value of the services provided, whichever is more readily determinable. We account for stock

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options and restricted stock awards to non-employees using the fair value approach. Stock options and restricted stock awards to non-employees are subject to periodic revaluation over their vesting terms.

In the absence of a public trading market for our common stock, on each grant date, we develop an estimate of the fair value of our common stock for the option and restricted stock grants based in part on input from an independent third-party valuation firm. We determined the fair value of our common stock using methodologies, approaches and assumptions consistent with the AICPA Practice Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation. In addition, our board of directors considered various objective and subjective factors, along with input from management and an independent third-party valuation firm, to estimate the fair value of our common stock, including external market conditions affecting the pharmaceutical industry, trends within the pharmaceutical industry, the prices at which we sold shares of our different series of preferred stock, the superior rights and preferences of each series of preferred stock relative to our common stock at the time of each grant, our results of operations and financial position, the status of our research and development efforts and progress of our preclinical programs, our stage of development and business strategy, the lack of an active public market for our common and our preferred stock, and the likelihood of achieving a liquidity event.

In connection with and subsequent to our recapitalization in May 2014, through March 31, 2015, we issued 1,172,391 shares of common stock to investors and third-party service providers for services rendered. In addition, our board of directors approved grants of restricted stock and stock options that were issued in October 2014 and January 2015, with the stock options having an exercise price of $3.98 per share. Our common stock fair value was supported by an independent third-party valuation of $1.65 per share of common stock as of August 31, 2014, which management believed was still appropriate as of the dates of these grants in the absence of any substantial progress with our preclinical research and development activities.

In conducting the August 31, 2014 valuation, we utilized the option pricing model backsolve method to calculate our enterprise value utilizing the Series 1 convertible preferred stock financing at $2.12 per share.

We then allocated the aggregate equity value between the common stock and the preferred stock using a Black-Scholes call option pricing method. Under this method, we estimated the fair value of our common stock as the net value of a series of call options, representing the present value of the expected future returns to the common stockholders. We considered the rights of the common stockholders to be equivalent to a call option on our future value in excess of the aggregate liquidation preferences payable on preferred stock, with adjustments to account for the rights retained by the preferred stockholders related to any value in excess of the applicable liquidation preferences. Using this method, we valued the common stock by estimating the value of a share of common stock in each of these call option rights.

We then reduced the value of the common stock using this approach by applying a lack of control discount and an illiquidity discount to account for the heightened level of risk associated with our shares compared to that of comparable, publicly traded companies.

Results of Operations

Comparison of the Three Months Ended March 31, 2014 and March 31, 2015

Revenues

Revenues decreased by $131,459, or 89.9%, to $14,828 for the three months ended March 31, 2015 from $146,287 for the three months ended March 31, 2014. Revenues in each period were entirely related to work performed in connection with grants received. The decrease from 2014 reflected the termination of work on two grants and a temporary slowdown in research activities associated with our remaining grant.

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Research and Development Expenses

Research and development expenses increased by $567,979, or 198.8%, to $853,704 for the three months ended March 31, 2015 from $285,725 for the three months ended March 31, 2014. The increase was primarily the result of increased consulting and compensation expense of approximately $652,000 related to increased product development activities, which was partly offset by lower spending on university contracted services, repair and maintenance and lab supplies.

Our expenditures associated with ZYN002, ZYN001 and other research and development projects for the three months ended March 31, 2015 were $282,614, $382,097 and $188,993, respectively. Our expenditures associated with ZYN001 and our other projects in the three months ended March 31, 2014 were $111,529 and $174,196, respectively; no expenditures were made for ZYN002 during the three month period.

General and Administrative Expenses

General and administrative expenses increased by $554,069, or 555.7%, to $653,773 for the three months ended March 31, 2015 from $99,704 for the three months ended March 31, 2014. Contributing to the increase were increases of approximately $302,000 in personnel costs and approximately $167,000 in professional service costs. These increases were largely the result of our efforts to establish an infrastructure to support our product development activities and the professional service fees related to the preparation for our planned initial public offering.

Comparison of the Years Ended December 31, 2013 and December 31, 2014

Revenues

Revenues for the years ended December 31, 2013 and December 31, 2014 were comprised of the following:

   
 
 
Years Ended
December 31,
  Increase
(Decrease)
 
 
  2013   2014   $   %  

Grant revenues

  $ 856,605   $ 686,770   $ (169,835 )   (19.8% )

Research services

    87,299     123,242     35,943     41.2%  

  $ 943,904   $ 810,012   $ (133,892 )   (14.2% )

Revenues decreased by $133,892 or 14.2% to $810,012 for the year ended December 31, 2014 from $943,904 for the year ended December 31, 2013. The decrease was due to a $169,835 decrease in grant revenues, which was partly offset by a $35,943 increase in research services related to revenues received from a new contract entered into in November 2013.

Research and Development Expenses

Research and development expenses increased by $1.3 million, or 111.8%, to $2.4 million for the year ended December 31, 2014 from $1.1 million for the year ended December 31, 2013. The increase was primarily the result of increased consulting and compensation expense of $1.1 million for increased development activities, which was partly offset by decreased spending on university contracted services and lab supplies.

Our expenditures associated with ZYN002, ZYN001 and our other research and development projects in 2014 were $578,825, $585,711 and $1,236,870, respectively. Our expenditures associated with ZYN001 and other research and development activities in 2013 were $309,821 and $824,220, respectively; no expenditures were made for ZYN002 during the year ended December 31, 2013.

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General and Administrative Expenses

General and administrative expenses increased by $3.6 million to $4.1 million for the year ended December 31, 2014 from $444,302 for the year ended December 31, 2013. The increase was primarily the result of $1.9 million of non-cash expense for the issuance of common stock for services rendered by a related party and a third-party service provider in the year ended December 31, 2014 compared to $0 in the prior year. Additionally, during the year ended December 31, 2014, we expensed payments of $250,000 to a related party for strategic advisory and consulting services and $500,000 for the termination of a royalty agreement. The remaining increase is primarily due to legal costs and other administrative costs.

Other Income (Expense)

Other expense, net was $2,351 and $1,844 for the years ended December 31, 2013 and 2014, respectively.

Liquidity and Capital Resources

Since our inception in 2007, we have devoted most of our cash resources to research and development and general and administrative activities. We have financed our operations primarily with the proceeds from the sale of preferred stock and convertible promissory notes, state and federal grants and research services. To date, we have not generated any revenues from the sale of products, and we do not anticipate generating any revenues from the sales of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. As of March 31, 2015, our principal sources of liquidity were our cash and cash equivalents, which totaled $7.4 million. Our working capital was $7.0 million as of March 31, 2015.

Equity Financings

For the years ended December 31, 2013 and 2014, we received net proceeds of $109,458 and $13.2 million, respectively, from the sale of convertible preferred stock. For the three months ended March 31, 2014, we received net proceeds of $309,411 from the sale of shares of our Series B redeemable convertible preferred stock. There were no proceeds from equity financings for the three months ended March 31, 2015.

Debt

We had no debt outstanding as of December 31, 2014 or March 31, 2015.

In 2009 and 2010, we issued subordinated convertible promissory notes for proceeds of $773,000. In October 2012, the subordinated secured convertible promissory note holders elected to convert their notes into 698,109 shares of Series B redeemable convertible preferred stock.

In October 2009, we converted outstanding fees due to a service provider of $327,791 into a promissory note secured by all of our assets. The note bore interest at a rate of 4.63% per annum and was payable in 36 equal installments of principal and interest. During 2012, the service provider agreed to restructure the remaining note payable balance of $68,389 and $91,952 of additional outstanding fees payable. The agreement terminated all future promissory note payments and all outstanding fees payable in exchange for a payment of $95,000.

In April 2007, we were awarded a grant by the Kentucky Economic Development Finance Authority, or KEDFA, on behalf of the Commonwealth of Kentucky Department of Commercialization and Innovation, or DCI, in the form of a non-interest bearing forgivable loan in the amount of up to $500,000 to be used for the purchase of equipment. The loan was subject to repayment in four annual installments equal to $125,000 and was secured by the assets purchased with the loan funds. The loan contained a provision for the forgiveness of the total loan provided we maintained certain employment positions in existence at the time of the award at the then average annual base salary and created 30 additional high tech employment positions at an average annual base salary of at least $80,000. Under the terms of the initial loan these

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existing and new employment positions were to be created by December 31, 2012 and retained through December 31, 2015. In December 2012, KEDFA approved an extension of the deadline for creating the new employment positions to December 31, 2014, with repayment beginning in December 2014. Additionally, the loan provided for partial forgiveness had the Company not fully reached the specified employment creation. In January 2014, we granted KEDFA liens on certain of our patents as security for the forgivable loan. In September 2014, we repaid the forgivable loan balance of $499,996 and KEDFA released its security interest.

Future Capital Requirements

We expect that the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to fund our operations and capital requirements through August 2017. We believe that these available funds will be sufficient to complete (i) Phase 1 clinical trials for ZYN002 and three Phase 2a clinical trials for this product candidate, one for each target indication of refractory epilepsy, FXS and OA and (ii) Phase 1 clinical trials for ZYN001 and two Phase 2a clinical trials for this product candidate, one for each target indication of fibromyalgia and peripheral neuropathic pain. However, it is difficult to predict our spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.

Our expectations regarding future cash requirements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we make in the future. We have no current understandings, agreements or commitments for any material acquisitions or licenses of any products, businesses or technologies. We may need to raise substantial additional capital in order to engage in any of these types of transactions.

We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for either of our product candidates, we will incur significant sales, marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public company following the closing of this offering.

Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

    §
    the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates;

    §
    the clinical development plans we establish for these product candidates;

    §
    the number and characteristics of product candidates that we develop or may in-license;

    §
    the terms of any collaboration agreements we may choose to execute;

    §
    the outcome, timing and cost of meeting regulatory requirements established by the DEA, the FDA, the EMA or other comparable foreign regulatory authorities;

    §
    the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

    §
    the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;

    §
    costs and timing of the implementation of commercial scale manufacturing activities; and

    §
    the cost of establishing, or outsourcing, sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own.

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To the extent that our capital resources are insufficient to meet our future operating and capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. We have no committed external sources of funds. Additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms, if at all.

If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.

Cash Flows

Three Months Ended March 31, 2014 and March 31, 2015  — The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2014 and March 31, 2015.

   
 
 
Three Months Ended March 31,
 
 
  2014   2015  

Statement of Cash Flows Data:

             

Total net cash provided by (used in):

             

Operating activities

  $ (287,018 ) $ (1,915,429 )

Investing activities

        (6,277 )

Financing activities

    309,411     (33,000 )

Increase (decrease) in cash and cash equivalents

  $ 22,393   $ (1,954,706 )

Operating Activities

For the three months ended March 31, 2014, cash used in operations was $287,018 compared to $1.9 million for the three months ended March 31, 2015. The increase from the comparable 2014 period was primarily the result of increased compensation costs related to an increase in the number of employees hired to support our product development activities as well as higher professional service costs incurred in connection with the preparation for our planned initial public offering.

We expect cash used in operating activities to continue to increase in 2015 as compared to 2014 due to an expected increase in our operating losses associated with ongoing development of our product candidates.

Investing Activities

For the three months ended March 31, 2015, cash used in investing activities was $6,277, representing the cost of computer equipment, furniture and fixtures associated with the establishment of our new corporate headquarters.

Financing Activities

Cash used in financing activities was $33,000 in the three months ended March 31, 2015, representing direct costs related to our planned initial public offering. In the three months ended March 31, 2014, cash provided by financing activities was $309,411, resulting from the issuance of shares of our Series B redeemable convertible preferred stock.

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Years ended December 31, 2013 and December 31, 2014  — The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2013 and December 31, 2014.

   
 
 
Years ended December 31,
 
 
  2013   2014  

Statement of Cash Flows Data:

             

Total net cash provided by (used in):

             

Operating activities

  $ (117,708 ) $ (3,540,655 )

Investing activities

    (2,703 )   (19,717 )

Financing activities

    109,458     12,736,358  

(Decrease) increase in cash and cash equivalents

  $ (10,953 ) $ 9,175,986  

Operating Activities

Net cash used in operating activities for the year ended December 31, 2014 was $3.5 million, including a net loss of $5.7 million, partly offset by $1.9 million of net noncash expenses and a $196,526 net change in operating assets and liabilities. The net noncash expenses were predominantly related to the issuance of shares of common stock valued at $1.9 million for services rendered. The change in operating assets and liabilities was primarily due to a $437,691 decrease in prepaid expenses and other assets and an increase in accounts payable and accrued expenses of $365,642 partly offset by the timing of revenue of $641,321 and expense recognition related to our research activities.

Net cash used in operating activities was $117,708 for the year ended December 31, 2013 including a net loss of $636,790, partly offset by depreciation expense of $49,392 and changes in operating assets and liabilities of $469,690 primarily related to the timing of revenue and expense recognition for research activities.

We expect cash used in operating activities to continue to increase in 2015 as compared to 2014 due to an expected increase in our operating losses associated with ongoing development of our product candidates.

Investing Activities

Cash used in investing activities for the purchases of property and equipment was $19,717 for the year ended December 31, 2014.

Cash used in investing activities for the purchase of property and equipment was $2,703 for the year ended December 31, 2013.

Financing Activities

Cash provided by financing activities of $12.7 million for the year ended December 31, 2014 was primarily due to $12.9 million in net proceeds received on the sale of shares of our Series 1 convertible preferred stock and $309,911 in net proceeds received on the sale of 250,000 shares of our Series B redeemable convertible preferred stock offset by $499,996 used to pay the note payable to KEDFA.

Cash provided by financing activities for the year ended December 31, 2013 was $109,458, reflecting $71,958 of proceeds on the issuance of shares of Series B redeemable convertible preferred stock and $37,500 of proceeds on the collection of stock subscription advances.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, except for operating leases, or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern , which defines management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our financial statements.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, which may result in potential losses arising from adverse changes in market rates, such as interest rates and foreign exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes and do not believe we are exposed to material market risk with respect to our cash and cash equivalents.

We currently have no operations outside the United States, but we have contracted with third parties to manufacture our product candidates and conduct clinical trials outside of the United States. At this time, such manufacturing and research costs are paid for in U.S. dollars and, therefore, are not subject to fluctuations in exchange rates. If we conduct additional clinical trials outside of the United States in the future, we may be required or may choose to pay for those clinical trials in a local foreign currency and could incur foreign currency exchange rate risk.

As of March 31, 2015, we had cash and cash equivalents of $7.4 million consisting primarily of cash and money market accounts. We do not engage in any hedging activities against changes in interest rates or foreign currency exchange rates. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an immediate 10% increase in interest rates would have any significant impact on the realized value of our investments.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an "emerging growth company." As an "emerging growth company," we are electing not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable.

Subject to certain conditions set forth in the JOBS Act, as an "emerging growth company," we are not required to, among other things, (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive

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compensation and performance and comparisons of the chief executive officer's compensation to median employee compensation. These exemptions will apply until the fifth anniversary of the completion of our initial public offering or until we no longer meet the requirements for being an "emerging growth company," whichever occurs first.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On or about September 30, 2014, we dismissed Mountjoy Chilton Medley LLP, or Mountjoy, as our independent public accounting firm.

The audit report of Mountjoy on our financial statements as of and for the fiscal years ended December 31, 2013 and 2012 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except for modifications for uncertainties related to going concern and a change in accounting principle. Those audits were conducted under United States generally accepted auditing standards and not the standards as prescribed by the Public Company Accounting Oversight Board.

In connection with the audit of our financial statements for the fiscal years ended December 31, 2013 and 2012, and for the subsequent interim period through the date of the dismissal of Mountjoy, (i) there were no disagreements with Mountjoy on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to Mountjoy's satisfaction, would have caused Mountjoy to make reference to the subject matter of the disagreement in connection with its report, and (ii) there were no "reportable events," as that term is described in Item 304(a)(1)(v) of Regulation S-K.

On October 20, 2014, we engaged KPMG, to serve as our independent registered public accounting firm and to reaudit the fiscal years ended December 31, 2013 and 2012. The engagement of KPMG has been approved by our board of directors.

During the two most recent fiscal years and in the subsequent interim period through September 30, 2014, neither we, nor anyone acting on our behalf, consulted with KPMG 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 on our financial statements, and no written report nor oral advice was provided by KPMG, or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

We requested that Mountjoy furnish us with a letter addressed to the SEC stating whether it agrees with the above statements. A copy of the letter dated January 12, 2015, is filed as an exhibit to the registration statement of which this prospectus forms a part.

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BUSINESS

Overview

We are a ten-year-old specialty pharmaceutical company focused on developing and commercializing proprietary next-generation synthetic cannabinoid therapeutics formulated for transdermal delivery. Our management team is highly experienced and has a successful history of development, regulatory approval and commercialization of patch and gel transdermal delivery products. We are evaluating two patent-protected product candidates, ZYN002 and ZYN001, in five indications. We intend to study ZYN002 in patients with refractory epilepsy, Fragile X syndrome, or FXS, and osteoarthritis, or OA. We intend to study ZYN001 in patients with fibromyalgia and peripheral neuropathic pain. We believe these product candidates will provide new treatment options for patients, as well as additional treatment options for patients not currently receiving adequate relief from current treatment regimens. We expect to initiate Phase 1 clinical trials in the second half of 2015 for ZYN002 and by mid-2016 for ZYN001. We plan to conduct our Phase 1, and possibly Phase 2, clinical trials for ZYN002 in Australia (subject to applicable regulatory approval), and do not expect at this time to file an IND with the U.S. Food and Drug Administration, or FDA, prior to the commencement of those clinical trials. We must file an IND with the FDA and receive approval from the U.S. Drug Enforcement Agency, or DEA, prior to commencement of any clinical trial in the United States. We plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. We plan to submit New Drug Applications, or NDAs, for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials.

Cannabinoids are a class of compounds derived from Cannabis plants. The two primary cannabinoids contained in Cannabis are cannabidiol, or CBD, and D 9-tetrahydrocannabinol, or THC. Clinical and preclinical data suggest that CBD has positive effects on treating refractory epilepsy, FXS and arthritis and THC has positive effects on treating pain. Interest in cannabinoid therapeutics has increased significantly over the past several years as preclinical and clinical data has emerged highlighting the potential efficacy and safety benefits of cannabinoid therapeutics. The cannabinoid therapeutics market is expected to grow significantly due to the potential benefits these products may provide over existing therapies. In addition to ZYN002 and ZYN001 potentially offering first-line therapies to patients suffering from FXS, OA, fibromyalgia and peripheral neuropathic pain, we believe ZYN002 may provide a complementary treatment for patients suffering from epilepsy who are refractory to their current treatment regimens.

We believe that we offer an attractive alternative to existing cannabinoid therapies by synthetically manufacturing and transdermally delivering our product candidates. Most cannabinoid therapies have drawbacks and limitations due to their botanical (plant-derived) nature, as well as the fact that they are administered orally. Botanical cannabinoids create significant challenges for drug manufacturers because of the natural resources and security measures required to grow Cannabis , as well as the strict batch controls required by regulatory agencies in pharmaceutical manufacturing. In addition, we believe all currently approved and development-stage cannabinoid therapeutics, except ZYN002 and ZYN001, are designed to be administered orally which can lead to limitations in safety and efficacy including low bioavailability, inconsistent plasma levels, degradation by stomach acids, and significant first-pass liver metabolism. First-pass liver metabolism refers to the process by which the liver breaks down therapeutics ingested directly or indirectly through the gastrointestinal system, such as through oral or oral mucosal delivery methods, allowing only a small amount of drug to be absorbed into the circulatory system. In contrast, transdermal therapeutics are absorbed through the skin directly into the systemic circulation, avoiding first-pass liver metabolism and degradation by stomach acids, and potentially enabling lower dosage levels of active pharmaceutical ingredients and rapid and reliable absorption with high bioavailability, fewer negative psychoactive effects and fewer drug-drug interactions.

ZYN002 is the first and only synthetic CBD formulated as a permeation-enhanced gel for transdermal delivery, and is patent-protected through 2030. CBD is the primary non-psychoactive component of Cannabis . In preclinical animal studies, ZYN002's permeation enhancer increased delivery of CBD through

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the layers of the skin and into the circulatory system. These preclinical studies suggest increased bioavailability, consistent plasma levels and the avoidance of first-pass liver metabolism. In addition, an in vitro study performed by us demonstrated that CBD is degraded to THC in an acidic environment such as the stomach. We believe such degradation may lead to increased psychoactive effects, which may be avoided or minimized with the transdermal delivery of ZYN002 which maintains CBD in a neutral pH. ZYN002 is targeting treatment of refractory epilepsy, FXS and OA, which collectively affect millions of patients using treatments that currently comprise a multi-billion dollar market. FXS may qualify for an orphan drug designation in the United States because the number of patients in the United States with FXS is less than 100,000. We have requested orphan drug designation from the FDA in the second half of 2015.

We believe that ZYN002 may provide an effective treatment for refractory epilepsy based on the anticonvulsant effects of CBD shown in multiple third-party in vivo models of epilepsy and the results of a small third-party clinical trial in which CBD-treated epilepsy patients showed improvement. We believe that ZYN002 may provide an effective treatment for FXS based upon the hypothesis that an endocannabinoid deficiency is the underlying cause of abnormal cellular function in FXS, which may enable patients to benefit from therapy with an exogenous cannabinoid. We believe that ZYN002 may provide effective treatment for OA based on animal research that we have conducted, measuring efficacy of ZYN002 for reduction of inflammation and pain in vivo .

ZYN001 is a pro-drug of THC that enables effective transdermal delivery via a patch and is patent-protected through 2031. A pro-drug is a drug administered in an inactive or less active form and designed to enable more effective delivery, which is then converted into an active form through a normal metabolic process. In addition, we expect that ZYN001 will be classified by the FDA as a new chemical entity, or NCE. In our preclinical animal studies, ZYN001 demonstrated effective skin permeation with sustained delivery and rapid conversion of ZYN001 to THC. These preclinical studies suggest increased bioavailability, consistent plasma levels and the avoidance of first-pass liver metabolism. In addition, preclinical toxicology models conducted to date have not shown any toxicology or genotoxicity findings. ZYN001 is targeting two pain indications (fibromyalgia and peripheral neuropathic pain) which collectively affect millions of patients using treatments that currently comprise a multi-billion dollar market.

We believe ZYN001 may provide an effective treatment for fibromyalgia based on the hypothesis that an endocannabinoid deficiency is the underlying cause of fibromyalgia, which may enable patients to benefit from therapy with an exogenous cannabinoid. We believe ZYN001 may have a role in peripheral neuropathic pain management based on THC's activity as a partial agonist of cannabinoid receptors, as a stimulator of the noradrenergic pathway and as an inducer of antinociception, as well as the results of a third-party study suggesting that Cannabis reduces neuropathic pain.

We have assembled a highly experienced management team, each of whom has over 25 years of pharmaceutical industry experience, including our chief executive officer and president, who have a track record of success for obtaining regulatory approval of and commercializing products using transdermal delivery. Armando Anido, our chairman and chief executive officer, previously served as the chief executive officer of two publicly traded companies, Auxilium Pharmaceuticals Inc., or Auxilium, and NuPathe, Inc., or NuPathe. Terri B. Sebree, our president, previously co-founded NuPathe and served as senior vice president, development at Auxilium, and has successfully developed 10 products from IND to regulatory approval. Ms. Sebree most recently oversaw the development and regulatory approval of Testim® gel and Zecuity® patch. Richard A. Baron, our chief financial officer, has extensive experience as chief financial officer of public and private pharmaceutical companies, most recently having served as chief financial officer of Globus Medical, Inc. and, prior to that, at Avid Radiopharmaceuticals, Inc.

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Our key development programs and expected timelines for the development of ZYN002 and ZYN001 are shown in the table below:


Product
Candidate
  Target Indication   Delivery Method   Current
Development
Status
  Expected Next Steps
ZYN002   Refractory Epilepsy   Permeation-enhanced Gel   Preclinical   2H15: Initiate Phase 1
    Fragile X Syndrome           2H16: Initiate Phase 2a
    Osteoarthritis            
ZYN001   Fibromyalgia   Transdermal Patch   Preclinical   Mid-2016: Initiate Phase 1
    Peripheral Neuropathic Pain           1H17: Initiate Phase 2a

Our Strengths

We are the first and only company developing patent-protected synthetic transdermal cannabinoid therapeutics with the following key distinguishing characteristics:

Exceptional and experienced management team with proven track record.     We have a sophisticated and experienced management team, each of whom has over 25 years of pharmaceutical industry experience, including our chief executive officer and president, who have a successful history of development, regulatory approval and commercialization of patch and gel transdermal delivery products. Our management team has extensive pharmaceutical experience spanning a range of indications and a portion of our management team most recently gained regulatory approval and successfully commercialized Testim® Gel at Auxilium and Zecuity® Patch at NuPathe. Our leadership team is well-positioned to lead us through clinical development, regulatory approval and commercialization for our product candidates.

Unique delivery methods.     We are the first and only company developing patent-protected synthetic cannabinoid therapeutics for transdermal delivery. Transdermal delivery is well-established in other FDA approved products, but we believe it is novel to cannabinoid therapeutics. Transdermal delivery has a range of potential benefits including the ability to provide sustained and consistent plasma levels, controlled delivery and convenient dosing, as well as the avoidance of first-pass liver metabolism and stomach acid degradation and an alternative for patients for whom oral formulations are suboptimal.

Synthetically manufactured pure cannabinoid therapeutics.     Our product candidates are synthetically manufactured rather than extracted from Cannabis plants. We believe synthetically produced cannabinoids offer several advantages to botanically derived cannabinoids, including consistent, reproducible pharmaceutical-grade active ingredients, or APIs, with well-defined impurity profiles. Through synthetic manufacturing, we are able to isolate THC and CBD, which allows us to develop product candidates that do not contain the impurities and other compounds found in botanical cannabinoid products, which we believe may improve the therapeutic effect and reduce the potential adverse side effects associated with botanical Cannabis compounds. Synthetic manufacturing also allows for a more efficient chemistry, manufacturing and control, or CMC, process. We believe synthetic manufacturing will allow for a more clearly defined and straightforward FDA approval pathway by avoiding the potential problems faced when seeking approval for product candidates containing botanically derived cannabinoids, which include inconsistent API reproduction and additional toxicology studies related to botanical impurities.

Targeting indications with significant unmet medical need.     We believe that our product candidates can provide effective treatment to patients with significant unmet medical needs in large markets, which will increase the probability of commercial success if our product candidates are approved. We plan to evaluate ZYN002 as adjunctive, second-line therapy in patients with epilepsy who have poor outcomes with standard therapies, which we believe represents an underserved patient population, and as monotherapy, first-line treatment in patients with FXS and OA. We plan to evaluate ZYN001 as monotherapy, first-line treatment of pain in patients with fibromyalgia and peripheral neuropathic pain, which we believe represent significant

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markets of unmet need. We believe these patient populations are large enough to provide us with an attractive commercial opportunity.

Strong intellectual property protection for our product candidates.     Our patent portfolio provides a long window for development and commercialization. The issued patents in the ZYN002 patent portfolio will expire between 2026 and 2029 and the issued patents in the ZYN001 portfolio will expire between 2028 and 2031. Our patent portfolio is not specific to any single indication, which we believe will allow us to develop products for additional patient populations in markets with significant unmet medical need.

Our Business Strategy

Our goal is to become a leader in the cannabinoid pharmaceuticals market by pursuing the following strategies:

Cannabinoid Science Overview

Cannabinoids refer to a unique class of compounds derived from the Cannabis plant. Of the over 70 cannabinoid compounds currently identified, THC and CBD are the primary cannabinoids used for pharmaceutical purposes. THC was identified as the major psychoactive cannabinoid and subsequently found to be a partial agonist of the CB 1 and CB 2 receptors, activation of which stimulates the endogenous noradrenergic pathway, inducing antinociception and suggesting a role for THC in pain management.

CBD, the main non-psychoactive component of Cannabis , has little affinity for the CB 1 and CB 2 receptors. It does, however, produce multiple effects, including blocking the equilibrative nucleoside transporter, the orphan G-protein-coupled receptor GRP55, and the transient receptor potential of melastatin type 8 channel; enhancing activity of 5-HT 1a and glycine receptors and the transient receptor potential of ankyrin type 1 channel; and regulating the intracellular effects of calcium. The influence of CBD on these targets — 

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each of which we believe plays a key role in neuronal excitability — is the scientific basis for its antiepileptic potential.

CBD inhibits fatty acid amide hydroxylase, or FAAH, an enzyme that breaks down anandamide, which is an endogenous cannabinoid ligand, mostly at the CB 1 receptor. Inhibition of FAAH is thought to result in increased anandamide availability and greater CB 1 activation. In addition, CBD inhibition of FAAH increases 2-arachidonoylglycerol, or 2-AG, availability. 2-AG, an endogenous endocannabinoid, activates both CB 1 and CB 2 receptors. Therefore, CBD acts as a facilitator of the endogenous endocannabinoid system, which modifies release of other neurotransmitters from presynaptic terminals. This modulation of neurotransmitter release from presynaptic neurons of various classes is the scientific basis for the use of CBD in the treatment of FXS.

CBD exerts a range of anti-inflammatory effects, including attenuation of the endothelial cell activation, chemotaxis of inflammatory cells, suppression of T-cell macrophage reactivity, and induction of apoptosis of T cells, which suggests a possible therapeutic role in the treatment of OA. CBD's agonist effect on TRPV1 receptors leads to antihyperalgesia, which further suggests a possible role in the treatment of OA. Third-party studies suggest that psychotropic effects of Cannabis are caused by THC, not CBD.

Clinical and preclinical data suggest that THC has positive effects on treating pain and CBD has positive effects on treating epilepsy, FXS and arthritis. Clinical data suggest that THC and CBD have a very high therapeutic index. Interest in cannabinoid therapeutics has increased significantly over the past several years as preclinical and clinical data has emerged highlighting the potential efficacy and safety benefits of cannabinoid therapeutics. Dronabinol and nabilone, oral formulations of THC, have been approved by the FDA. In third-party studies, adverse events from oral THC including dronabinol and nabilone were primarily psychotropic and related to peak plasma levels. Many patients have received CBD-enriched Cannabis and Epidiolex®, a liquid formulation of highly concentrated CBD which is currently in development. The cannabinoid therapeutics market is expected to grow significantly due to the potential benefits these products may provide over existing therapies. For example, opioids are often the standard of care for treating various pain diseases but patients frequently experience adverse side effects, including addiction and opioid-induced constipation. In addition to ZYN002 and ZYN001 potentially offering first-line therapies to patients suffering from FXS, OA, fibromyalgia and peripheral neuropathic pain, we believe ZYN002 may provide a complementary treatment for patients suffering from epilepsy who are refractory to their current treatment regimens.

We believe that we offer an attractive alternative to existing cannabinoid therapies by synthetically manufacturing and transdermally delivering our product candidates. Most cannabinoid therapies have drawbacks and limitations due to their botanical (plant-derived) nature, as well as the fact that they are administered orally. Botanical cannabinoids create significant challenges for drug manufacturers because of the natural resources and security measures required to grow Cannabis , as well as the strict batch controls required by regulatory agencies in pharmaceutical manufacturing. In addition, we believe all currently approved and development-stage cannabinoid therapeutics, except ZYN002 and ZYN001, are designed to be administered orally which can lead to limitations in safety and efficacy including low bioavailability, inconsistent plasma levels, degradation by stomach acids and significant first-pass liver metabolism. In contrast, transdermal therapeutics are absorbed through the skin directly into the systemic circulation, avoiding first-pass liver metabolism and degradation by stomach acid and potentially enabling lower dosage levels of active pharmaceutical ingredients and rapid and reliable absorption with high bioavailability, fewer negative psychoactive effects and fewer drug-drug interactions.

Our Product Candidates

Our patent-protected synthetic transdermal cannabinoid product candidates, ZYN002 and ZYN001, represent next-generation cannabinoid therapeutics for several indications including refractory epilepsy, FXS and OA for ZYN002 and fibromyalgia and peripheral neuropathic pain for ZYN001. Treatments for these indications represent markets with underserved patient populations which we believe can benefit from cannabinoid therapies. We believe our proprietary synthetic transdermal product candidates will effectively

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address these indications and provide a solution to the limitations of botanical and oral and oral mucosal cannabinoid therapeutics.

Our patent-protected synthetic transdermal cannabinoid product candidates, ZYN002 and ZYN001, will be evaluated in five indications beginning with Phase 1 clinical trials commencing in 2015 for ZYN002 and in 2016 for ZYN001. We plan to study ZYN002 in patients with refractory epilepsy, FXS and OA. We plan to evaluate ZYN001 in patients with fibromyalgia and peripheral neuropathic pain. We believe these product candidates will provide new treatment options for patients, as well as additional treatment options for patients not currently receiving adequate relief from current treatment regimens. Additionally, we believe that these indications represent significant unmet medical needs in large markets, which will increase the probability of commercial success if our product candidates are approved.

ZYN002

Overview

ZYN002 is the first and only synthetic CBD formulated as a patent-protected permeation-enhanced gel for transdermal delivery (see Figure 1).

Figure 1 — Chemical structure and delivery of CBD.

GRAPHIC

ZYN002 is being developed as a clear, odorless gel that is designed to provide consistent, controlled drug delivery with convenient once- or twice-daily dosing. Because CBD is virtually insoluble in water, we use ethanol and propylene glycol as solubilizing agents and Transcutol® HP as a permeation enhancer. All excipients in the gel have been classified as GRAS and have been used in transdermal products previously approved by the FDA.

The permeation enhancer in ZYN002 increases the delivery of CBD through the layers of the skin and into the circulatory system.

Transdermal delivery allows the CBD in ZYN002 to avoid stomach acid degradation and the first-pass liver metabolism that occurs with oral or oral mucosal delivery methods. Drugs applied transdermally are absorbed across the skin directly into the systemic circulation, enabling the potential to have rapid and reliable absorption with high bioavailability.

Market Overview

We intend to study ZYN002 in the treatment of refractory epilepsy, FXS and OA.

Epilepsy is a disease characterized by an enduring predisposition to generate epileptic seizures (transient symptoms due to abnormal neuronal activity in the brain) and by the neurobiological, cognitive, psychological, and social consequences of the condition. Partial seizures usually start in a small area of the temporal lobe or frontal lobe of the brain and quickly involve other areas of the brain that affect alertness and awareness. Partial seizures are the most common type of seizure, representing 35% of all epilepsies.

According to Decision Resources, in 2012 there were approximately 2.2 million epilepsy patients in the United States, and treatments for these patients represented a total U.S. market size of approximately $1.7 billion.

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FXS is a genetic condition that causes intellectual disability, anxiety disorders, behavioral and learning challenges and various physical characteristics. The impairment can range from learning disabilities to more severe cognitive or intellectual disabilities. According to the National Fragile X Foundation, FXS affects 1 in 3,600 to 4,000 males and 1 in 4,000 to 6,000 females of all races and ethnic groups. Approximately 1 in 151 women carry the Fragile X gene and could pass it to their children. Approximately 1 in 468 men carry the Fragile X gene and their daughters will also be carriers. FXS is an autism spectrum disorder, and patients with FXS exhibit autism-like symptoms including cognitive impairment, anxiety and mood swings, attention deficit and heightened stimuli. Approximately 7% of women and 18% of men with FXS have seizures. People with FXS are affected throughout their lives. Currently, there are no known cures or approved therapies for the treatment of FXS. Special education and symptomatic treatments for anxiety and irritability are employed to lessen the burden of illness.

FXS is the most common inherited intellectual disability. Based on the 2012 U.S. Census and FXS prevalence rates according to the National Fragile X Foundation, in 2012 there were approximately 71,000 patients with FXS in the United States.

OA is a degenerative joint disease that leads to wear and tear of the joints and affects the cartilage, joint lining, ligaments and bone. It is the most common form of joint disease and tends to occur most often in the hand joints, spine, hip, knees and great toes. It is characterized by the breakdown of the joint cartilage, bony changes in the joints and deterioration of the tendons and ligaments leading to pain and inflammation of the joint lining.

According to Decision Resources, which defines OA as radiographically confirmed OA of any joint, in 2008 it was predicted that the total number of prevalent cases of OA would be approximately 129.5 million by 2012. Treatment for patients suffering from OA represented a total U.S. market size of approximately $670.0 million in 2012.

The table below summarizes our target indications, expected type of therapy and 2012 market size with regard to each target indication for ZYN002.


 
   
  2012 U.S. Market Size (1)
Target Indication   Expected Type Of Therapy   Patient Population   Current Market
Refractory Epilepsy   Adjunctive, second-line therapy in patients with partial seizures with secondary generalization on a stable dose of an anticonvulsant with a history of failure   2.2 million   $1.7 billion
Fragile X Syndrome   Monotherapy, first-line therapy in patients with FXS   71,000   There are no FDA-approved therapies
Osteoarthritis   Monotherapy, first-line therapy in patients with OA   129.5 million   $670.0 million

(1)
Except for FXS data, based on data provided by Decision Resources. Data for epilepsy represents the market size for all types of epilepsy. FXS data based on 2012 U.S. Census data and data provided by the National Fragile X Foundation.

CBD Rationale in Epilepsy, FXS and OA

    Epilepsy —

We believe that ZYN002 may provide an effective treatment for refractory epilepsy based on the anticonvulsant effects of CBD due to its ability to reduce neuronal hyperexcitability shown in multiple in vivo models of epilepsy conducted by third parties. Epilepsy specialists and patient organizations have

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shown considerable interest in the potential therapeutic role of CBD in adults with epilepsy and, especially, children with intractable epilepsy. Two companies have active CBD development programs for the treatment of patients with Dravet's syndrome, or DS, or Lennox Gastaut syndrome, or LGS, both of which are rare and severe forms of pediatric epilepsy. Unlike these cannabinoid-based epilepsy development programs, we are conducting development programs for ZYN002 in a much broader subset of the epilepsy population.

No large-scale, placebo-controlled clinical trials of CBD for the treatment of patients with epilepsy (either pediatric or adult) have been published. However, in a small (fifteen patients), third-party Phase 2 clinical trial, patients with a documented history of epilepsy were treated with crystalline CBD or placebo for up to 4.5 months. A total of 88% of the CBD-treated group had a response to treatment, with 50% of patients experiencing considerable improvement and 38% reporting at least partial improvement.

In separate, uncontrolled work, in a third-party survey of parents who have used CBD-enriched Cannabis to treat seizures in their children with Dravet syndrome, Doose syndrome, or LGS, 84% of parents reported a reduction in seizure frequency while their children were taking CBD-enriched Cannabis .

    Fragile X Syndrome —

We believe ZYN002 may provide an effective treatment for FXS based on its capacity to interact with the endocannabinoid system, which is compromised in patients with FXS. Specifically, CBD indirectly increases the concentration of the cannabinoids 2-AG and anandamide, which are endogenous ligands at the CB 1 and CB 2 receptors. Furthermore, the Fragile X mental retardation protein 1, that is diminished in patients with FXS, is required for the production of 2-AG. 2-AG acts in part by interacting with the CBD receptor. Therefore, FXS results in the reduction of endogenous stimulation of endocannabinoid receptors while CBD facilitates the availability of endogenous endocannabinoids, potentially attenuating the pathophysiology of the disease.

    Osteoarthritis —

We believe that ZYN002 may provide an effective treatment for OA based on research we have conducted. We examined the efficacy of transdermal ZYN002 for reduction of inflammation and pain in vivo , assessing adverse effects in a rat with complete Freund's adjuvant-induced monoarthritic knee. ZYN002 gel (0.6, 3.1, 6.2, or 62.3 mg/day) was applied for four consecutive days after arthritis induction. The level of inflammation was assessed by knee joint circumference and immune cell invasion in histological sections.

Measurement of CBD plasma concentration revealed linearity with daily doses of 0.6 to 6.2 mg of ZYN002. Compared with baseline, rats treated with ZYN002 gel had significant, dose-dependent reductions in knee joint and synovial membrane swelling, immune cell infiltration, and spontaneous pain rating scores ( P £ 0.05). Paw withdrawal latency, or PWL, recovered to near-baseline levels. Immunohistochemical analysis of spinal cord and dorsal root ganglia revealed dose-dependent reductions of pro-inflammatory biomarkers (CD11b/c, CGRP, TNF). The data suggests that topical ZYN002 has the potential to provide effective relief of pain and inflammation caused by OA.

In vitro and Preclinical Studies

In an in vitro study, we evaluated the effects of exposing CBD to acidic conditions. Gastric fluid has a hydrochloric acid (HCl) concentration of 0.1 M which is highly acidic with a pH of 1.5 to 3.0. We exposed CBD to a 0.1 M HCl solution. Upon high-performance liquid chromatography analysis of this solution, we found D -8 THC and D -9 THC compounds formed from the degradation of CBD in this acidic condition. These results suggest that CBD may degrade and form THC if delivered by oral or oral mucosal routes. Figure 2 illustrates the degradation of CBD in an acidic solution.

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Figure 2. Degradation of CBD in an Acidic Solution.

GRAPHIC

The pharmacokinetics, or PK, of ZYN002 has been studied in three animal species: guinea pigs, Sprague-Dawley, or SD, rats and squirrel monkeys. PK refers to a drug's absorption, distribution, metabolism, and excretion from the body and measures, among other things, the concentration of the drug in the plasma. Based upon preclinical studies, the transdermal route of administration of ZYN002 achieves sustained, consistent CBD plasma levels.

    In vivo guinea pig PK —

The PK of CBD in a gel was tested in guinea pigs with and without Transcutol HP, ZYN002's permeation enhancer, in the gel. Plasma concentrations of CBD were measured over the course of 96 hours. CBD with the permeation enhancer demonstrated higher plasma concentrations compared to CBD gel without a permeation enhancer. No skin irritation was shown. Results are reflected in Figure 3.

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Figure 3. CBD plasma concentrations with and without ZYN002 permeation enhancer in guinea pigs.

GRAPHIC

The PK of ZYN002 1% CBD gel was examined in a guinea pig in single and multiple doses. The multiple doses were administered at 24 and 48 hours after the first dose. Blood samples were obtained for 120 hours. The results demonstrated consistent, sustained plasma levels of CBD when ZYN002 was administered transdermally in our patent-protected formulation. No skin irritation was shown. Results are reflected in Figure 4.

Figure 4. CBD plasma concentrations after single and multiple ZYN002 dosing in guinea pig.

GRAPHIC

    In vivo rat PK —

SD rats were studied to examine the efficacy of ZYN002 for reduction in inflammation and pain in a monoarthritic knee model. As part of this study, plasma concentrations of CBD were determined following topical application of ZYN002 in the following dosages: 0.6, 3.1, 6.2 or 62.3 mg/day of daily for four days. Plasma concentrations of CBD from rats dosed with 0.6, 3.1 and 6.2 mg/day of ZYN002 exhibited a linear

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dose response. A linear dose response means the drug delivery is directly proportional to the amount of drug formulation transdermally applied. This proportionality will help us predict human doses of ZYN002 and plasma levels of CBD. No skin irritation was shown. The CBD plasma concentrations are shown in Table 1.

Table 1. CBD Plasma Concentrations in Mono-Arthritic Rat Model.


ZYN002 CBD gel dose (mg/day)
 
Plasma concentrations (ng/ml)
0.6   3.8 ±1.4
3.1   17.5 ±4.4
6.2   33.3 ±9.7
62.3   1629.9 ± 379.0

    In vivo squirrel monkey PK —

In a study of squirrel monkeys, the PK of ZYN002 2.5% CBD gel was examined in single and multiple doses. As part of this study, plasma concentrations of CBD were determined following topical application of ZYN002 in the following doses: 2.7, 5.4, 10.8 and 16.1 mg/day daily for five days. Blood samples were obtained four hours after daily application of ZYN002 gel. Mean CBD plasma concentrations exhibited a linear dose response (Figure 5).

Figure 5. Mean CBD plasma concentrations of squirrel monkeys after increasing doses of ZYN002 2.5% CBD gel.

GRAPHIC

ZYN001

Overview

ZYN001 is a pro-drug of THC that enables effective transdermal delivery via a patch and is patent-protected through 2031. In addition, we expect that ZYN001 will be classified by the FDA as an NCE. The transdermal patch is a non-invasive, non-oral dosage form that has been proven to be an effective method of delivery in other FDA approved products. In our preclinical animal studies, ZYN001 demonstrated effective skin permeation with sustained delivery and rapid conversion of ZYN001 to THC. These preclinical

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studies suggest increased bioavailability, consistent plasma levels and the avoidance of first-pass liver metabolism.

Due to the structure of the skin, its two main layers, the outer epidermis and inner dermis, effectively inhibit the transdermal delivery of most therapeutics. Drugs classified as hydrophobic, such as THC, add an additional impediment to their transdermal delivery through the skin. THC is naturally hydrophobic and thus is unable to be effectively delivered through human skin.

ZYN001 is a pro-drug, which is a drug administered in an inactive or less active form and designed to enable more effective delivery, and then converted into an active form through a normal metabolic process. Chemically, ZYN001 is the synthetic D-glyceric acid ester of THC. Unlike THC, ZYN001 is able to be efficiently absorbed into the skin through transdermal delivery. After crossing the stratum corneum, ZYN001 is hydrolyzed back to THC and glyceric acid under physiological conditions, mainly due to the action of common enzymes in the skin tissue known as "esterases." See Figure 6 below.

Figure 6. Hydrolysis of ZYN001 into glyceric acid and THC.

GRAPHIC

The ZYN001 transdermal patch contains a 4% ZYN001 gel formulation. We intend to test the ZYN001 patch for application to the arm, back and thigh. The drug substance is produced synthetically and is not derived or extracted from botanicals. The excipients in the patch have been classified as Generally Recognized As Safe, or GRAS, and have been used in transdermal products previously approved by the FDA.

As illustrated below in Figure 7, transdermal delivery often provides more consistent plasma levels without the peaks and valleys often associated with an oral dosage form.

Figure 7. Illustration of transdermal delivery.

GRAPHIC

Market Overview

We intend to study ZYN001 for the treatment of fibromyalgia and peripheral neuropathic pain.

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    Fibromyalgia —

Fibromyalgia is a chronic health problem that causes pain throughout the body and other symptoms such as fatigue and cognitive (memory or thought) problems.

According to Decision Resources, in 2012, there were approximately 5.6 million adult fibromyalgia patients in the United States, and pain treatment for these patients represented a total U.S. market size of approximately $1.6 billion.

    Peripheral Neuropathic Pain —

Neuropathic pain is defined as pain initiated or caused by a primary lesion or dysfunction of the central or peripheral nervous systems. In patients with peripheral neuropathic pain, the pain is a symptom of another disease that has caused nerve damage — such as a herniated disc (lower back pain), diabetes (diabetic neuropathy), cancer (neuropathic cancer pain), or herpes zoster infection (postherpetic neuralgia) — but it is recognized as a clinical condition on its own. Because the damage does not involve the brain or spinal cord, the resulting neuropathic pain is defined as peripheral.

According to Decision Resources, in 2012 there were approximately 14.0 million peripheral neuropathic pain patients in the United States, and pain treatment for these patients represented a total U.S. market size of approximately $4.0 billion in 2012.


 
   
  2012 U.S. Market Size (1)
Target Indication   Expected Type Of Therapy   Patient Population   Current Market
Fibromyalgia  

§

Monotherapy, first-line therapy in patients with fibromyalgia

 

§

5.6 million

 

§

$1.6 billion

Peripheral Neuropathic Pain

 

§

Monotherapy, first-line therapy in patients with peripheral neuropathic pain

 

§

14.0 million

 

§

$4.0 billion


(1)
Based on data provided by Decision Resources.

THC Rationale in Pain Indications

    Fibromyalgia —

We believe that ZYN001 may provide an effective treatment for fibromyalgia based on the hypothesis that an endocannabinoid deficiency is the underlying cause of fibromyalgia, which may enable patients to benefit from therapy with an exogenous cannabinoid. Nabilone, a compound which is chemically similar but not identical to THC, has shown significant reduction in fibromyalgia pain in a third-party randomized clinical trial, but it has also been associated with dose limiting psychoactive adverse effects. We believe ZYN001 has the potential to treat fibromyalgia by delivering sustained, consistent plasma levels of THC to provide a therapeutic benefit with minimal psychoactive adverse effects.

    Peripheral Neuropathic Pain —

A strong pharmacologic rationale for the use of ZYN001 in peripheral neuropathic pain provides the experimental basis for our clinical program. Third-party studies in animals have shown that cannabinoid receptors are found in high concentrations in the central nervous system, as well as on peripheral neurons and along the principal nociceptive pathways. The results of a third-party randomized, placebo-controlled clinical trial demonstrated that low-dose vaporized Cannabis may reduce neuropathic pain which we believe suggests a role for THC in peripheral neuropathic pain management.

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Preclinical Studies

In preclinical studies, the transdermal route of administration of ZYN001 achieved consistent THC plasma levels that we believe will deliver therapeutic benefit with minimal psychoactive side effects thereby distinguishing it from oral and oral mucosal delivery systems.

    In vivo guinea pig PK —

The PK of a 4% ZYN001 patch was examined in a hairless guinea pig model by adhering two patches, with a total of 6.25 cm 2 active area, to the guinea pig. PK refers to a drug's absorption, distribution, metabolism, and excretion from the body and measures, among other things, the concentration of the drug in the plasma. The patches remained on the guinea pig for 72 hours, and blood samples were obtained for 103 hours. Plasma samples were analyzed by liquid chromatography-tandem mass spectrometry, or LC/MSMS. ZYN001, THC, and metabolites of THC (hydroxy-THC, or THC-OH, and 11-nor-delta-9-THC carboxylic acid, or TCH-COOH), were measured. No skin irritation or erythema was shown. Results of this study are reflected in Figure 8 below.

Figure 8. Plasma concentration vs time in guinea pig after ZYN001 patch application.

GRAPHIC

ZYN001 achieved a steady-state plasma concentration of total THC equivalents of 6.90 ± 1.47 ng/mL. These results demonstrate that ZYN001 was rapidly converted to THC and sustained, consistent plasma levels of THC were achieved.

    In vivo rat PK —

The PK of ZYN001 was examined in SD rats following a subcutaneous injection of 1 mg/kg of ZYN001 in sesame oil. Plasma samples were obtained and determined by LC/MSMS. Results of this study are shown in Figure 9.

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Figure 9. Plasma concentration vs time in rats after 1 mg/kg subcutaneous administration of ZYN001.

GRAPHIC

This data demonstrated the rapid conversion of ZYN001 to THC in the rat.

Product Development

ZYN002

We have completed an extensive review of the literature related to preclinical toxicology of CBD and completed a mutagenicity study with ZYN002. This review of the literature related to preclinical toxicology was provided to the FDA for a pre-IND meeting held in the first quarter of 2015 and, the FDA confirmed that no further preclinical work is required prior to the initiation of the Phase 1 clinical program. We expect to initiate Phase 1 clinical trials in Australia beginning in the second half of 2015, and Phase 2 clinical trials in each indication in the second half of 2016. We do not expect at this time to file an IND with the FDA prior to the commencement of these trials. Based upon our method of transdermal delivery of ZYN002, we expect that the ZYN002 dosage administered to patients in our clinical trials will be less than 400 mg of CBD. We intend to initiate a standard toxicology program for ZYN002 concurrently with the clinical program. The toxicology program will consist of standard single-dose toxicology, multiple-dose toxicology, reproductive studies and carcinogenicity studies.

Phase 1 Clinical Trial

We plan to evaluate the tolerability and PK profile of ZYN002 in a Phase 1 single rising dose clinical trial in healthy human subjects and in patients with epilepsy. Subsequent to the single rising dose clinical trial, we intend to conduct a Phase 1 multiple rising dose clinical trial to examine the tolerability, PK and pharmacodynamics, or PD, of multiple doses of ZYN002 in healthy human subjects and in patients with epilepsy. To complete the Phase 1 program, we will conduct a bioequivalence clinical trial assessing the PK of ZYN002 when applied to various parts of the body (e.g., arm, thigh and back).

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Phase 2a Clinical Trials

We intend to initiate Phase 2a clinical trials for ZYN002 as outlined in the following table:


 
  Phase 2a Clinical Trials
Target Indication
  Patient Population   Expected Type of Therapy   Design
Refractory Epilepsy   Patients with partial seizures with or without secondary generalization   Adjunctive therapy in patients with partial seizures with secondary generalization on a stable dose of an anticonvulsant with a history of failure   Randomized, double-blind, placebo-controlled trial comparing the efficacy and safety of multiple doses of ZYN002 to placebo

Fragile X syndrome

 

Patients diagnosed with FXS

 

Monotherapy, first-line therapy in patients with FXS

 

Open-label trial to evaluate the efficacy and safety of ZYN002

Osteoarthritis

 

Patients diagnosed with OA

 

Monotherapy, first-line therapy in patients with OA

 

Randomized, double-blind, placebo-controlled trial comparing the efficacy and safety of multiple doses of ZYN002 to placebo

Phase 2b Clinical Trials

Depending on the results of Phase 2a clinical trials, we may need to further define the dosing in Phase 2b trials or we may proceed directly into Phase 3 clinical trials.

Phase 3 Clinical Trials

We intend to use the data from the Phase 2 clinical trials outlined above to select doses of ZYN002 for our Phase 3 program, which will consist of two randomized, double-blind, placebo-controlled clinical trials for each indication and open-label long-term clinical trials.

ZYN001

The standard battery of genotoxicology studies required by the FDA for ZYN001 showed no adverse effects. The safety pharmacology studies required by the FDA demonstrated that ZYN001 has a pharmacology profile consistent with THC. The compound is currently being investigated in preclinical toxicology with completion expected in the first half of 2016. We discussed our planned preclinical studies and clinical trials for ZYN001 with the FDA at a Pre-IND meeting in August 2013. We anticipate initiating Phase 1 clinical trials beginning by mid-2016. Phase 2 clinical trials investigating ZYN001 in each individual indication are planned to begin in the first half of 2017.

Phase 1 Clinical Trial

We plan to evaluate the tolerability and PK profile of ZYN001 in a Phase 1 single rising dose clinical trial in healthy human subjects. Subsequent to the single rising dose clinical trial, we intend to conduct a Phase 1 multiple rising dose clinical trials to examine the tolerability, PK and PD of multiple doses of ZYN001 in healthy human subjects and in patients with fibromyalgia. To complete the Phase 1 program, we will conduct a bioequivalence clinical trial assessing the PK of ZYN001 when applied to various parts of the body (e.g., arm, thigh and back).

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Phase 2a Clinical Trials

We intend to initiate Phase 2a clinical trials for ZYN001 as outlined in the following table:


 
 
 
 
 
Phase 2a Clinical Trials
Target Indication   Patient Population   Expected Type of Therapy   Design

Fibromyalgia

  Patients who meet the American College of Rheumatology criteria for fibromyalgia syndrome   Monotherapy, first-line therapy in patients with fibromyalgia   Randomized, double-blind, placebo-controlled trial comparing the efficacy and safety of multiple doses of ZYN001 to placebo

Peripheral Neuropathic Pain

 

Patients with peripheral neuropathic pain of at least six months' duration

 

Monotherapy, first-line therapy in patients with peripheral neuropathic pain

 

Randomized, double-blind, placebo-controlled trial comparing the efficacy and safety of multiple doses of ZYN001 to placebo


Phase 2b Clinical Trials

Depending on the results of Phase 2a clinical trials, we may need to further define the dosing in Phase 2b clinical trials or we may proceed directly into Phase 3 clinical trials.

Phase 3 Clinical Trials

We intend to use the data from the Phase 2 clinical trials outlined above to select doses of ZYN001 for our Phase 3 program, which will consist of two randomized, double-blind, placebo-controlled clinical trials for each indication and open-label long-term clinical trials.

Intellectual Property

The success of our product candidates will depend in large part on our ability to:

    §
    obtain and maintain patent and other legal protections for the proprietary compounds, technology, inventions and improvements we consider important to our business;

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    prosecute our patent applications and defend our issued patents;

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    preserve the confidentiality of our trade secrets; and

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    operate without infringing the patents and proprietary rights of third parties.

We internally developed our intellectual property related to ZYN002 and ZYN001. We have sought and intend to continue to seek appropriate patent protection for our product candidates, as well as other proprietary technologies and their uses by filing patent applications in the United States and selected other countries.

As of July 31, 2015, we owned a total of seven issued U.S. utility patents and three pending U.S. utility patent applications. These U.S. patents and patent applications will expire between 2029 through 2031. We have already obtained additional patent term for some of the issued patents to compensate us for delays at the U.S. Patent Office, under the patent term adjustment laws. These patents, and any pending

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applications that ultimately issue as patents, may also be eligible for patent term extension for delay caused by FDA regulatory review, thereby further extending their patent terms.

In addition to our U.S. intellectual property, we own 23 corresponding foreign issued patents and 13 corresponding foreign applications, which will expire between 2026 and 2031. Three of the foreign applications are allowed, and should issue as patents in the next several months.

ZYN002

Our ZYN002 patent portfolio currently consists of two issued patents in the United States, five issued patents in France, Germany, Ireland, Switzerland, and the United Kingdom and two pending patent applications in Canada and Japan. The issued patents claim formulations and methods of use relating to ZYN002. The issued patents cover the permeation-enhanced formulation of ZYN002. The issued patents will expire between 2026 and 2029. Any patents that issue from our currently pending patent applications will expire in 2030.

ZYN001

Our ZYN001 patent portfolio currently consists of two issued patents in the United States, one issued patent in Japan, one allowed patent in Europe and patent applications pending in the United States, Europe, Canada and Japan. The issued patents are composition of matter patents one of which covers the chemical structure of the pro-drug ZYN001, the D-glyceric acid ester of THC, and one of which covers other THC pro-drugs. The issued patents will expire between 2028 and 2031. Any patents that issue from our currently pending patent applications will expire in 2028.

Other

The rest of our patent portfolio relates to patents and applications owned by us and directed to other potential product candidates.

U.S. Government Rights

Under 35 U.S.C §202(c), the U.S. government retains certain rights in inventions funded by U.S. government grants. Although we have received U.S. government grants, some of which were used to fund preclinical research related to ZYN002 and ZYN001, the inventions and patent applications covering ZYN002 and ZYN001 were made prior to our receipt of such grants. Therefore, we believe that the U.S. government does not have any rights in those patents and applications pursuant to 35 U.S.C §202(c).

Trade Secrets and Proprietary Information

We seek to protect our proprietary information, including our trade secrets and proprietary know-how, by requiring our employees, consultants and other advisors to execute confidentiality agreements upon the commencement of their employment or engagement. These agreements generally provide that all confidential information developed or made known during the course of the relationship with us be kept confidential and not be disclosed to third parties except in specific circumstances. In the case of our employees, the agreements also typically provide that all inventions resulting from work performed for us, utilizing our property or relating to our business and conceived or completed during employment shall be our exclusive property to the extent permitted by law. Where appropriate, agreements we obtain with our consultants also typically contain similar assignment of invention obligations. Further, we require confidentiality agreements from entities that receive our confidential data or materials.

Manufacturing

The APIs used in ZYN002 and ZYN001 are synthesized by contract manufacturers. We have inventories that we believe will supply API for the preclinical studies required prior to initiation of clinical trials.

We believe synthetically produced API offers several advantages to botanically derived API because it provides a consistent, reproducible substance with a well-defined, constant impurity profile manufactured in FDA approved facilities.

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The ZYN002 gel is manufactured and filled into single unit tubes by a contract manufacturer. The ZYN001 transdermal patch is manufactured by contract manufacturers and sub-component fabricators. The patch is manufactured by a contract manufacturer. The drug product formulation is manufactured and filled into the patch by another contract manufacturer.

We selected our contract manufacturers and sub-component fabricators for their specific competencies in manufacturing, product design, and materials. FDA regulations require that products be produced under current Good Manufacturing Practices, or cGMPs. Our key suppliers currently meet cGMPs and have sufficient capacities to meet our projected product requirements through Phase 3 clinical trials.

Commercial Operations

We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. We may rely on licensing and co-promotion agreements with strategic collaborators for the commercialization of our products in the United States and other territories. If we choose to build a commercial infrastructure to support marketing in the United States, such commercial infrastructure could be expected to include a sales force supported by sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure internally, we would have to invest financial and management resources, some of which would have to be deployed prior to any confirmation that ZYN002 or ZYN001 will be approved.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. We believe our scientific knowledge, technology, and development capabilities provide us with substantial competitive advantages, but we face potential competition from multiple sources, including major pharmaceutical, specialty pharmaceutical, and biotechnology companies; academic institutions; governmental agencies; and public and private research institutions. Successfully developed and commercialized product candidates must compete not only with existing therapies, but also with agents that may become available in the future.

ZYN002

We intend to study ZYN002, our proprietary synthetic CBD product candidate, as an adjunctive, second-line therapy in refractory epilepsy patients who are not well controlled by their current anti-epileptic drug, or AED. We also intend to study ZYN002 in a clinical development program as monotherapy first-line treatment in patients with FXS and OA.

Cannabinoid Competition

Cannabinoids, such as GW Pharmaceuticals, PLC, or GW's Epidiolex® and CBD more generally, have shown promise clinically and anecdotally as a treatment for epilepsy. No CBD products or combination THC/CBD products have been approved in the United States. GW is currently investigating Epidiolex, a liquid formulation of highly concentrated CBD, in the United States for the treatment of DS, (severe, infantile-onset, genetic drug-resistant epilepsy with no FDA approved treatments) and LGS (a rare disorder with onset typically between three and five years of age featuring multiple seizure types with slow spike wave complexes on EEG) and childhood epilepsy syndromes. Insys Therapeutics Inc., or Insys, is also developing a synthetic CBD compound for the treatment of DS, LGS, childhood epilepsy syndromes and glioblastoma.

In the combination THC/CBD space, GW's Sativex®, a plant extract combination of THC/CBD for treatment of spasticity associated with multiple sclerosis, is approved in 27 countries outside the United States as an alternative to baclofen and tizanidine.

Additional activity in this space includes companies supplying synthetic cannabinoids, Cannabis extracts, and herbal Cannabis to researchers for preclinical and clinical investigation.

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General Competition and Standard of Care

Within epilepsy, we intend to treat refractory patients who have not responded to previous treatment with AEDs such as depakote, pregabalin, gabapentin, topiramate, and lacosamide. Second and third generation AEDs continue to improve upon first generation therapies, but experts contend that a better understanding of the disorder accompanied by fundamentally innovative treatments will be required to effectively improve treatment outcomes for the high percentage of patients undertreated by AEDs. The majority of AEDs have frequent safety concerns including serious CNS adverse events and drug-drug interactions.

In FXS, our expected type of therapy is monotherapy, first-line therapy in patients with FXS. There are no drugs approved for the treatment of FXS, although various classes of medications are used off-label for the treatment of behavioral and mental health conditions associated with FXS. Some patients with FXS benefit from medications that treat attention deficient disorders and other patients who experience general anxiety, social anxiety and other chronic conditions may benefit from different types of anti-anxiety medications.

We are aware of several drugs in development for the treatment of behavioral and mental health conditions associated with FXS, including a number of generic drugs used for other indications such as donepezil, memantine, sertraline, and minocycline. Companies developing compounds include Roche, Afraxis, Neuren Pharmaceuticals and Marinus Pharmaceuticals.

In OA, our expected type of therapy is monotherapy, first-line therapy in patients with OA. Currently, no disease-modifying treatments for OA have been approved. Consequently, patients try a multitude of prescription and over-the-counter, or OTC, medications to relieve pain including traditional NSAIDs, Cox-2 inhibitors, centrally acting analgesics, topical analgesics, intra-articular corticosteroids, and hyaluronic acid preparations. Though these products offer varying degrees of pain relief, many also have been shown to cause significant adverse effects including potential addiction.

ZYN001

We plan to pursue two different indications for ZYN001, our proprietary synthetic THC product candidate: fibromyalgia and peripheral neuropathic pain.

Cannabinoid Competition

We believe cannabinoids offer a superior treatment paradigm for patients suffering from pain, providing more controlled delivery and therefore treatment effect along with a much more tolerable safety profile. The Cannabis therapeutic area currently includes formulated extracts of the Cannabis sativa plant and synthetic products, all of which use THC, CBD, or a combination of THC/CBD as the active ingredient. In the United States, two oral capsules — Insys' dronabinol (a synthetic THC) and Meda AB's nabilone (a synthetic derivative of THC) — have been approved and distributed for the treatment of nausea and vomiting associated with cancer chemotherapy in patients who have not responded adequately to conventional antiemetic treatments. Dronabinol capsules are also approved for anorexia associated with weight loss in patients with acquired immune deficiency syndrome, or AIDS. Insys is also seeking FDA approval for an orally administered liquid formulation of dronabinol for treatment of anorexia associated with weight loss in patients with AIDS and nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional antiemetic treatments. Exploratory research into the effects of THC formulations in other indications is also in progress. GW, is also developing Sativex®, a plant extract combination of THC/CBD for treatment of chronic cancer pain and neuropathic pain in an oral mucosal spray.

General Competition and Standard of Care

In fibromyalgia, our expected type of therapy is monotherapy, first-line therapy in patients with fibromyalgia. There are only three drugs approved by the FDA: Pregabalin, duloxetine, and milnacipran. We intend to treat patients whose condition is either newly diagnosed or has not responded to previous treatment with these three currently approved treatments. There is no known cure for the disease and no single therapy is likely to provide significant relief of all symptoms. Low-dose tricyclic antidepressants are prescribed frequently,

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but are associated with various side-effects. Fibromyalgia is also treated using opioids, but, in addition to debate about their efficacy, these can be addictive for many patients.

In peripheral neuropathic pain, our expected type of therapy is monotherapy, first-line therapy in patients with peripheral neuropathic pain. Peripheral neuropathic pain generally is treated with tricyclic antidepressants, anticonvulsants such as duloxetine, depakote, pregabalin, gabapentin and topiramate, and serotonin/norepinephrine reuptake inhibitors, or SNRIs. Although tricyclic antidepressants, anticonvulsants, and SNRIs often show efficacy in treating neuropathic pain, they also have many drawbacks, including poor tolerability with side effects in most patients.

Government Regulation and Product Approval

As a development stage pharmaceutical company that operates in the United States, we are subject to extensive regulation by the FDA, and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and its implementing regulations set forth, among other things, requirements for the research, testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our products. Although the discussion below focuses on regulation in the United States, we anticipate seeking approval for, and marketing of, our products in other countries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the United States, although there can be important differences. Additionally, some significant aspects of regulation in Europe are addressed in a centralized way through the EMA, but country-specific regulation remains essential in many respects. The process of obtaining regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and may not be successful.

U.S. Government Regulation

The FDA is the main regulatory body that controls pharmaceuticals in the United States, and its regulatory authority is based in the FDC Act. Pharmaceutical products are also subject to other federal, state and local statutes. A failure to comply explicitly with any requirements during the product development, approval, or post-approval periods, may lead to administrative or judicial sanctions. These sanctions could include the imposition by the FDA or an institutional review board, or IRB, of a hold on clinical trials, refusal to approve pending marketing applications or supplements, withdrawal of approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution.

The steps required before a new drug may be marketed in the United States generally include:

    §
    completion of preclinical studies, animal studies and formulation studies in compliance with the FDA's good laboratory protocols, or GLP, regulations;

    §
    submission to the FDA of an IND to support human clinical testing in the United States;

    §
    approval by an IRB at each clinical site before each trial may be initiated;

    §
    performance of adequate and well-controlled clinical trials in accordance with federal regulations and with current GCPs to establish the safety and efficacy of the investigational product candidate for each target indication;

    §
    submission of an NDA to the FDA;

    §
    satisfactory completion of an FDA Advisory Committee review, if applicable;

    §
    satisfactory completion of an FDA inspection of the manufacturing facilities at which the investigational product candidate is produced to assess compliance with cGMP, and to assure that the facilities, methods and controls are adequate; and

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    FDA review and approval of the NDA.

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Clinical Trials

An IND is a request for authorization from the FDA to administer an investigational product candidate to humans. This authorization is required before interstate shipping and administration of any new drug product to humans that is not the subject of an approved NDA. A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational product candidate to patients under the supervision of qualified investigators following GCPs, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors. Clinical trials are conducted under protocols that detail the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND. We plan to conduct our Phase 1, and possibly Phase 2, clinical trials for ZYN002 in Australia, subject to applicable regulatory approval, and do not expect at this time to file an investigational new drug application, or IND, with the FDA prior to the commencement of those clinical trials.

In Australia, the approval process for commencing Phase 1 and 2 clinical trials resides with the Human Research Ethics Committee, or HREC. Prior to commencing a clinical trial, a sponsor must submit to the HREC a study protocol, an investigator brochure and a template informed consent for such clinical trial. The HREC approval process generally takes four to eight weeks.

Once a study is approved by the HREC, a Clinical Trial Notification, or CTN, is submitted to the Australian Government Department of Health, Therapeutic Goods Administration, or TGA. The CTN is a notification that the HREC has approved the safety, efficacy and ethical acceptability of the trial, approved the trial protocol and evaluated the scientific merit of the trial. The TGA sends the clinical trial site a written acknowledgement of the clinical trial, allowing the clinical trial to begin. TGA response time to acknowledge a clinical trial is approximately two weeks from receipt of the CTN from the clinical trial site.

We submitted a protocol, an investigator brochure and a template informed consent for our Phase 1 single rising dose clinical trial for ZYN002 to the HREC in June 2015. We believe the approval process will be completed in time to allow us to commence our Phase 1 single rising dose clinical trial for ZYN002 in the second half of 2015.

We must file an IND with the FDA and receive approval from the DEA prior to commencement of any clinical trials in the United States. Subject to the submission of an IND, we plan to conduct our Phase 1 clinical trials for ZYN001 in the United States, subject to applicable regulatory approval. We plan to submit NDAs for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials. The informed written consent of each participating subject is required. The clinical investigation of an investigational product candidate is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or be combined. The three phases of an investigation are as follows:

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    Phase 1.   Phase 1 includes the initial introduction of an investigation product candidate into humans. Phase 1 clinical trials may be conducted in patients with the target disease or condition or healthy volunteers. These studies are designed to evaluate the safety, metabolism, PKs and pharmacologic actions of the investigational product candidate in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness. During Phase 1 clinical trials, sufficient information about the investigational product candidate's PKs and pharmacological effects may be obtained to permit the design of Phase 2 clinical trials. The total number of participants included in Phase 1 clinical trials varies, but is generally in the range of 20 to 80.

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    Phase 2.   Phase 2 includes the controlled clinical trials conducted to evaluate the effectiveness of the investigational product candidate for a particular indication(s) in patients with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the product candidate. Phase 2 clinical trials are

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      typically well-controlled, closely monitored, and conducted in a limited subject population, usually involving no more than several hundred participants.

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    Phase 3.   Phase 3 clinical trials are controlled clinical trials conducted in an expanded subject population at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the investigational product candidate has been obtained, and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the product candidate, and to provide an adequate basis for drug approval. Phase 3 clinical trials usually involve several hundred to several thousand participants. In most cases, the FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacy of the drug.

The decision to terminate development of an investigational product candidate may be made by either a health authority body, such as the FDA or IRB/ethics committees, or by a company for various reasons. The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. In some cases, clinical trials are overseen by an independent group of qualified experts organized by the trial sponsor, or the clinical monitoring board. This group provides authorization for whether or not a trial may move forward at designated check points. These decisions are based on the limited access to data from the ongoing trial. The suspension or termination of development can occur during any phase of clinical trials if it is determined that the participants or patients are being exposed to an unacceptable health risk. In addition, there are requirements for the registration of ongoing clinical trials of product candidates on public registries and the disclosure of certain information pertaining to the trials as well as clinical trial results after completion.

A sponsor may be able to request a special protocol assessment, or SPA, the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim. A sponsor meeting the regulatory criteria may make a specific request for an SPA and provide information regarding the design and size of the proposed clinical trial. An SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the product candidate was identified after the testing began. An SPA is not binding if new circumstances arise, and there is no guarantee that a study will ultimately be adequate to support an approval even if the study is subject to an SPA. We expect to test ZYN002 AND ZYN001 in several advanced stage clinical trials, including Phase 3 clinical trial for which we may request an SPA. Having an SPA does not guarantee that a product will receive FDA approval.

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational product candidate information is submitted to the FDA in the form of an NDA to request regulatory approval for the product in specified indications.

New Drug Applications

In order to obtain approval to market a drug in the United States, a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the product candidate for the proposed indication. The application includes all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product's chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity

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to establish the safety and effectiveness of the investigational product candidate to the satisfaction of the FDA.

In most cases, the NDA must be accompanied by a substantial user fee; there may be some instances in which the user fee is waived. The FDA will initially review the NDA for completeness before it accepts the NDA for filing. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. After the NDA submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review product candidates are reviewed within ten to twelve months. The FDA can extend this review by three months to consider certain late-submitted information or information intended to clarify information already provided in the submission. The FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP. The FDA may refer applications for novel product candidates which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require risk evaluation and mitigation strategies, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

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Disclosure of Clinical Trial Information

Sponsors of clinical trials of certain FDA-regulated products, including prescription drugs, are required to register and disclose certain clinical trial information on a public website maintained by the U.S. National Institutes of Health, or NIH. Information related to the product, patient population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made public as part of the registration. Sponsors are also obligated to disclose the results of these trials after completion. Disclosure of the results of these trials can be delayed until the product or new indication being studied has been approved. Competitors may use this publicly-available information to gain knowledge regarding the design and progress of our development programs.

Advertising and Promotion

The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet. A product cannot be commercially promoted before it is approved. After approval, product promotion can include only those claims relating to safety and effectiveness that are consistent with the labeling approved by the FDA. Healthcare providers are permitted to prescribe drugs for "off-label" uses — that is, uses not approved by the FDA and therefore not described in the drug's labeling — because the FDA does not regulate the practice of medicine. However, FDA regulations impose stringent restrictions on manufacturers' communications regarding off-label uses. Broadly speaking, a manufacturer may not promote a drug for off-label use, but may engage in non-promotional, balanced communication regarding off-label use under specified conditions. Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse publicity and enforcement action by the FDA, the DOJ, or the Office of the Inspector General of HHS, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products.

Post Approval Regulations

After regulatory approval of a drug is obtained, a company is required to comply with a number of post-approval requirements. For example, as a condition of approval of an NDA, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product's safety and effectiveness after commercialization. In addition, as a holder of an approved NDA, a company would be required to report adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of its products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to assure and preserve the long term stability of the drug or biological product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural and substantive record keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon a company and any third-party manufacturers that a company may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

Controlled Substances

The federal Controlled Substances Act of 1970, or CSA, and its implementing regulations establish a "closed system" of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and reporting, storage, manufacturing, distribution, importation and other requirements under the oversight of the DEA. The DEA is the federal agency responsible for regulating controlled substances, and requires those individuals or entities that manufacture, import, export, distribute, research, or dispense

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controlled substances to comply with the regulatory requirements in order to prevent the diversion of controlled substances to illicit channels of commerce.

Facilities that research, manufacture, distribute, import or export any controlled substance must register annually with the DEA. The DEA registration is specific to the particular location, activity(ies) and controlled substance schedule(s). For example, separate registrations are required for importation and manufacturing activities, and each registration authorizes which schedules of controlled substances the registrant may handle. However, certain coincident activities are permitted without obtaining a separate DEA registration, such as distribution of controlled substances by the manufacturer that produces them.

The DEA categorizes controlled substances into one of five schedules — Schedule I, II, III, IV, or V — with varying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for abuse, have no currently "accepted medical use" in treatment in the United States and lack accepted safety for use under medical supervision. They may be used only in federally-approved research programs and may not be marketed or sold for dispensing to patients in the United States. Pharmaceutical products having a currently accepted medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV or V substances, with Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential for abuse and dependence. The regulatory requirements are more restrictive for Schedule II substances than Schedule III substances. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist in most situations, and cannot be refilled. While Cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain Cannabis or Cannabis extracts must be placed in Schedules II-V, since approval by the FDA satisfies the "acceptable medical use" requirement.

The DEA inspects all manufacturing facilities to review security, record keeping, reporting and handling prior to issuing a controlled substance registration. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances handled. The most stringent requirements apply to manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background checks on employees and physical control of controlled substances through storage in approved vaults, safes and cages, and through use of alarm systems and surveillance cameras. An application for a manufacturing registration as a bulk manufacturer (not a dosage form manufacturer or a repacker/relabeler) for a Schedule I or II substance must be published in the Federal Register, and is open for 30 days to permit interested persons to submit comments, objections, or requests for a hearing. A copy of the notice of the Federal Register publication is forwarded by the DEA to all those registered, or applicants for registration, as bulk manufacturers of that substance. Once registered, manufacturing facilities must maintain records documenting the manufacture, receipt and distribution of all controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III narcotic substances, and other designated substances. Registrants must also report any controlled substance thefts or significant losses, and must obtain authorization to destroy or dispose of controlled substances. As with applications for registration as a bulk manufacturer, an application for an importer registration for a Schedule I or II substance must also be published in the Federal Register, which remains open for 30 days for comments. Imports of Schedule I and II controlled substances for commercial purposes are generally restricted to substances not already available from a domestic supplier or where there is not adequate competition among domestic suppliers. In addition to an importer or exporter registration, importers and exporters must obtain a permit for every import or export of a Schedule I and II substance or Schedule III, IV and V narcotic, and submit import or export declarations for Schedule III, IV and V non-narcotics. In some cases, Schedule III non-narcotic substances may be subject to the import/export permit requirement, if necessary to ensure that the United States complies with its obligations under international drug control treaties.

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For drugs manufactured in the United States, the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II that may be manufactured or produced in the United States based on the DEA's estimate of the quantity needed to meet legitimate medical, scientific, research and industrial needs. This limited aggregate amount of Cannabis that the DEA allows to be produced in the United States each year is allocated among individual companies, which, in turn, must annually apply to the DEA for individual manufacturing and procurement quotas. The quotas apply equally to the manufacturing of the active pharmaceutical ingredient and production of dosage forms. The DEA may adjust aggregate production quotas a few times per year, and individual manufacturing or procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments for individual companies.

The states also maintain separate controlled substance laws and regulations, including licensing, recordkeeping, security, distribution, and dispensing requirements. State Authorities, including Boards of Pharmacy, regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could have a material adverse effect on our business, operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.

We currently manufacture the API for ZYN002 and ZYN001 in the United States and Canada and plan to conduct Phase 1 and Phase 2 clinical trials in the United States and Australia, and we may decide to develop, manufacture or commercialize our product candidates in additional countries. As a result, we will also be subject to controlled substance laws and regulations from the Therapeutic Goods Administration in Australia, Health Canada's Office of Controlled Substances in Canada, and from other regulatory agencies in other countries where we develop, manufacture or commercialize ZYN002 or ZYN001 in the future.

The Hatch-Waxman Amendments to the FDC Act

Orange Book Listing

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant's product or a method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA, or 505(b)(2) application. An ANDA provides for marketing of a drug product that has the same active ingredients, same strengths and dosage form, as the listed drug and has been shown through PK testing to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are generally not required to conduct, or submit results of, preclinical studies or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as "generic equivalents" to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug. 505(b)(2) applications provide for marketing of a drug product that may have the same active ingredients as the listed drug and contains full safety and effectiveness data as an NDA, but at least some of this information comes from studies not conducted by or for the applicant. The ANDA or 505(b)(2) applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA's Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA or 505(b)(2) applicant may also elect to submit a statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding a patented method of use rather than certify to such listed method of use patent. If the applicant does not challenge the listed patents by filing a certification that the

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listed patent is invalid or will not be infringed by the new product, the ANDA or 505(b)(2) application will not be approved until all the listed patents claiming the referenced product have expired.

A certification that the new product will not infringe the already approved product's listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA or 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 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 of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) application until the earliest of 30 months, expiration of the patent, settlement of the lawsuit, and a decision in the infringement case that is favorable to the ANDA or 505(b)(2) applicant.

The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

Marketing Exclusivity

Upon NDA approval of a new chemical entity, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot approve any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA for a generic drug that includes the change. A Section 505(b)(2) NDA may be eligible for three-year marketing exclusivity, assuming the NDA includes reports of new clinical studies (other than bioequivalence studies) essential to the approval of the NDA.

An ANDA may be submitted one year before marketing exclusivity expires if a Paragraph IV certification is filed. In this case, the 30 months stay, if applicable, runs from the end of the five year marketing exclusivity period. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.

Additionally, six months of marketing exclusivity in the United States is available under Section 505A of the FDCA if, in response to a written request from the FDA, a sponsor submits and the agency accepts requested information relating to the use of the approved drug in the pediatric population. This six month pediatric exclusivity period is not a standalone exclusivity period, but rather is added to any existing patent or non-patent exclusivity period for which the drug product is eligible.

Patent Term Extension

The term of a patent that covers an FDA approved drug may be eligible for patent term extension, which provides patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extensions on patents covering those products.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of the corporation, including

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international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

European and Other International Government Regulation

In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Some countries outside of the United States have a similar process that requires the submission of a clinical trial application, or CTA, much like the IND prior to the commencement of human clinical trials. In Europe, for example, a CTA must be submitted to each country's national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country's requirements, clinical trial development may proceed.

To obtain regulatory approval to commercialize a new drug under European Union regulatory systems, we must submit a marketing authorization application, or MAA. The MAA is similar to the NDA, with the exception of, among other things, country-specific document requirements.

For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Internationally, clinical trials are generally required to be conducted in accordance with GCP, applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origin in the Declaration of Helsinki.

Compliance

During all phases of development (pre- and post-marketing), failure to comply with applicable regulatory requirements may result in administrative or judicial sanctions. These sanctions could include the FDA's imposition of a clinical hold on trials, refusal to approve pending applications, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, product detention or refusal to permit the import or export of products, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.

Other Special Regulatory Procedures

Orphan Drug Designation

The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or, if the disease or condition affects more than 200,000 individuals in the United States, if there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales in the United States. In the European Union, the EMA's Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union community. Additionally, orphan drug designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug.

In the United States, orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product receives the first FDA approval for the indication for which it has orphan drug designation, the product is entitled to seven years of market exclusivity, which means the FDA may not approve any other application for the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with

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orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.

In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Orphan drug designation must be requested before submission of an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Priority Review (United States) and Accelerated Review (European Union)

Based on results of the Phase 3 clinical trial(s) submitted in an NDA, upon the request of an applicant, a priority review designation may be granted to a product by the FDA, which sets the target date for FDA action on the application at six months from the FDA's decision on priority review application, or eight months from the NDA filing. Priority review is given where preliminary estimates indicate that a product, if approved, has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists, or a significant improvement compared to marketed products is possible. If criteria are not met for priority review, the standard FDA review period is ten months from the FDA's decision on priority review application, or 12 months from the NDA filing. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

Under the Centralized Procedure in the European Union, the maximum timeframe for the evaluation of a MAA is 210 days (excluding "clock stops," when additional written or oral information is to be provided by the applicant in response to questions asked by the Committee for Medicinal Products for Human Use, or CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, which takes into consideration: the seriousness of the disease (e.g., heavy disabling or life-threatening diseases) to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, EMA ensures that the opinion of the CHMP is given within 150 days.

Healthcare Reform

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the associated reconciliation bill, which we refer to collectively as the Affordable Care Act. The Affordable Care Act substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The Affordable Care Act is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the Affordable Care Act's provisions of importance to the pharmaceutical industry are the following:

    §
    an annual, nondeductible fee on any covered entity engaged in manufacturing or importing certain branded prescription drugs and biological products, apportioned among such entities in accordance with their respective market share in certain government healthcare programs;

    §
    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23.1% and 13.0% of the average manufacturer price, or AMP, for most branded and generic drugs, respectively;

    §
    expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

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    §
    a new partial prescription drug benefit for Medicare recipients, or Medicare Part D, coverage gap discount program, in which manufacturers must agree to offer 50.0% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers' outpatient drugs to be covered under Medicare Part D;

    §
    extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

    §
    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133.0% of the Federal Poverty Level, thereby potentially increasing manufacturers' Medicaid rebate liability;

    §
    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

    §
    new requirements to report annually specified financial arrangements with physicians and teaching hospitals, as defined in the Affordable Care Act and its implementing regulations, including reporting any "payments or transfers of value" made or distributed to prescribers, teaching hospitals, and other healthcare providers and reporting any ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations during the preceding calendar year, with data collection required beginning August 1, 2013 and reporting to the Centers for Medicare and Medicaid Services required beginning March 31, 2014 and by the 90th day of each subsequent calendar year;

    §
    a new requirement to annually report drug samples that manufacturers and distributors provide to physicians;

    §
    a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and

    §
    a mandatory nondeductible payment for employers with 50 or more full-time employees (or equivalents) who fail to provide certain minimum health insurance coverage for such employees and their dependents, beginning in 2015 (pursuant to relief enacted by the Treasury Department).

The Affordable Care Act also established an Independent Payment Advisory Board, or IPAB, to reduce the per capita rate of growth in Medicare spending. Beginning in 2014, the IPAB was mandated to propose changes in Medicare payments if it determines that the rate of growth of Medicare expenditures exceeds target growth rates. The IPAB has broad discretion to propose policies to reduce expenditures, which may have a negative impact on payment rates for pharmaceutical products. A proposal made by the IPAB is required to be implemented by the U.S. federal government's Centers for Medicare & Medicaid Services unless Congress adopts a proposal with savings greater than those proposed by the IPAB. The IPAB has not yet been called upon to act as the annual determinations by the CMS Office of the Actuary have not identified a savings target for implementation years 2015 or 2016.

In addition, other legislative changes have been proposed and adopted since passage of the Affordable Care Act. The Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve its targeted deficit reduction of an amount greater than $1.2 trillion for the fiscal years 2012 through 2021, triggering the legislation's automatic reductions to several government programs. These reductions included aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which went into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations.

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Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA approved drugs for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our product candidates, if approved, may not be considered medically necessary or cost-effective. A payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

The Medicare Modernization Act, or MMA, enacted by the U.S. Congress in 2003, changed the way Medicare covers and pays for pharmaceutical products, including creating the Medicare Part D prescription drug benefit, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products.

Existing federal law requires pharmaceutical manufacturers to pay rebates to state governments, based on a statutory formula, on covered outpatient drugs reimbursed by the Medicaid program as a condition of having their drugs paid for by Medicaid. Rebate amounts for a product are determined by a statutory formula that is based on prices defined in the statute: AMP, which must be calculated for all products that are covered outpatient drugs under the Medicaid program, and best price, which must be calculated only for those covered outpatient drugs that are a single source drug or innovator multiple source drug, such as biologic products. Manufacturers are required to report AMP and best price for each of their covered outpatient drugs to the government on a regular basis. Additionally, some state Medicaid programs have imposed a requirement for supplemental rebates over and above the formula set forth in federal law, as a condition for coverage. In addition to the Medicaid rebate program, federal law also requires that if a pharmaceutical manufacturer wishes to have its outpatient drugs covered under Medicaid as well as under Medicare Part B, it must sign a "Master Agreement" obligating it to provide a formulaic discount of approximately 24% known as the federal ceiling price for drugs sold to the U.S. Departments of Defense (including the TRICARE retail pharmacy program), Veterans Affairs, the Public Health Service and the Coast Guard, and also provide discounts through a drug pricing agreement meeting the requirements of Section 340B of the Public Health Service Act, for outpatient drugs sold to certain specified eligible healthcare organizations. The formula for determining the discounted purchase price under the 340B drug pricing program is defined by statute and is based on the AMP and rebate amount for a particular product as calculated under the Medicaid drug rebate program, discussed above.

Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed upon. To obtain reimbursement or pricing approval, some of these

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countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become more intense. As a result, increasingly high barriers are being erected to the entry of new products. The European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. We may face competition for our product candidates from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time.

Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Other Healthcare Laws and Compliance Requirements

In the United States, our activities are potentially subject to additional regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of HHS (for example, the Office of Inspector General), the DOJ and individual U.S. Attorney offices within the DOJ, and state and local governments.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting some business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability. The reach of the Anti-Kickback Statute was broadened by the Affordable Care Act, which, among other things, amends the intent requirement of the federal Anti-Kickback Statute. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes "any

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request or demand" for money or property presented to the U.S. government. Pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies' marketing of the product for unapproved, and thus non-reimbursable, uses. HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by HITECH, and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA's privacy and security standards directly applicable to "business associates" — independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private "qui tam" actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in some states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing specified physician prescribing data to pharmaceutical companies for use in sales and

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marketing, and to prohibit other specified sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

Government Contracts and Grants

To date we have been awarded approximately $7.9 million in state and federal grants which have provided us with funding and resources to continue the development of our product candidates and contributed to research and development efforts outside of our primary therapeutic focus. Approximately $6.0 million of our grant funds have been received from the NIH, and some of these funds support research related to ZYN001.

Scientific Advisors

We have established a clinical advisory board and we regularly seek advice and input from these experienced clinical leaders on matters related to our research and development programs. The members of our clinical advisory board consist of experts across a range of key disciplines relevant to our programs. We intend to continue to leverage the broad expertise of our advisors by seeking their counsel on important topics relating to our product development and clinical development programs. Our scientific advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our clinical advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours. All of our clinical advisors are affiliated with other entities and devote only a small portion of their time to us. Our current clinical advisors are set forth in the table below:


Name
  Title

Jacqueline French, MD

  Professor of Neurology, NYU Langone Medical Center

John Messenheimer, MD

 

Consultant, Neurologist/Epileptologist, John Messenheimer PLLC

Rodney Radtke, MD

 

Professor of Neurology, Duke University Medical Center

Steven J. Siegel, MD, PhD.

 

Professor of Psychiatry, University of Pennsylvania, Perelman School of Medicine; Director, Translational Neuroscience Program; Director, Clinical Neuroscience Track

Daniel Clauw, MD

 

Professor of Anesthesiology, Medicine (Rheumatology) and Psychiatry, University of Michigan

Philip Mease, MD

 

Clinical Professor, University of Washington, Seattle; Director of Rheumatology Research, Swedish Medical Center

Lesley Arnold, MD

 

Professor of Psychiatry and Behavioral Neuroscience, University of Cincinnati

Donald Abrams, MD

 

Professor of Clinical Medicine, University of California San Francisco School of Medicine; Chief of Hematology/Oncology, San Francisco General Hospital

Miroslav Backonja, MD

 

Clinical Professor, University of Wisconsin School of Medicine and Public Health; Medical Director, CRILifetree

Mark Wallace, MD

 

Professor of Clinical Anesthesia, University of California San Diego


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Corporate History and Information

We were incorporated in Delaware in January 2007 under the name AllTranz Inc., and in June 2007 we merged with AllTranz LLC, a Kentucky limited liability company that was founded in 2004 by Audra Stinchcomb, a pharmacologist and transdermal expert, with Alltranz, Inc. surviving. In May 2014, we were reorganized and recapitalized pursuant to an agreement and plan of merger whereby BCM Partners IV, Corp. a non-operating entity owned by BCM X1 Holdings, LLC and Audra Stinchcomb, two of our principal stockholders at that time, was merged with and into Alltranz, Inc., with Alltranz, Inc. surviving. In August 2014, AllTranz, Inc. changed its name to Zynerba Pharmaceuticals, Inc. See "Certain Relationships and Related Party Transactions — Agreements with Broadband Capital Management — Agreement and Plan of Merger" in this Prospectus.

Transitional Agreements

Following our recapitalization and reorganization in May 2014 and as part of our transition to narrow our focus on ZYN002 and ZYN001, we completed the following material transactions related to obligations to third parties and intellectual property:

Albany College of Pharmacy

In August 2014 we entered into a patent assignment consideration agreement, or ACP Agreement, with Albany College of Pharmacy, or ACP, pursuant to which we paid ACP a lump sum of $500,000 in exchange for the termination of a royalty agreement executed in December 2004. In December 2004 ACP assigned to us all of the rights, title and interest to certain patent applications directed to transdermal delivery of cannabinoids and to any divisionals, reissues, continuations, continuations in-part (including patents related to ZYN002), renewals, extensions, revisions and foreign counterparts thereof resulting from research performed at ACP, or the Assigned Rights. In connection with the assignment, we entered into a royalty agreement with ACP under which we would have been obligated to pay ACP a royalty on net income from licenses or sales related to the Assigned Rights. While the assigned patent applications are no longer pending and did not result in any issued patents, we entered into the ACP Agreement to eliminate any obligation to pay royalties to ACP in connection with the Assigned Rights. Under the ACP Agreement ACP also acknowledged and confirmed the validity and binding effect of the original assignment by ACP of the Assigned Rights, which are exclusively held by the Company.

Buzzz Pharmaceuticals Ltd.

In October 2014 we entered into a termination and release agreement, or Termination Agreement, with Buzzz Pharmaceuticals Ltd., or Buzzz, pursuant to which the parties mutually terminated a development services agreement, an option agreement and a license agreement, all of which related to certain research studies for the development of an abuse deterrent transdermal system for delivery of oxymorphone and other opioids. In accordance with the Termination Agreement, we assigned to Buzzz, for no monetary consideration, all of our right, title and interest in and to one patent in the United States, which had been exclusively licensed to Buzzz under the license agreement, one patent application in the United States, which arose out of work performed in connection with the development services agreement and their respective foreign equivalents. The transferred patent and patent application are directed to abuse deterrent transdermal formulations containing opioids. In addition, we transferred to Buzzz, documents, data and other know-how directly related to the assigned patent and patent application and the work performed by us under the development services agreement with Buzzz. By entering into the Termination Agreement, we eliminated our obligations to perform extensive research and development outside our primary therapeutic focus area and to engage in an ongoing licensing relationship with Buzzz. We believe that the transfer of the patent, patent application and know-how to Buzzz under the Termination Agreement will not impact development of ZYN002 or ZYN001.

Under the Termination Agreement, the parties also agreed to a mutual general release of claims arising prior to the effective date of the Termination Agreement, excluding claims related to a breach of, or inaccurate representation or warranty made under, the termination and release agreement. Buzzz also agreed not to

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directly or indirectly compete with us in the market relating to transdermal or topical products containing THC or CBD, including any pro-drugs thereof, for a period of two years following the effective date of the termination and we agreed not to directly or indirectly compete with Buzzz in the market relating to oxymorphone products, including oxymorphone abuse deterrent products, for the same time period. We also covenanted not to sue Buzzz or any of our former employees specifically related to past, present or future work performed by such former employees for Buzzz in connection with an abuse deterrent patch to deliver specified opioid compounds. However, neither this covenant nor any other provision in the Termination Agreement prevents us from filing suit against Buzzz or any of our former employees in connection with any breach by Buzzz or any former employee of any surviving, existing or ongoing confidentially obligations they have to us.

Kentucky Economic Development Finance Authority

In September 2014, we repaid in full an outstanding $500,000 loan from the Kentucky Economic Development Finance Authority, or KEDFA, issued under a forgivable loan agreement dated April 2007, which was amended in December 2012. Under the forgivable loan agreement, our intellectual property, as specified in the agreement, was subject to a conditional assignment to KEDFA as security for the loan. Upon our repayment of the loan in full, KEDFA executed and delivered to us a full release and cancellation of the conditional assignment and security interest in and liens on our intellectual property.

Legal Proceedings

We are not currently a party to any legal proceedings.

Employees

As of July 31, 2015, we had seven full-time equivalent employees. In addition to our full-time employees, we contract with third-parties for the conduct of certain preclinical, manufacturing, accounting and administrative activities. We have no collective bargaining agreements with our employees and none are represented by labor unions.

Property

Our company headquarters are located in Devon, Pennsylvania where we occupy approximately 3,800 square feet of office space pursuant to a five-year lease which expires on May 31, 2020. In addition, one of our employees works in Covington, Kentucky where we lease office space and a shared conference room and business facilities pursuant to a lease agreement that expires in September 2015.

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MANAGEMENT

Executive Officers, Directors and Director Nominees

The following table sets forth information regarding our current executive officers and the directors and director nominees:


Name
  Age   Position(s)

Executive Officers

         

Armando Anido

    57   Chairman and Chief Executive Officer

Terri B. Sebree

    57   President

Richard A. Baron

    59   Chief Financial Officer and Treasurer

Suzanne M. Hanlon

    58   Secretary, General Counsel and Vice President, Human Resources

Directors and Director Nominees

         

Philip R. Wagenheim

    44   Director

Steven Gailar

    68   Director

Warren D. Cooper, MB, BS, BSc, MPFM

    62   Director Nominee

William J. Federici

    56   Director Nominee

Thomas L. Harrison, LH.D

    67   Director Nominee

Daniel L. Kisner, MD

    68   Director Nominee

Kenneth I. Moch

    60   Director Nominee

Cynthia A. Rask, MD

    61   Director Nominee

Executive Officers

Armando Anido   has served as chairman of our board of directors and as our chief executive officer since October 2014. Prior to joining our company, Mr. Anido served as our business consultant from May 2014 to October 2014. Mr. Anido has more than 30 years of executive, operational and commercial leadership experience in the pharmaceutical industry. Mr. Anido served as chief executive officer and as a director of NuPathe, Inc., or NuPathe, a publicly-traded specialty pharmaceutical company, from July 2012 through March 2014, during which time he led the company through FDA approval of its lead product, Zecuity, a transdermal patch for migraines. Prior to joining NuPathe, Mr. Anido served as chief executive officer and president and as a director of Auxilium Pharmaceuticals, Inc., or Auxilium, a specialty pharmaceutical company, from July 2006 through December 2011, where he led the company through FDA approval and commercialization of its lead product, Testim, a testosterone gel. Mr. Anido served as a director of Respira Therapeutics, Inc., a pharmaceutical company, from May 2012 through September 2014 and as a director of Adolor Corporation, a pharmaceutical company, from September 2003 through December 2011. Mr. Anido was retired from January 2012 through June 2012. Mr. Anido holds a B.S. in Pharmacy and an MBA, both from West Virginia University. With more than 35 years of experience in the pharmaceutical industry, Mr. Anido brings valuable executive, operational and commercial expertise to our board of directors.

Terri B. Sebree   has served as our president since October 2014, and served as our treasurer from October 2014 to December 2014. Prior to joining our company, Ms. Sebree served as our business consultant from May 2014 to October 2014. Ms. Sebree has more than 30 years of executive, development and operational experience in the pharmaceutical industry, particularly in central nervous system product development including epilepsy and pain. Ms. Sebree founded and served as president of NuPathe, a specialty pharmaceutical company, from February 2005 until April 2014, where she led the effort to develop, achieve regulatory approval for and complete manufacturing of the company's lead product, Zecuity, a transdermal patch for migraines. Prior to founding NuPathe, Ms. Sebree served as senior vice president, development of

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Auxilium, a specialty pharmaceutical company, where she led the development and approval program of Testim, a testosterone gel. Prior to joining Auxilium, Ms. Sebree served as executive vice president, U.S. Operations at IBAH, Inc., a contract research organization. Prior to that, Ms. Sebree served in a variety of management roles with Abbott Laboratories Inc., a global healthcare company, for over nine years. Ms. Sebree currently serves on the board of directors of Serodus ASA, a publicly traded company on the Oslo Stock Exchange. Ms. Sebree holds a B.S. from Texas A&M University.

Richard A. Baron   has served as our chief financial officer and treasurer since January 2015. Prior to joining our company, Mr. Baron served as senior vice president and chief financial officer of Globus Medical Inc., a publicly traded musculoskeletal implant manufacturer, from January 2012 to December 2014. Prior to joining Globus Medical Inc., Mr. Baron served as an independent consultant to various early stage biotech and technology companies from April 2011 to January 2012. From May 2008 through April 2011, Mr. Baron served as vice president, finance and chief financial officer of Avid Radiopharmaceuticals, Inc., a biotech company that developed an imaging agent for Alzheimer's, which was sold to Eli Lilly and Company in November 2011. Mr. Baron served as chief financial officer for eResearch Technology, Inc. from February 2007 to June 2008, and for Animas Corporation from May 2000 through its sale to Johnson & Johnson in February 2006. Prior to that time, Mr. Baron served as chief financial officer for Genex Services, LLC, a managed care provider for workers compensation and disability, and Marsam Pharmaceuticals Inc., a generic manufacturer of injectable anti-infectives. Mr. Baron also sits on the board of directors of Apire Bariatric, Inc. and EIC Solutions, Inc., both privately held companies. Mr. Baron holds a B.S. in Economics, with a concentration in Accounting, from the Wharton School of the University of Pennsylvania.

Suzanne M. Hanlon   has served as our secretary, general counsel and vice president, human resources since October 2014. Prior to joining our company, Ms. Hanlon served as our legal consultant from May 2014 to October 2014. Ms. Hanlon has more than 25 years of legal experience in the pharmaceutical industry. Ms. Hanlon served as vice president, associate general counsel of NuPathe from July 2005 to April 2014, where she worked with Mr. Anido and Ms. Sebree on the regulatory approval of Zecuity, a transdermal patch for migraines. Prior to joining NuPathe, Ms. Hanlon served as chief development counsel of Auxilium, a specialty pharmaceutical company. Prior to joining Auxilium, Ms. Hanlon served as vice president of global contracts and general counsel at IBAH, Inc. Prior to joining IBAH, Inc., Ms. Hanlon was a partner at Montgomery McCracken Walker & Rhoads LLP. Ms. Hanlon holds a B.A. from Pennsylvania State University and a J.D. from Villanova University School of Law.

Non-Employee Directors and Director Nominees

Philip R. Wagenheim   has served as one of our directors since May 2014 and served as our president from May 2014 until October 2014. Mr. Wagenheim intends to resign from our board of directors upon the closing of this offering. Mr. Wagenheim co-founded and has served as vice chairman of Broadband Capital Management, or BCM, a broker-dealer, since January 2000 and has served as secretary and as a director of BCM since May 2011, and as president of Committed Capital Acquisition Corporation II, a blank check company that was formed for the purpose of acquiring or merging with an operating business, since February 2012. Mr. Wagenheim served as secretary and as a director of Committed Capital Acquisition Corporation, a blank check company that consummated a business combination with The One Group, LLC in October 2013, from March 2006 through October 2013. Mr. Wagenheim holds a B.A. in Business Administration from the University of Miami. Mr. Wagenheim's experience as a co-founder and vice-chairman of BCM, as well as his business experience and education make him a valuable member of our board of directors.

Steven Gailar   has served as one of our directors since November 2013. Mr. Gailar intends to resign from our board of directors upon the closing of this offering. Mr. Gailar has served as Managing Partner of Kentucky Seed Capital Fund I, L.P., a company that invests in early-stage Kentucky or Louisville metropolitan-based businesses that specialize in biomedical and healthcare services, medical device development and healthcare information technology, since 2005. Mr. Gailar previously served as president

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and chief executive officer and as a director of MetaCyte Business Lab, LLC, a company that co-founds and provides start-up services to early-stage companies, from December 2004 through December 2012. Prior to MetaCyte Business Lab, LLC, Mr. Gailar held various management positions in finance, sales and marketing at Eli Lilly and Company, a global pharmaceutical company, from July 1973 to June 1987, served as president and chief executive officer of Marlstone Corporation, a rational drug design firm, from September 1988 through June 1990 and served as managing director of Senmed Medical Ventures, a private evergreen venture capital firm making investments in university spin-outs and mid- to late-stage private life sciences companies, from July 1992 through April 2003. Mr. Gailar has served as a director of numerous early stage life sciences companies from July 1992 through the present. Mr. Gailar holds a B.A. from Indiana University and a M.S. in Industrial Administration from Purdue University. Mr. Gailar has more than 35 years of experience in managing and investing in life sciences companies, which makes him a valuable member of our board of directors.

Warren D. Cooper, MB, BS, BSc, MPFM will serve on the board of directors upon the closing of this offering. Dr. Cooper is a U.K.-trained physician with more than 35 years of experience in the global pharmaceutical industry. Dr. Cooper currently serves as the president of Coalescence Inc., a healthcare and pharmaceutical development consultancy, where he has held various positions since 1999. Dr. Cooper was the chief executive officer of Prism Pharmaceuticals, Inc., a venture-backed, specialty pharmaceutical company that he led from inception in September 2004 until the sale of the Company to Baxter International in May 2011. His career in the pharmaceutical industry began with Merck, Sharp and Dohme and spanned 12 years, initially as a clinical research physician in the United Kingdom, then as head of European and, subsequently, Worldwide Clinical Research Operations for Merck Research Laboratories across all therapeutic areas. Moving to AstraMerck (now AstraZeneca PLC) in a broad clinical development role, he eventually led that company's cardiovascular business division, a role with full business lifecycle leadership from in-licensing through development, to P&L responsibility for sales and marketing. Dr. Cooper is a member of the Faculty of Pharmaceutical Medicine of the Royal Colleges of Physicians of the United Kingdom. He has previously served on the boards of directors of Nutrition 21, Inc., Nuron Biotech Inc., Cardiorentis AG and the World Affairs Council of Philadelphia. Dr. Cooper studied at the London Hospital where he earned degrees in Physiology (1974) and Medicine and Surgery (1977) granted by the University of London.

William J. Federici will serve on the board of directors upon the closing of this offering. Mr. Federici has served as vice president and chief financial officer of West Pharmaceutical Services, Inc., a publicly traded global pharmaceutical technology company, since August 2003. He served as a member of the board of directors at NuPathe and chairman of the Audit committee from January 2011 until February 2014. From June 2002 until August 2003, he was national industry director for Pharmaceuticals of KPMG LLP, and prior thereto, he was an audit partner with Arthur Andersen, LLP. Mr. Federici holds a B.A. in Economics and an M.B.A. in Professional Accounting from Rutgers University and is a Certified Public Accountant.

Thomas L. Harrison, LH.D will serve on the board of directors upon the closing of this offering. Dr. Harrison is a noted author and speaker and since April 2013, has served as chairman emeritus of Diversified Agency Services, the world's largest group of marketing services companies, and a division of Omnicom Group, Inc., or Omnicom. In 1987 he founded Harrison & Star Business Group, a healthcare marketing agency that was acquired by Omnicom in 1992. From 1992 until 1997, he served as chairman of the Harrison & Star Group and chairman of diversified healthcare communications for Omnicom. In 1997, Dr. Harrison was appointed president of diversified agency services, and in 1998 was named chairman and chief executive, serving until 2011. In 1980 he began his agency career at Rolf Werner Rosenthal, a mid-sized healthcare advertising agency. From 1974 until 1980 he served in sales and marketing roles at Pfizer, Inc. Dr. Harrison is a member of the Executive Committee of the Montefiore Hospital, a fellow of the New York Academy of Medicine, and governor of the New York Academy of Sciences where he sits on the Sackler Global Nutrition Committee. In 2013, Dr. Harrison became a partner and board member of Dipexium Pharmaceuticals, Inc. and a board member of rVue Inc., a digital out-of-home media company. In 2014, he

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was appointed to the boards of Social Growth Technologies, Inc. and of Fifth Street Asset Management Inc. where he serves as chairman of the Audit committee. He previously served as a board member of the New York Chapter of the Arthritis Foundation; a board member for ePocrates, Inc., a publicly traded healthcare information company, until its March 2013 acquisition by athenahealth, Inc.; and The Morgans Hotel Group (2006-2013). Dr. Harrison holds an advanced degree in Cell Biology and Physiology and received an honorary doctorate from West Virginia University in 2007.

Daniel L. Kisner, MD will serve on the board of directors upon the closing of this offering. Dr. Kisner has served as an independent consultant to the pharmaceutical/biotech industry since 2011. From 2003 until 2011 he served as a venture partner/partner at Aberdare Ventures, a venture firm with a focus on investing in healthcare technology companies. Prior to that he was president and chief executive officer of Caliper Technologies Corp., or Caliper, from 1999 until 2003, and served as chairman of Caliper until 2008. He led Caliper from a startup dealing with microfluidic lab-on-a-chip technology to a publically traded commercial company. From 1991 until 1999 He served as chief operating officer and president of Isis Pharmaceuticals, Inc., a biomedical pharmaceutical company. Previously, Dr. Kisner was division vice president of Pharmaceutical Development at Abbott Laboratories and vice president of Clinical Research at SmithKline Beckman Laboratories. In addition he previously held a tenured position at the University of Texas School of Medicine at San Antonio and is certified by the American Board of Internal Medicine in Internal Medicine and Medical Oncology. Dr. Kisner served on the board of directors of Tekmira Pharmaceuticals from 2010 until March 2015, and he currently serves on the boards of directors of Dynavax Technologies Corporation, Lpath, Inc. and Conatus Pharmaceuticals Inc. He holds a B.A. degree from Rutgers University and an M.D. from Georgetown University.

Kenneth I. Moch will serve on the board of directors upon the closing of this offering. Mr. Moch has more than 25 years of experience in managing and financing biomedical technologies, and has played a key role in building five life science companies. He is currently the president of Euclidean Life Science Advisors LLC, where he provides strategic and tactical counsel to the biotechnology and pharmaceutical industries. Prior to that, he served as president and chief executive officer, and as a director, of Chimerix, Inc. from April 2010 to April 2014, having joined the company as chief operating officer in June 2009. Previously, he was president and chief executive officer of three life science companies—BioMedical Enterprises, Inc., Alteon, Inc., and Biocyte Corporation—and was a co-founder and vice president of The Liposome Company, Inc. He also served as managing director of Healthcare Investment Banking at ThinkEquity Partners and as a management consultant with McKinsey & Company. In the public policy arena, Mr. Moch has served as chairman of BioNJ and as a member of the board of the Biotechnology Industry Organization, and is a member of the National Advisory Board of the Johns Hopkins Berman Institute of Bioethics. Mr. Moch received an A.B. in Biochemistry from Princeton University and an M.B.A. with emphasis in Finance and Marketing from the Stanford Graduate School of Business.

Cynthia A. Rask, MD will serve on the board of directors upon the closing of this offering. Dr. Rask has more than 20 years of experience working in the pharmaceutical/biotech industry, seven years of FDA experience, and several years of experience as a clinical neurologist and clinical investigator. Dr. Rask trained in Internal Medicine and Neurology at the University of Rochester and is board-certified in Neurology. Following her residency, she did a fellowship in Epilepsy at the Minnesota Comprehensive Epilepsy Program (MINCEP), and is board certified in Clinical Neurophysiology. She was an assistant professor of Neurology at the University of Minnesota and at Dartmouth College. In 1991, she began her industry career at Abbott Laboratories working on development of a new antiepileptic drug, then joined Genentech Inc. where she led efforts on developing neurotrophic factors for treatment of various types of neuropathic pain. In January of 1999 Dr. Rask began working at the FDA, first as a medical reviewer on INDs and BLAs; in 2002 she was appointed as the division director for the Division of Clinical Evaluation and Pharmacology/Toxicology in the Office of Cellular, Tissue and Gene Therapies (OCTGT). Beginning in 2004, she also served as the acting deputy office director in OCTGT, helping to develop FDA policies and guidance documents and manage the office budget until leaving FDA in June of 2005 to return to the San

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Francisco Bay area to join a non-profit pharmaceutical company as vice president of Development, an organization funded primarily by grants from the Gates Foundation. In 2006, Dr. Rask began her own consulting company and has worked for a variety of clients including biotech and pharmaceutical companies, ranging in size from small startups to medium and large pharma, academic groups, including Harvard University and the Huntington Study Group, and non-profit organizations, including The Michael J. Fox Foundation. She is a graduate of Cornell University and the University of Minnesota Medical School.

Board Composition

Our business and affairs are managed under the direction of our board of directors, which currently consists of three members, two of whom intend to resign upon the closing of this offering. We expect that upon the closing of this offering, our board of directors will consist of seven members. Upon the closing of this offering, we intend to appoint Warren D. Cooper, MB, BS, BSc, MPFM, William J. Federici, Thomas L. Harrison, LH.D, Daniel L. Kisner, MD, Kenneth I. Moch and Cynthia A. Rask, MD to our board of directors and they have consented to serve. Philip R. Wagenheim and Steven Gailar intend to resign from our board of directors upon the closing of this offering.

Upon the closing of this offering, our sixth amended and restated certificate of incorporation and amended bylaws will provide that our board of directors will consist of a number of directors to be fixed exclusively by resolution of the board of directors. Each of our current directors and, once appointed, our director nominees shall serve a term expiring at the annual meeting of stockholders to be held in 2016 after which directors will be elected to annual terms.

Role of the Board in Risk Oversight

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including adopting guidelines and policies to govern the process by which risk assessment and management is undertaken. While our board of directors maintains the ultimate oversight responsibility for the risk management process, its committees oversee risk in certain specified areas. Our audit committee oversees management of enterprise risks and financial risks, as well as potential conflicts of interests. Additionally, our compensation committee is responsible for overseeing management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our nominating and corporate governance committee is responsible for overseeing management of risks associated with the independence of our board of directors. Pursuant to our board of directors' instruction, our management regularly reports on applicable risks to the relevant committee or the board of directors, as appropriate, with additional review or reporting on risks conducted as needed or as requested by our board of directors and its committees.

Board Committees

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee will operate under a charter that was approved by our board of directors and will be available on our website, www.zynerba.com, under the "Investor Relations" section, upon the effective date of the registration statement of which this prospectus is a part. The information contained in, or that can be accessed through, our website is not part of this prospectus.

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Audit Committee

Upon the closing of this offering, our audit committee will consist of Messrs. Federici and Moch and Dr. Cooper, and will be chaired by Mr. Federici. The primary purpose of our audit committee is to assist the board of directors in the oversight of our accounting and financial reporting processes, the audit and integrity of our financial statements, and the qualifications and independence of our independent auditor, and to prepare any reports required of the audit committee under the rules of the SEC. The audit committee has the following responsibilities, among other things, as set forth in the audit committee charter that will be effective upon the closing of this offering: